AGREEMENT AND PLAN OF MERGER Dated as of October 12, 2007 by and among Commerce Planet, Inc., I-Corp. Merger Sub, LLC, I-Corp. Acquisition Sub, Inc., Iventa Corporation, the Designated Stockholders identified herein, Jamison Stafford, and Jamison...
Exhibit
2.1
AGREEMENT
AND PLAN OF MERGER
Dated
as of October 12, 2007
by
and among
Commerce
Planet, Inc.,
I-Corp.
Merger Sub, LLC,
I-Corp.
Acquisition Sub, Inc.,
Iventa
Corporation,
the
Designated Stockholders identified herein,
Xxxxxxx
Xxxxxxxx, and
Xxxxxxx
Xxxxxxxx, as Stockholder Representative.
THIS
AGREEMENT AND PLAN OF MERGER dated as of October 12, 2007 (this
"Agreement"), is made and entered into by and among Commerce Planet,
Inc., a Utah corporation ("Buyer"), I-Corp. Merger Sub, LLC, a California
limited liability company and wholly-owned subsidiary of Commerce Planet,
Inc.
("Merger Sub"), I-Corp. Acquisition Sub, Inc., California corporation
("Acquisition Sub"), Iventa Corporation, a California (the
"Company"), each of the Company's stockholders identified on Exhibit
A hereto (each a "Designated Stockholder" and collectively the
"Designated Stockholders"), and Xxxxxxx Xxxxxxxx, individually, and in
his capacity as Stockholder Representative.
WHEREAS,
Buyer owns all of the issued and outstanding membership interests in Merger
Sub;
WHEREAS,
Buyer owns all of the issued and outstanding shares of capital stock of
Acquisition Sub;
WHEREAS,
the Designated Stockholders wish to cause the Company to be merged with
Acquisition Sub and Buyer wishes to cause Acquisition Sub to be merged with
and
into the Company (the "Reverse Merger"), with the Company surviving the
Reverse Merger (the "Reverse Merger Surviving Corporation");
WHEREAS,
immediately following the Reverse Merger, Buyer will cause the Reverse Merger
Surviving Corporation to merge with and into I-Corp. Merger Sub, LLC (the
"Subsequent Merger"), with I-Corp. Merger Sub, LLC surviving the
Subsequent Merger (the "Subsequent Merger Surviving
Entity");
WHEREAS,
the Reverse Merger, the Subsequent Merger and the other transactions
contemplated hereby or by the other Transaction Documents are sometimes
collectively referred to herein as the "Transactions;"
WHEREAS,
the parties hereby adopt this Agreement as a "plan of reorganization" within
the
meaning of Treasury Regulations Section 1.368-2(g) with respect to the Reverse
Merger and the Subsequent Merger pursuant to which the Reverse Merger and
the
Subsequent Merger, taken together, will be treated as a reorganization under
IRC
Section 368(a)(2)(D);
WHEREAS,
the Board of Directors of the Company and each of the Designated Stockholders
have approved the Reverse Merger pursuant to the terms of this Agreement
and in
accordance with the applicable provisions of the CCC and all other applicable
laws;
WHEREAS,
in connection with the Reverse Merger and the other Transactions, the parties
hereto desire to set forth certain representations, warranties and covenants
made by each to the other or others as an inducement to the consummation
of the
Reverse Merger, upon the terms and subject to the conditions contained herein;
and
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WHEREAS,
in connection with the Transactions, the Designated Stockholders are willing
to
indemnify Buyer, Acquisition Sub and I-Corp. Merger Sub, LLC against certain
losses and Liabilities (as hereinafter defined) that may occur as a result
of
the Transactions, in each case, upon the terms and subject to the conditions
contained herein.
NOW,
THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt
and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE
I
1.1.
Defined
Terms. For
purposes of this Agreement, the following terms shall have the meanings
specified in this Section 1.1:
"Accounts
Receivable" shall have the meaning set forth in Section
5.8.
"Affiliate"
shall have the meaning set forth in the Exchange Act. Without
limiting the foregoing, all directors and officers of a Person that is a
corporation and all managing members of a Person that is a limited liability
company, shall be deemed Affiliates of such Person for all purposes
hereunder.
"Agreement"
shall have the meaning set forth in the preamble.
"Alternative
Acquisition Proposal" shall have the meaning set forth in
Section 7.6.
"Applicable
Contract" shall mean any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or any
of the assets owned or used by it is or may become bound.
"Balance
Sheet" shall have the meaning set forth in Section 5.4.
"Benefit
Plan" shall mean all retirement, pension, supplemental pension, savings,
retirement savings, retirement allowance, bonus, profit sharing, stock purchase,
stock option, phantom stock, share appreciation rights, deferred compensation,
severance or termination pay, change of control, life insurance, medical,
illness, hospital, dental care, vision care, drug, sick leave, short term
or
long term disability, salary continuation, unemployment benefits, vacation,
incentive, compensation or other employee benefit plan, program, arrangement,
policy or practice whether written or oral, formal or informal, funded or
unfunded, registered or unregistered, insured or self-insured that is maintained
or otherwise contributed to, or required to be contributed to, by or on behalf
of the Company for the benefit of current or former employees, managers,
members, independent contractors or agents of the Company.
"Breach"
shall mean and a breach of a representation, warranty, covenant, obligation,
or
other provision of this Agreement or any Transaction Documents will be deemed
to
have occurred if there is or has been any inaccuracy in or breach of, or
any
failure to perform or comply with, such representation, warranty, covenant,
obligation, or other provision.
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"Business"
shall mean all lines of business and all business activities of any kind
historically or presently conducted by the Company.
"Buyer"
shall have the meaning set forth in the preamble.
"Buyer
Common Stock" shall have the meaning set forth in Section
2.4(a)(i).
"Buyer
Indemnified Parties" shall have the meaning set forth in Section
10.2(a).
"Cap"
shall have the meaning set forth in Section 10.2(e)(iii).
"CCC"
shall mean the California Corporations Code, as amended from time to
time.
"Claim"
shall have the meaning set forth in Section 10.2(d).
"Claim
Notice" shall have the meaning set forth in Section
10.2(d).
"Closing"
shall have the meaning set forth in Section 4.1.
"Closing
Consideration" shall have the meaning set forth in Section
2.4(a).
"Closing
Date" shall have the meaning set forth in Section 4.1.
"Closing
Working Capital" shall have the meaning set forth in Section
3.1(a).
"Company
Certificates" shall have the meaning set forth in Section
2.6.
"Company
Common Stock" shall mean the common stock of the Company.
"Company
Options" shall have the meaning set forth in Section
2.6(i).
"Company
Stockholders" shall have the meaning set forth in Section
2.4(c).
"Consent"
shall mean any approval, consent, ratification, waiver, or other authorization
(including, but not limited to, any Governmental Authorization).
"Contract"
shall mean any agreement, contract, obligation, promise, or undertaking
(whether
written or oral (if oral, to the extent legally binding) and whether express
or
implied).
"Current
Assets" shall have the meaning set forth in Section
3.1(a).
"Current
Liabilities" shall have the meaning set forth in Section
3.1(a).
"Damages"
shall have the meaning set forth in Section 10.2(a).
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"Deductible"
shall have the meaning set forth in Section 10.2(e)(iii).
"Designated
Stockholders' Closing Documents" shall have the meaning set forth in
Section 5.2(a).
"Designated
Stockholder Indemnified Parties" shall have the meaning set forth in
Section 10.2(a).
"Disclosure
Schedules" shall mean the schedules prepared and delivered by the Company
and the Designated Stockholders for and to Buyer and dated as of the date
hereof
which set forth the exceptions to the representations and warranties contained
herein and certain other information called for by this
Agreement. Unless otherwise specified, each reference in this
Agreement to any numbered schedule is a reference to that numbered schedule
which is included in the Disclosure Schedules.
"Dispute
Notice" shall have the meaning set forth in Section
2.4(c)(ii).
"Dissenting
Shares" shall mean the shares of Company Common Stock held by Company
Stockholders who become entitled to payment for the fair value of their shares
under the CCC and other applicable law that provides for such payment in
connection with the Reverse Merger, and who have not effectively withdrawn
or
lost such right to payment.
"Drop
Dead Date" shall have the meaning set forth in Section
11.1(d).
"Earnout
Consideration" shall have the meaning set forth in Section
2.4(c).
"Earnout
Milestone" shall have the meaning set forth in Section
2.4(c).
"Effective
Time" shall have the meaning set forth in Section 2.2.
"Employees"
shall mean all employees who are immediately prior to the Closing (i) in
the active employment of the Company and are presently on the employee payroll
or (ii) on sick leave, short-term disability or other leave of absence
approved by the Company.
"Encumbrance"
shall mean any charge, claim, community property interest, condition, equitable
interest, Lien, option, pledge, security interest, right of first refusal
or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership, including
but
not limited to any covenant, condition, restriction, reservation, rights
of way,
easement or other title encumbrance or title exception affecting any property
or
asset.
"Environment"
shall mean soil, land surface or subsurface strata, surface waters (including
navigable waters, ocean waters, streams, ponds, drainage basins and wetlands),
groundwater, drinking water supply, stream sediments, ambient air (including
indoor air), plant and animal life and any other environmental medium or
natural
resource.
"Environmental
Law" shall mean all federal, state, district, local and foreign laws and
Legal Requirements, all rules or regulations promulgated thereunder and all
orders, consent orders, judgments, notices, notice requirements, agency
guidelines, policies or restrictions and licenses, permits or demand letters
issued, promulgated or entered pursuant thereto, relating to pollution or
protection of the Environment.
4
"Environmental
Permits" shall mean all licenses, permits, approvals, authorizations,
consents or orders of, or filings with, any Governmental Body, whether federal,
state, local or foreign, required for the operation of the facilities under
Environmental Laws.
"Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Final
Working Capital" shall have the meaning set forth in Section
3.1(d).
"Financial
Statements" shall have the meaning set forth in Section
5.4.
"GAAP"
shall mean United States generally accepted accounting principles and
practices.
"Governmental
Authorization" shall mean any approval, Consent, license, permit, waiver or
other authorization issued, granted, given or otherwise made available by
or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental
Body" shall mean any:
(a)
nation, state, county, city, town, village, district or other jurisdiction
of
any nature;
(b) federal,
state, local, municipal, foreign or other government;
(c) governmental
or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official or entity and any court or other
tribunal);
(d) multi-national
organization or body; or
(e) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power of any
nature.
"Hazardous
Materials" shall mean any waste, chemical, pollutant, material or other
substance that is listed, defined, designated or classified as, or otherwise
determined to be, hazardous, radioactive infectious, reactive, corrosive,
ignitable, flammable or toxic or a pollutant or a contaminant subject to
regulation, control or remediation under any Environmental Law (whether solids,
liquids or gases), including any mixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor, polychlorinated biphenyls, radon gas, urea formaldehyde and asbestos
or asbestos-containing materials.
"Independent
Accountant" shall have the meaning set forth in Section
3.1(c).
5
"Intellectual
Property" shall mean all foreign and domestic (a) patents, provisionals,
divisions of patents, continuations of patents, continuations-in-part of
patents, and reexamined patents, (b) trademarks, service marks, trade dress,
logos, trade names and corporate names, domain names, product names and slogans,
including any common law rights, and 1-800, 1-888, 1-877 and other telephone
numbers, whether or not registered, together with the goodwill of the business
associated therewith, (c) copyrightable works, web site content, all rights
in
copyrights (including, without limitation, rights of authorship and moral
rights), whether or not registered, (d) registrations of and applications
for
registration of any of the foregoing, and the right to xxx for past, present
and
future infringements of any of the foregoing and rights of priority and
protection of interests therein, (e) renewals, extensions, reissuances and
revivals of the foregoing, (f) computer software (other than off-the-shelf
computer software), including, without limitation, source code, operating
systems and specifications, data, databases, files, documentation and other
materials related thereto, data and documentation, (g) trade secrets and
confidential, technical and business information, (h) technology (including
know-how and show-how), inventions, methods, processes, improvements thereto,
and research and development information, drawings, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing
information, business and marketing plans and materials, and distributor,
policyholder, contractholder and supplier lists and information, and (i)
any
other proprietary, intellectual property and other rights relating to any
or all
of the foregoing anywhere in the world.
"Intellectual
Property Rights" means all the rights to Intellectual Property used or held
by the Company whether or not protected, created or arising under the laws
of
the United States or any foreign state or other jurisdiction including, without
restriction, the following: (i) business names, trade names, trademarks and
service marks (whether registered or unregistered, including any applications
for registration of any of the foregoing), logos, Internet domain names,
trade
dress rights and general intangibles of a like nature, together with the
goodwill associated with any of the foregoing (collectively, "Marks"),
(ii) patents, patent rights and all applications therefor, including any
and all
continuation, divisional, continuation-in-part, or reissue patent applications
or patents issuing thereon (collectively, "Patents"), (iii) topographies,
codes, software, copyrightable works, including but not limited to all
registrations and applications therefor (collectively, "Copyrights"), and
(iv) know-how, inventions, discoveries, concepts, ideas, methods, processes,
formulae, technical data, circuit board designs, schematics, bills of materials,
confidential information and other proprietary information, including customer
lists, excluding any rights in respect of any of the foregoing that comprise
or
are protected by Copyrights or Patents (collectively, "Trade
Secrets").
"IRC"
shall mean the Internal Revenue Code of 1986, as amended, or any successor
law.
"IRS"
shall mean the United States Internal Revenue Service or any successor
agency.
"Knowledge"
shall mean and an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a)
such individual is actually aware of such fact or other matter; or
6
(b)
a similarly situated prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of making
reasonable inquiry with persons likely to have relevant information concerning
such fact or other matter and reasonable review of reasonably available files
concerning the existence of such fact or other matter.
A
Person
(other than an individual) will be deemed to have "Knowledge" of a particular
fact or other matter if any individual who is serving as a director, officer,
partner, executor or trustee of such Person has Knowledge of such fact or
other
matter.
"Knowledge
of the Company" or other similar phrases shall mean and include, in addition
to the Knowledge of the Company, the Knowledge of the Designated
Stockholders.
"Leases"
shall have the meaning set forth in Section 5.6.
"Legal
Requirement" shall mean any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution,
law,
ordinance, policy, principle of common law, regulation, statute or
treaty.
"Liability"
shall mean any direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, or guaranty of or by any Person of
any
type, whether known, unknown, accrued, absolute, contingent, matured or
unmatured.
"Licensed
Intellectual Property" shall have the meaning set forth in Section
5.20(e).
"Licensed
Technology Agreements" shall have the meaning set forth in Section
5.20(e).
"Licenses"
shall have the meaning set forth in Section 5.13(b).
"Lien"
shall mean any mortgage, deed of trust, pledge, hypothecation, security
interest, claim, lien or charge of any kind.
"Material
Adverse Effect" or "Material Adverse Change" shall mean any
significant and substantial adverse effect or change in the condition (financial
or other), business, results of operations, Liabilities or operations of
any
party, its business and/or assets or on the ability of such party or its
stockholders, as the case may be, to consummate the Transactions, or any
event
or condition which could, with the passage of time, constitute a "Material
Adverse Effect" or "Material Adverse
Change." Notwithstanding the foregoing, none of the following
shall constitute, and none of the following shall be considering in determining
whether a Material Adverse Effect or a Material Adverse Change has occurred,
is
likely to occur, or could or would be expected to occur: (1) changes
and effects that are the result of economic factors affecting the national,
regional or world economy (so long as the Company is not disproportionately
affected thereby); (2) changes and effects that are the result of factors
generally affecting the industries or markets in which the Company conducts
business or competes (so long as the Company is not disproportionately affected
thereby); (3) any adverse change, effect or circumstance primarily arising
out
of or resulting from actions contemplated by the parties in connection with
this
Agreement or the pendency or announcement of the transactions contemplated
by
this Agreement (including loss or departure of employees, customers, or
suppliers); (4) the incurrence of losses by the Company in the ordinary course
of business up to a maximum of $10,000: (5) changes in law, rule or regulations
or GAAP or the interpretation thereof (so long as the Company is not
disproportionately affected thereby); and (6) expenses relating to the
negotiation of the Transactions.
7
"Merger
Consideration" shall have the meaning set forth in Section
2.4(a).
"Milestone
Notice" shall have the meaning set forth in Section
2.4(c)(i).
"Milestone
Notice Date" shall have the meaning set forth in Section
2.4(c)(i).
"Notice
of Disagreement" shall have the meaning set forth in Section
3.1(b).
"Order"
shall mean any award, decision, injunction, judgment, order, ruling, subpoena
or
verdict entered, issued, made or rendered by any court, administrative agency
or
other Governmental Body or by any arbitrator.
"Ordinary
Course of Business" shall describe any action taken by a Person
if:
(a)
such action is consistent with the past practices of such Person and is taken
in
the ordinary course of the normal day-to-day operations of such
Person;
(b)
such action is not required to be specially authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be authorized by the parent company (if
any)
of such Person; and
(c)
such action is similar in nature and magnitude to actions customarily taken,
without any special authorization by the board of directors (or by any Person
or
group of Persons exercising similar authority), in the ordinary course of
the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"Organizational
Documents" shall mean (a) the articles or certificate of incorporation,
all certificates of determination and designation, and the bylaws of a
corporation; (b) the partnership agreement and any statement of partnership
of a general partnership; (c) the limited partnership agreement and the
certificate or articles of limited partnership of a limited partnership;
(d) the operating agreement, limited liability company agreement and the
certificate or articles of organization or formation of a limited liability
company; (e) any charter or similar document adopted or filed in connection
with the creation, formation or organization of a Person; and (f) any
amendment to any of the foregoing.
"OTCBB"
shall mean the Over-the-Counter Bulletin Board.
"Owned
Copyrights" shall have the meaning set forth in Section
5.20(c).
8
"Owned
Marks" shall have the meaning set forth in Section
5.20(a).
"Person"
shall mean any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union or other entity or
Governmental Body.
"Pro
Rata Share" shall mean each Company Stockholder's shares of Company Common
Stock in relation to all issued and outstanding shares of Company Common
Stock
as set forth on Schedule 1.1.
"Proceeding"
shall mean any action, arbitration, audit, hearing, investigation, litigation
or
suit (whether civil, criminal, administrative, investigative or informal)
commenced, brought, conducted or heard by or before, or otherwise involving,
any
Governmental Body or arbitrator.
"Proposed
Closing Working Capital Statement" shall have the meaning set forth in
Section 3.1(a).
"Representative"
shall mean any officer, director, principal, attorney, agent, Employee or
other
representative.
"Reverse
Merger Constituent Corporations" shall have the meaning set forth in
Section 2.2.
"Reverse
Merger Surviving Corporation" shall have the meaning set forth in Section
2.2.
"Securities
Act" shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"Software"
shall have the meaning set forth in Section
5.20(e)(i).
"Xxxxxxxx
Employment Agreement" shall have the meaning set forth in Section
4.2(a)(iii).
"Stockholder
Representative" shall have the meaning set forth in Section
10.4.
"Subsequent
Agreement of Merger" shall have the meaning set forth in Section
2.7(a).
"Subsequent
Merger" shall have the meaning set forth in the recitals.
"Subsequent
Merger Surviving Entity" shall have the meaning set forth in the
recitals.
"Subsidiary"
shall mean, with respect to any Person (for the purposes of this definition,
the
"Owner"), any corporation or other Person of which securities or other
interests having the power to elect a majority of that corporation's or other
Person's board of directors or similar governing body, or otherwise having
the
power to direct the business and policies of that corporation or other Person
(other than securities or other interests having such power only upon the
happening of a contingency that has not occurred) are held by the Owner or
one
or more of its Subsidiaries.
9
"Tax"
shall mean any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax
Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule
or
attachment thereto, and including any amendment thereof.
"Technology
Exploitation Agreements" shall have the meaning set forth in Section
5.20(f).
"Threatened"
shall describe any claim, Proceeding, dispute, action or other matter if
(i) any demand or statement has been made (orally or in writing) with
respect to such claim, Proceeding, dispute, action or other matter, or
(ii) any notice has been given (orally or in writing) with respect
thereto.
"Transaction
Documents" shall mean this Agreement, the Non-Competition Agreements, the
Studio Bonus Agreement and all instruments executed, filed or otherwise
prepared, exchanged or delivered in accordance with this Agreement.
"Transactions"
shall mean the Merger and the other transactions contemplated hereby and
in the
Transaction Documents.
"Working
Capital" shall have the meaning set forth in Section
3.1(a).
(a)
Unless otherwise expressly provided, for purposes of this Agreement, the
following rules of interpretation shall apply:
Calculation
of Time Period. When calculating the period of time before which,
within which or following which any act is to be done or step to be taken
pursuant to this Agreement, the date that is the reference date in calculating
such period shall be excluded. If the last day of such period is a
non-Business Day, the period in question shall end on the next succeeding
Business Day.
Dollars. Any
reference in this Agreement to $ shall mean U.S. dollars.
Exhibits/Schedules. The
Exhibits and Schedules to this Agreement are hereby incorporated and made
a part
hereof and are an integral part of this Agreement. When a reference
is made in this Agreement to an Article, a Section, Exhibit or Schedule,
such
reference shall be to an Article of, a Section of, or an Exhibit or Schedule
to,
this Agreement unless otherwise indicated. Any capitalized terms used
in any Schedule or Exhibit but not otherwise defined therein shall be defined
as
set forth in this Agreement.
10
Gender
and Number. Any reference in this Agreement to gender shall
include all genders, and words imparting the singular number only shall include
the plural and vice versa.
Headings. The
provision of a table of contents, the division of this Agreement into Articles,
Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement.
Herein. The
words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement
as a
whole and not to any particular provision of this Agreement.
Including. The
word "including" (or any variation thereof) means "including without
limitation" and shall not be construed to limit any general statement that
it follows to the specific or similar items or matters immediately following
it.
General. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent
and
(in the case of statutes) by succession of comparable successor statutes
and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted assigns and
successors.
(b)
The parties hereto have participated jointly in the negotiation and drafting
of
this Agreement and, in the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as jointly drafted
by
the parties hereto and no presumption or burden of proof shall arise favoring
or
disfavoring any party by virtue of the authorship of any provision of this
Agreement.
THE
TRANSACTIONS
2.1. Approval
of the Reverse Merger. The
Reverse Merger and the Transaction Documents have been adopted and approved
by
the Company Stockholders and the Board of Directors of the Company in a manner
allowed under the CCC.
2.2. The
Reverse Merger. Subject
to and promptly following the
satisfaction or waiver of all the conditions precedent to the Reverse Merger
set
forth herein, the parties hereto shall cause the Reverse Merger to be
consummated by filing with the California Secretary of State an Agreement
of
Merger (the "Agreement of Merger"), in such form as is required by, and
executed in accordance with, the relevant provisions of the CCC (the time
of
such filing being the "Effective Time"). At the Effective
Time, in accordance with this Agreement and the CCC, Acquisition Sub shall
be
merged with and into the Company, the separate existence of the Acquisition
Sub
shall cease and the Company shall continue as the surviving
corporation. The Company and Acquisition Sub
are sometimes referred to herein as the "Reverse Merger Constituent
Corporations" and the Company is sometimes referred to herein as the
"Reverse Merger Surviving Corporation." Provided that this
Agreement has not been earlier terminated as provided herein, the parties
hereto
shall use commercially reasonable efforts to cause the Agreement of Merger
to be
filed with the California Secretary of State so that the Effective Time occurs
on the Closing Date.
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(a)
At the Effective Time, the effect of the Reverse Merger shall be as provided
in
the applicable provisions of the CCC. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the rights
and
property of the Company and Acquisition Sub shall vest in the Reverse Merger
Surviving Corporation, and all debts and liabilities of the Company and
Acquisition Sub shall become the debts, liabilities and duties of the Reverse
Merger Surviving Corporation. If, at any time after the Effective
Time, the Reverse Merger Surviving Corporation considers or is advised by
counsel that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm
of
record or otherwise in the Reverse Merger Surviving Corporation its right,
title
or interest in, to or under any of the rights, properties, or assets the
Company, or otherwise to carry out the intent and purposes of this Agreement,
the officers and directors of the Reverse Merger Surviving Corporation will
be
authorized, to execute and deliver, in the name and on behalf of the Company,
all such deeds, bills of sale, assignments and assurances and to take and
do, in
the name and on behalf of the Company, all such other actions and things
as the
board of directors of the Reverse Merger Surviving Corporation may determine
to
be necessary or desirable to vest, perfect or confirm any and all right,
title
and interest in, to and under such rights, properties or assets in the Reverse
Merger Surviving Corporation or otherwise to carry out the intent and purposes
of this Agreement.
(b)
Certificate of Incorporation of the Reverse Merger Surviving
Corporation. The Certificate of Incorporation of Acquisition Sub
in effect immediately prior to the Effective Time shall, from and after the
Effective Time, be the Certificate of Incorporation of the Reverse Merger
Surviving Corporation until thereafter further amended as provided by
law.
(c)
Bylaws of the Reverse Merger Surviving Corporation. The Bylaws
of Acquisition Sub in effect immediately prior to the Effective Time shall,
from
and after the Effective Time, be the Bylaws of the Reverse Merger Surviving
Corporation until thereafter further amended as provided by law.
(d)
Directors and Officers of the Reverse Merger Surviving
Corporation. The directors of Acquisition Sub and the officers of
Acquisition Sub immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively, of the Reverse
Merger Surviving Corporation until their successors shall have been duly
elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Reverse Merger Surviving Corporation's Certificate
of
Incorporation.
12
2.4.
Merger Consideration.
(a)
Consideration. Subject to adjustment as set forth in
Section 3.1 hereof, and except as provided in Section 2.5
hereof,
(i)
each share of Company Common Stock issued and outstanding immediately prior
to
the Effective Time shall, without any action on the part of Buyer, Acquisition
Sub, the Company or the Company Stockholders or the holders of any other
securities in the Company, automatically be converted into the right to receive
a number of shares (rounded down to the nearest whole share) of the common
stock
of Buyer ("Buyer Common Stock") equal to the quotient obtained from dividing
(1)
$1,245,609 by (2) $0.73 (the "Stock Price"), and then dividing such
quotient by the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (the "Closing
Consideration," and together with the Earnout Consideration (if any), the
"Merger Consideration"); and
(ii)
For the purposes of this Section 2.4, the issued and outstanding
shares of Company Common Stock shall consist of shares of: all Company Common
Stock issued and outstanding immediately prior to the Effective Time (regardless
of whether such shares are unvested, subject to any right of repurchase,
risk of
forfeiture or other condition in favor of the Company at such
time).
(b)
Cancellation of the Shares of Company
Common Stock held by Buyer. Each share of Company Common Stock,
if any, owned by Buyer or any direct or indirect wholly-owned Subsidiary
of
Buyer immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Earnout
Consideration. If the earnout performance milestones (each an
"Earnout Milestone" and collectively the "Earnout Milestones") set
forth on Exhibit B are achieved, the holders of Company Common Stock
immediately prior to the Effective Time ("Company Stockholders") will
receive, subject to the terms of this Agreement, additional consideration
(the
"Earnout Consideration") as set forth on Exhibit B.
(i) Milestone
Notice. In accordance with the terms of Exhibit B, Buyer
shall give written notice (in each case, a "Milestone Notice") to the
Stockholder Representative informing the Stockholder Representative as to:
(i)
whether the Earnout Milestone was achieved; and (ii) if the Earnout Milestone
was achieved, the amount of the Earnout Consideration to be paid to the Company
Stockholders. The "Milestone Notice Date," in any case, will
mean the date on which the Milestone Notice was communicated by Buyer to
the
Stockholder Representative. The Milestone Notice shall specify in
reasonable detail the basis for Buyer’s determination, and Buyer shall afford
the Stockholder Representative full access to all books and records of Buyer
and
the Company relevant to the determination of whether the Earnout Milestone
was
achieved. If a dispute arises between Buyer and the Stockholder
Representative as to whether the Company has achieved an Earnout Milestone,
such
dispute will be resolved pursuant to Section 2.4(c)(ii), and
notwithstanding anything herein to the contrary, the applicable Milestone
Notice
Date will be deemed to be the date of resolution of such dispute.
13
(ii)
Milestone Dispute Resolution. If the Stockholder
Representative disagrees as to whether or to what extent the Company has
achieved the Earnout Milestones, the Stockholder Representative will give
written notice (a "Dispute Notice") to Buyer with a reasonable
description of the basis for such disagreement within fifteen (15) days of
Stockholder Representative's receipt of the Milestone Notice regarding the
Earnout Milestones. To the extent any portion of the Earnout
Consideration is not in dispute, such amount shall be paid
forthwith. All rights to Earnout Consideration under this Section
2.4(c) will be extended from the time of Buyer's receipt of the Dispute
Notice until the resolution of the dispute in question. For a period
of fifteen (15) days following Buyer's receipt of the Dispute Notice, Buyer
and
the Stockholder Representative will negotiate in good faith to attempt to
agree
whether and to what extent the Milestones have been achieved. If
Buyer and the Stockholder Representative cannot resolve the dispute within
that
fifteen (15) day period, then the parties will resolve the dispute pursuant
to
the dispute resolution procedures for the Closing Working Capital set forth
in
Section 3.1.
(iii)
In addition to Buyer capital contribution commitment set forth in Exhibit
B, Buyer shall provide commercially reasonable support for the Business
with
a view toward the attainment of Earnout Milestones and shall not take any
action
with the purpose of impairing the ability to attain any Earnout Milestone,
subject to the terms set forth in Exhibit B. In the event of a "Change in
Control", all Earnout Milestones shall be deemed to have been immediately
attained and all Earnout Consideration shall be immediately due and payable
in
full. For purposes of this Section 2.4. "Change in Control" shall mean
any transaction or series of related transactions in which a third party
or
"group" (as defined in SEC rules under Section 13(d) of the Exchange Act)
acquires majority ownership or majority voting control of Buyer, the Subsequent
Merger Surviving Entity or the Business, whether by merger, acquisition (by
stock purchase, issuance of shares, or both) of shares constituting a majority
of the outstanding shares or voting stock of Buyer or the Subsequent Merger
Surviving Entity, acquisition of assets constituting a majority of the assets
(determined either by book value or fair market value) of Buyer, the Subsequent
Merger Surviving Entity or the Business, by election of directors constituting
a
majority of the board of directors of Buyer or the Subsequent Merger Surviving
Entity, or otherwise.
14
(iv)
Following the final determination of any Earnout Consideration for any
applicable period, Buyer shall pay any Earnout Consideration due and payable
in
accordance with the terms of this Agreement to each Company Stockholder in
proportion to such Company Stockholder's Pro Rata Share, provided, however,
that
the Company Stockholders acknowledge that Buyer shall offset indemnifiable
Damages in accordance with Article X, and any other amounts payable to
Buyer pursuant to this Agreement, against the Earnout Consideration to the
extent that any Earnout Consideration is due and payable at the time of final
resolution of a Claim pursuant to Article X, provided, further, that to
the extent Xxxxxxx Xxxxxxxx has paid any amounts in excess of his several
indemnity obligations under Section 10.2(a) to any Buyer Indemnified
Party pursuant to Section 10.2(c) in respect of indemnifiable Damages
(such amount, an "Excess Indemnity Payment"), 100% of any Earnout
Consideration due and payable by Buyer shall first be paid to Xxxxxxx Xxxxxxxx
in an amount equal to the amount of such Excess Indemnity Payment and second
any
remaining Earnout Consideration shall be paid to each Company Stockholder
(including Xx. Xxxxxxxx) in proportion to each Company Stockholder's Pro
Rata
Share.
2.5. Dissenting
Shares. Notwithstanding
anything in this Agreement to the contrary, Dissenting Shares, if any, shall
not
be converted into the right to receive a pro rata portion of the
applicable Merger Consideration, but holders of such Dissenting Shares shall,
if
they perfect and do not withdraw their rights with respect thereto, be entitled
to receive payment of the appraised value of such shares subject to and in
accordance with the relevant provisions of the CCC. The Surviving
Corporation shall control all negotiations and proceedings with respect to
demands for appraisals under the CCC.
(a)
At the Effective Time, each holder of shares of Company Common Stock that
are
not Dissenting Shares and that have been converted into the right to receive
the
Merger Consideration shall deliver to Buyer certificates which, prior to
the
Effective Time, represented such shares of Company Common Stock (the "Company
Certificates").
(b) At
the Effective Time, Buyer shall, subject to Section 2.7 hereof, deliver
to each holder of shares of Company Common Stock who has tendered Company
Certificates by delivery of certificates representing the applicable number
of
shares of restricted Buyer Common Stock issued as Merger
Consideration. The Merger Consideration shall be subject to
adjustment as set forth in Section 3.1 of this
Agreement. Until surrendered, each Company Certificate shall after
the Effective Time represent only the right to receive the Merger Consideration
(as so adjusted) from Buyer.
(c) At
and after the Effective Time, each holder of a Company Certificate that
represented issued and outstanding shares of Company Common Stock immediately
prior to the Effective Time shall cease to have any rights as a holder of
securities of the Company, except for the right to surrender his or her Company
Certificate or Certificates in exchange for the Merger Consideration or to
perfect his or her right to receive payment for Dissenting Shares pursuant
to
the CCC, if applicable. If, after the Effective Time, Company
Certificates are presented to the Reverse Merger Surviving Corporation they
shall be canceled and exchanged for that amount of the Merger Consideration
as
may be required in accordance with the procedures set forth in this Article
II.
15
(d)
Surrender of Company Certificates.
(i) As
soon as reasonably practicable after the Effective Time, (and in no event
more
than five (5) Business Days), the Reverse Merger Surviving Corporation shall
send or cause to be sent a notice and letter of transmittal form (which shall
specify that delivery shall be effective and risk of loss and title to the
Company Certificates shall pass, only upon proper receipt of the Company
Certificate or Certificates by the Company as described therein) to each
holder
of a Company Certificate (other than those representing shares held in the
treasury of the Company and Dissenting Shares), advising such holder of the
effectiveness of the Reverse Merger and the procedure for surrendering of
such
Company Certificate for exchange into the Merger Consideration payable in
respect of the Company Common Stock represented
thereby. Each holder of Company Common Stock, upon surrender of each
of his or her Company Certificates, together with a duly executed copy of
a
letter of transmittal, shall be entitled to receive the Merger Consideration
(together with cash in lieu of fractional shares) with respect to
the Company Common Stock represented by such Company
Certificate or Certificates in accordance with the provisions of this
Article II.
(ii)
If the Merger Consideration (or any portion thereof) is to be paid to a Person
other than the Person in whose name the Company Certificate surrendered in
exchange therefor is registered, it shall be a condition to the payment of
the
Merger Consideration that the Company Certificate so surrendered shall be
properly endorsed or accompanied by appropriate stock powers and otherwise
be in
proper form for transfer, that such transfer otherwise be proper and that
the
Person requesting such transfer pay to the Reverse Merger Surviving Corporation,
any transfer Taxes payable by reason of the foregoing or establish to the
satisfaction of the Reverse Merger Surviving Corporation that such Taxes
have
been paid or are not required to be paid.
(iii)
No interest, dividends or other distributions declared or made after the
Effective Time with respect to Company Common Stock shall be paid or shall
accrue to the holder of any unsurrendered Company Certificate with respect
to
the shares of Company Common Stock represented thereby, until the holder
of such
Company Certificate shall surrender such Company Certificate as provided
herein.
(e)
Delivery of Merger Consideration. At the Effective Time, Buyer
shall make available, and each holder of Company Common Stock shall be entitled
to receive upon surrender to Buyer or its representatives of any Company
Certificate or Certificates for cancellation together with any reasonable
supporting documentation requested by the Company, including a tax
identification number and customary investment representation letter, shares
of
restricted Buyer Common Stock to be issued as Merger Consideration pursuant
to
Section 2.4(a) hereof. Upon such surrender of each Company
Certificate and delivery by Buyer of the shares of restricted Buyer Common
Stock
in exchange therefor, such Company Certificates shall forthwith be
canceled. Until so surrendered, each Company Certificate shall be
deemed for all corporate purposes to evidence only the right to receive upon
such surrender the Merger Consideration into which
the Company Common Stock represented thereby shall have
been entitled to receive.
16
(f)
No Further Ownership Rights in
the Company Common Stock. All
shares of Company Common Stock issued upon the surrender for exchange of
Company
Certificates in accordance with the terms of this Article II shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented
by such
Company Certificates, and there shall be no further registration of transfers
on
the stock transfer books of the Reverse Merger Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to
the
Effective Time. If, after the Effective Time, Company Certificates
are presented to the Reverse Merger Surviving Corporation for any reason,
they
shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(g) Lost,
Stolen or Destroyed Company Certificates. In the event that any
Company Certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the Person claiming such Company Certificate
to
be lost, stolen or destroyed and indemnifying Buyer against any claim that
may
be made against it with respect to such, Buyer will issue in exchange for
such
lost, stolen or destroyed Company Certificate the amount of Merger Consideration
as provided in Section 2.6(a) hereof.
(h) Withholding
Taxes. Each Designated Stockholder shall be responsible for, and
shall pay when due, any stock transfer Taxes and any income, documentary,
sales,
use, stamp, registration or other Taxes and fees incurred in connection with
the
exchange by such holder of shares of Company Common Stock for the Merger
Consideration as provided hereunder and any deficiency, interest or penalty
asserted with respect thereto. Such Designated Stockholders will, at
their own expense, file all necessary Tax Returns and other documentation
with
respect to all such transfer, income, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law,
Buyer
will, and will cause its representatives to, join in the execution of any
such
Tax Returns and other documentation. Buyer shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant
to
this Agreement to any holder of shares of Company Common Stock such amounts
as
may be required to be deducted and withheld with respect to the making of
such
payment under the Code, or under any provision of state, local or foreign
tax
law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority, such withheld amounts shall be treated for
all
purposes of this Agreement as having been paid to the holder of Company Common
Stock in respect of which such deduction and withholding was made.
17
(i)
The Company Options and Option
Plan. At the Effective Time, each then-outstanding option to
purchase Company Common Stock ("Company Option") shall be (i) assumed by
Buyer, subject to, and exercisable upon, the same terms and conditions as
under
the applicable Company Option and the applicable option, option plan, severance,
and other related agreements entered into with the holder of each such Company
Option provided that (A) from and after the Effective Time, Buyer and
its Board of Directors shall be substituted for the Company and
its Boards of Directors and committees thereof for the purpose of
administering the plan, terms and conditions under which such Company Option
was
granted and (B) each Company Option shall be automatically converted into
an
option to purchase a number of shares of Buyer Common Stock, determined by
multiplying the number of shares of Company Common Stock subject to such
Company
Option at the Effective Time by the Exchange Ratio (as defined below), at
an
exercise price per share of Buyer Common Stock equal to the exercise price
per
share of such Company Option immediately prior to the Effective Time divided
by
the Exchange Ratio. In the case of a Company Option to which Section
421 of the Code applies by reason of its qualification under Section 422
of the
Code, the conversion formula shall be adjusted, if the Company determines
that
such adjustment is necessary, to comply with Section 424(a) of the
Code. The “Exchange Ratio” shall be the quotient (to four decimal
places) of (i) the Closing Consideration per share of the Company's Common
Stock
issued and outstanding on a fully diluted basis (assuming the exercise in
full
of all then-exercisable Company Options) divided by (ii) the Stock
Price. If the foregoing calculation results in an assumed Company
Option being exercisable for a fraction of a share of Buyer Common Stock,
then
the number of shares of Buyer Common Stock subject to such option shall be
rounded up to the nearest whole number. Except as otherwise set forth
in this Section 2.6(i), the term, status as an “incentive stock option”
under Section 422 of the Code, if applicable, all applicable restrictions
or
limitations on transfer and vesting and all other terms and conditions of
each
assumed Company Option shall, to the extent permitted by applicable Legal
Requirement and otherwise reasonably practicable, be unchanged.
2.7.
Subsequent Merger.
(a)
Immediately after the Effective Time, Buyer will cause the Reverse Merger
Surviving Corporation to merge with and into the I-Corp. Merger Sub, LLC
and the
separate corporate existence of the Reverse Merger Surviving Corporation
shall
thereupon cease. The Subsequent Merger shall become effective upon
the filing of an Agreement of Merger (the "Subsequent Agreement of
Merger"), executed in accordance with the relevant provisions of the CCC,
with the Secretary of State of the State of California or such later time
as may
be specified in the Subsequent Agreement of Merger; provided, however, that,
in
any event, the Subsequent Merger shall be effective immediately after the
Effective Time (it being understood that in all events the Subsequent Merger
shall be effective not later than the end of the same day as the Reverse
Merger).
18
(b)
At the effective time of the Subsequent Merger, each issued and outstanding
share of capital stock of the Reverse Merger Surviving Corporation shall
be
canceled and no consideration shall be delivered in exchange
therefor.
(c)
At the effective time of the Subsequent Merger, each membership interest
in
I-Corp. Merger Sub, LLC issued and outstanding immediately prior to such
time
shall remain issued and outstanding and unaffected by the Subsequent
Merger.
POST-CLOSING
MATTERS
(a)
As soon as practicable but in no event no more than ninety (90) days after
the
Closing Date, Buyer shall deliver to the Stockholder Representative a statement
(the "Proposed Closing Working Capital Statement") setting forth Buyer's
computation of the Company's Working Capital as of the Closing Date (the
"Closing Working Capital"). "Working Capital" means the
Company's Current Assets minus its Current Liabilities. For purposes
hereof, (i) "Current Assets" means cash, cash equivalents, Accounts
Receivables, pre-paid expenses and fifty percent (50%) of deferred taxes,
and
(ii) "Current Liabilities" means accounts payable, accrued expenses and
deferred revenue, in each case of clause (i) and (ii), as defined and calculated
in accordance with GAAP, applied consistently with the Company's past
practices.
(b)
The Stockholder Representative shall notify Buyer in writing (a "Notice of
Disagreement") within ten (10) days of receipt of the Proposed Closing
Working Capital Statement if the Stockholders Representative has any
disagreement with the value of the assets, the liabilities and/or the
calculation of Working Capital reflected therein. The Stockholder
Representative shall be deemed to have agreed with all other items and amounts
contained in the Proposed Closing Working Capital Statement and the calculation
of Closing Working Capital set forth therein except as set forth in a duly
delivered Notice of Disagreement. If within such ten (10)-day period
the Stockholder Representative has not delivered to Buyer a Notice of
Disagreement (which notice shall contain a statement setting forth in reasonable
detail the basis for the Stockholder Representative's objection) or if the
Stockholder Representative has given Buyer written notice that it has no
objection to the Proposed Closing Working Capital Statement prior to the
expiration of such ten (10)-day period, the values on the Proposed Closing
Working Capital Statement shall be conclusive on the parties for purpose
of
determining the post-Closing adjustment pursuant to this Section
3.1.
19
(c)
If the Stockholder Representative has delivered to Buyer a Notice of
Disagreement during such ten (10)-day period, the parties shall cooperate
in
good faith to resolve any such disagreement. If the parties are
unable to resolve the disagreement set forth in such Notice of Disagreement
within ten (10) days of receipt of such Notice of Disagreement, the
determination of the amount of the adjustment payable pursuant to this
Section 3.1, shall be determined by such independent certified public
accountants of national or regional standing as the parties may mutually
agree
(the "Independent Accountant"). If issues in dispute set forth
in the Notice of Disagreement are submitted to the Independent Accountant
for
resolution pursuant the this Section 3.1(c), (i) each party shall furnish
to the Independent Accountant such work papers and other documents and
information relating to the disputed issues as the Independent Accountant
may
request and are available to such party, and shall be afforded the opportunity
to present to the Independent Accountant any material relating to the
determination and to discuss the determination with the Independent Accountant;
(ii) the Independent Accountant will only consider those items as to which
the
Purchaser and the Seller have disagreed as set forth in the Notice of
Disagreement; (iii) the Independent Accountant shall select as a resolution
the
position of either Buyer or the Stockholder Representative for each item
of
disagreement and may not impose an alternative resolution, (iv) the
determination by the Independent Accountant of the Closing Working Capital,
as
set forth in a notice delivered to both parties by the Independent Accountant,
shall be binding on the parties, and (v) the fees and expenses of the
Independent Accountant shall be borne one-half by Buyer and one-half by the
Designated Stockholders.
(d)
If the Final Working Capital is less than negative $254,391, the Company
Stockholders shall pay to Buyer the amount of such deficiency through forfeiture
of shares of restricted Buyer Common Stock valued at the Stock Price per
share,
and if the Final Working Capital is greater than negative $254,391, then
Buyer
shall pay to the Company Stockholders, in shares of Buyer Common Stock valued
at
the average closing price of Buyer Common Stock over the five (5) trading
days
immediately prior to the date the Final Working Capital is determined, as
reported by the OTCBB, as an adjustment to the Merger Consideration, the
amount
of such excess. "Final Working Capital" means Closing Working
Capital (i) as shown in Buyer's Proposed Closing Working Capital Statement
if no
Notice of Disagreement with respect thereto is duly delivered by Stockholder
Representative pursuant to Section 3.1(b); or (ii) if such a Notice of
Disagreement is delivered, (A) as agreed by Buyer and the Stockholder
Representative pursuant to Section 3.1(c) or (B) in the absence of such
agreement, as shown in the Independent Accountant's calculation delivered
pursuant to Section 3.1(c). Any payment to be made pursuant to
this Section 3.1(c) shall be made within five (5) Business Days after the
final determination of the Final Working Capital; provided, that, any
amounts required to be paid to Buyer pursuant to this Section 3.1(c)
shall be offset first against the Closing Consideration then against any
Earnout
Consideration (if any) due and payable hereunder to the Company
Stockholders.
CLOSING
4.1.
Closing. Upon
the terms and subject to the conditions set forth herein, the closing of
the
Transactions (the "Closing") shall be held at 10:00 a.m. local time on a
date to be specified by the parties (the "Closing Date"), which date
shall be no later than the second Business Day after satisfaction or waiver
of
the conditions set forth in Article VIII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions at such time), at the offices
of
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP, at 000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxxxxx,
Xxxxxxxxxx 00000, or at such other time, date or place as the parties hereto
may
mutually agree.
20
4.2.
Deliveries at Closing.
(a)
Deliveries made by Buyer to the Designated Stockholders. At
the Closing, Buyer shall deliver to the Designated Stockholders the
following:
(i)
Intentionally omitted.
(ii)
Buyer Certificates. The following certificates:
(A)
A certificate evidencing (i) the accuracy of any representation or warranty
of Buyer, (ii) evidencing the performance by Buyer, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with
by Buyer and (iii) evidencing the satisfaction of any condition referred to
in Article VII.
(B)
A certificate executed by the Secretary of Buyer certifying as of the Closing
Date (i) a true and complete copy of the Organizational Documents of Buyer,
as
the case may be, certified as of a recent date by the appropriate Secretary
of
States, as the case may be, (ii) a true and complete copy of the resolutions
of
the board of directors of Buyer authorizing the execution, delivery and
performance of this Agreement by Buyer and the consummation of the Transactions
and (iii) incumbency matters; and
(C)
A certificate of the appropriate Secretary of State certifying the good standing
of Buyer in its state of incorporation.
(iii)
Xxxxxxxx Employment Agreement. An executed employment
and non-competition agreement with Xx. Xxxxxxxx in the form of Exhibit C
attached hereto (the "Xxxxxxxx Employment Agreement").
(b)
Deliveries made by the Designated Stockholders to Buyer. At
the Closing, the Designated Stockholders shall deliver to Buyer the
following:
(i)
The Company
Certificates. At the Closing, the Designated Stockholders shall
deliver to Buyer certificates evidencing all of the issued and outstanding
shares of Company Common Stock owned by the Designated Stockholders, directly
or
indirectly, duly endorsed in blank for transfer or accompanied by stock powers
duly executed in blank.
(ii)
Certificates of the Company and the Designated Stockholders. The
Designated Stockholders and the Company will furnish Buyer with such
certificates of the officers of the Company and others to evidence compliance
with the conditions set forth in this Agreement as may be reasonably requested
by Buyer, which shall include, but not be limited to:
21
(A)
a certificate evidencing (i) the accuracy of any representation or warranty
of the Company and the Designated Stockholders, (ii) evidencing the
performance by the Company and the Designated Stockholders, or the compliance
by
the Company and the Designated Stockholders with, any covenant or obligation
required to be performed or complied with by the Company and the Designated
Stockholders, and (iii) evidencing the satisfaction of any condition
referred to in Article VIII.
(B)
A certificate executed by the Secretary or an Assistant Secretary of the
Company
certifying as of the Closing Date (i) a true and complete copy of the
Organizational Documents of the Company certified as of a recent date by
the
Secretary of State of California (ii) a true and complete copy of the
resolutions of the Board of Directors of the Company and the Designated
Stockholders authorizing the execution, delivery and performance of this
Agreement by the Company and the consummation of the Transactions and (iii)
incumbency matters; and
(C)
A certificate of each appropriate Secretary of State certifying the good
standing of the Company in its state of incorporation and all states in which
it
is qualified to do business;
(iii)
Xxxxxxxx Employment Agreement. The Xxxxxxxx Employment
Agreement executed by Xx. Xxxxxxxx.
(iv)
Employee Release Agreements. Executed release agreements with
the Persons set forth on Schedule 4.2(b)(iv) in a form reasonably
acceptable to Buyer.
(a)
Agreement of Merger. The Agreement of Merger and other
necessary materials will be filed with the California Secretary of
State.
(b)
Obligations. Buyer shall pay in cash the amounts set forth on
Schedule 4.3(b) in satisfaction of the outstanding obligations of the
Company to the parties set forth on Schedule 4.3(b).
22
REPRESENTATIONS
AND WARRANTIES
OF
THE
COMPANY AND THE DESIGNATED STOCKHOLDERS
The Company
and the Designated Stockholders hereby represent and warrant to Buyer that
the
following representations and warranties are, as of the date hereof, and
will
be, as of the Closing Date, true and correct. The Disclosure
Schedules shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article V and the disclosure in any
paragraph shall qualify other paragraphs in this Article V only to the extent
that it is reasonably apparent from a reading of such disclosure that it
also
qualifies or applies to such other paragraphs.
5.1.
Organization and Good Standing. The
Company is duly organized, validly existing, and in good standing under the
laws
of its jurisdiction of formation, with full corporate power and authority
to
own, operate or lease its assets and conduct its Business. The
Company is duly qualified to do business as a foreign corporation and is
in good
standing under the laws of each jurisdiction where the character of its
properties owned, operated or leased, or the nature of its activities makes
such
qualification necessary, except for the failure to be so qualified would
not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. Schedule 5.1 contains a complete and accurate list of
jurisdictions in which the Company is authorized to do business.
5.2.
Authority; No Conflict.
(a)
This Agreement and the other Transaction Documents to which the Designated
Stockholders, the Stockholder Representative or the Company are a party (the
"Designated Stockholders' Closing Documents") have been duly executed and
delivered by the Designated Stockholders, the Stockholder Representative
and the
Company, to the extent that they are a party thereto, and constitute the
legal,
valid, and binding obligations of the Designated Stockholders, the Stockholder
Representative and/or the Company, as the case may be, enforceable against
the
Designated Stockholders, the Stockholder Representative and/or the Company
in
accordance with their respective terms, in each case except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally
and
(ii) the general principles of equity, regardless of whether asserted in
a
proceeding in equity or at law. The Designated Stockholders, the
Stockholder Representative and the Company have all requisite power, authority
and capacity to execute and deliver this Agreement and the Designated
Stockholders' Closing Documents and to perform their respective obligations
under this Agreement and the Designated Stockholders' Closing
Documents. This Agreement and the Transactions have been duly and
validly authorized by the Company's Board of Directors and as of the Closing
will be duly and validly approved by the Company Stockholders, no other
corporate action on the part of the Company or the Company Stockholders being
necessary.
(b)
Assuming all consents, approvals, authorizations and other actions described
in
Schedule 5.2 have been obtained or made, as applicable, the execution,
delivery and performance of this Agreement and the Designated Stockholders'
Closing Documents by the Designated Stockholders, the Stockholder Representative
and the Company shall not, directly or indirectly (with or without notice
or
lapse of time):
23
(i)
contravene, conflict with or result in a violation of (A) any provision of
the Organizational Documents of the Company or (B) any resolution or other
action adopted or taken by the board of directors of the Company or the
Designated Stockholders;
(ii)
contravene, conflict with or result in a violation of, or give any Governmental
Body or other Person the right to challenge, any of the Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any
Order to which the Company or the Designated Stockholders or any of the assets
owned or used by the Company, may be subject;
(iii)
contravene, conflict with or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Governmental Authorization that
is
held by the Company or that otherwise relates to the business of, or any
of the
assets owned or used by, the Company;
(iv)
cause the Company to become subject to, or to become liable for the payment
of,
any Tax;
(v)
cause any of the assets owned by the Company to be reassessed or revalued
by any
taxing authority or other Governmental Body;
(vi)
contravene, conflict with or result in a violation or breach of any provision
of, or give any Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel, terminate
or modify, any Applicable Contract or any Contract to which the Company is
a
party or by which the Company may be bound;
(vii)
result in the imposition or creation of any Encumbrance upon or with respect
to
any of the assets owned or used by the Company, except for purposes of
subclauses (ii)-(vi) above, for contraventions, conflicts, violations,
revocations, withdrawals, suspensions, modifications, Breaches, defaults,
rights
of termination, amendment, acceleration or cancellation, or creations of
Encumbrances, that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Except
as
set forth in Schedule 5.2, execution and delivery of this Agreement by
the Designated Stockholders and the Company and the consummation of the
Transactions does not, or shall not require any Consent, approval, authorization
or other action by, or filing with or notification to, any Governmental Body
or
any other Person.
24
5.3.
Capitalization.
(a)
Ownership. The authorized capital of the Company immediately
prior to the Closing consists solely of 30,000,000 shares of Company Common
Stock, of which 12,839,950 shares are issued and outstanding. As of
the date hereof, 1,057,500 shares of Company Common Stock are reserved for
issuance upon exercise of options granted to Employees. Each of the
Designated Stockholders are, and will be on the Closing Date, the record
and
beneficial owner of the shares of Company Common Stock, set forth next to
the
name of such Designated Stockholder on Exhibit A, free and clear of all
Encumbrances. All of the outstanding shares of Company Common Stock
and other equity interests of the Company are and will be, as of the Closing
Date, duly authorized, validly issued, fully paid and
non-assessable. There are no Contracts relating to the issuance, sale
or transfer of any shares of Company Common Stock or other securities of
the
Company. Except as set forth in Schedule 5.3, there are no
outstanding subscriptions, calls, commitments, warrants or options for the
purchase of shares of Company Common Stock or any other securities of the
Company or any securities convertible into or exchangeable for shares of
Company
Common Stock or any other securities issued by the Company, or any other
commitments of any kind for the issuance of additional shares of Company
Common
Stock or any other securities issued by the Company. None of the
outstanding shares of Company Common Stock or equity interests or any other
securities of the Company was issued in violation of the Securities Act or
any
other Legal Requirement.
(b)
Subsidiaries. The Company has no Subsidiaries and has no
direct or indirect stock or other equity or ownership interest (whether
controlling or not), or any Contract to acquire any such interest, in any
corporation, association, partnership, joint venture or other
entity.
5.4.
Financial Statements. The
Company has delivered to Buyer an unaudited balance sheet of the Company
as of
June 30, 2007 (including the notes thereto, the "Balance Sheet"), and the
related unaudited statements of income, changes in stockholders' equity,
and
cash flows for the six-month period then ended, including in each case the
notes
thereto (the "Financial Statements"). The Financial Statements
fairly and accurately present the financial condition and the results of
operations, income, expenses, assets, liabilities, changes in stockholders'
equity, and cash flows of the Company as of June 30, 2007, and for the six-month
period then ended, all in accordance with GAAP consistent with the past
practices of the Company. Except as set forth in Schedule 5.4,
no financial statements of any Person other than the Company are required
by
GAAP to be included in the Financial Statements.
5.5.
Books and Records. The
books of account, minute books, stock record books, and other records of
the
Company, all of which have been made available to Buyer, are complete and
correct and, in all material respects, have been maintained in accordance
with
sound business practices, including the maintenance of an adequate system
of
internal controls, and, with respect to the books of account, fairly and
accurately reflect the income, expenses, assets and liabilities of the Company
in all material respects. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the shareholders, the board of directors, and committees of the
board
of directors of the Company, and no significant action of the Company has
been
taken which is not reflected in such minute books. At the Closing,
all of those books and records shall be in the possession of the
Company.
25
5.6.
Title to Properties; Encumbrances. The
Company owns its property and assets free and clear of Encumbrances, except
such
Encumbrances which arise in the Ordinary Course of Business and do not
materially impair the Company's ownership or use of such property or
assets. The Company does not own any real
property. Schedule 5.6 contains a complete and accurate list
of all real property leases, subleases, licenses, use and occupancy agreements
to which the Company is a party to or which are used by the Company in the
operation of its Business (collectively, "Leases"). The
Company has provided to Buyer true and complete copies of all
Leases. All such Leases are legal, valid and binding obligations of
the Company and in full force and effect, and following the Closing, such
Leases
will continue to be legal, valid and binding obligations of the Company and
enforceable by the Company that is a party thereto. There are no
disputes, defaults, oral agreements or forbearances in effect as to any such
Leases. The Company is in compliance in all material respects with
all of the terms and conditions of such Leases. The Company has, and
will continue to have after the Closing (including with respect to any Lease
of
real property located outside the United States), good and valid title to
the
leasehold estate or other interest created under its respective Lease, free
and
clear of all Encumbrances. Each such Lease grants, and will continue
to grant after the Closing, the Company the exclusive right to use the property
that is the subject of such Lease free and clear of all
Encumbrances. The Company owns all the properties and assets (whether
real, personal or mixed and whether tangible or intangible and wherever located)
that it purports to own. The assets of the Company set forth in the
Balance Sheet and the properties owned or leased by the Company as of the
date
hereof and disclosed to Buyer are all the assets and properties required
to
conduct the Business of the Company, with the exception of those items of
computer equipment and mobile telephones designated on Schedule 5.6 as
excluded assets to be retained by the Designated Stockholders following the
Closing.
5.7.
Condition and Sufficiency
of
Assets. To
the Knowledge of the Company, the buildings, structures and equipment of
the
Company are structurally sound and are in such operating condition and repair
as
is reasonably required to operate the Business of the Company. The
building, structures and equipment of the Company are adequate for the uses
to
which they are being put, and, to the Knowledge of the Company, none of such
buildings, structures and equipment of the Company are in need of maintenance
or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
5.8.
Accounts Receivable. All
accounts receivable of the Company that are reflected on the Balance Sheet
or on
the accounting records of the Company as of the Closing (collectively, the
"Accounts Receivable") arose or will have arisen from bona fide
sales actually made or services actually performed in the
Ordinary Course
of Business. Unless paid prior to the Closing, as of the Closing Date
the Accounts Receivable will be current and collectible net of the respective
reserves shown on the Balance Sheet or on the accounting records of the Company
as of the Closing (which reserves (i) are adequate and calculated consistent
with past practice, (ii) in the case of reserves as of the Closing, will
not
represent a lower percentage of the Accounts Receivable as of the Closing
than
the reserve reflected in the Balance Sheet represented of the Accounts
Receivable reflected therein and (iii) will not represent a Material Adverse
Change in the composition of such Accounts Receivable (in terms of
aging). Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in full, without any set-off, within
ninety
(90) days after the day on which it first becomes due and
payable. There is no contest, claim or right of set-off, other than
returns in the Ordinary Course of Business, under any Contract with any obligor
of any Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Schedule 5.8 contains a complete and accurate list
of all Accounts Receivable as of the Closing Date, which list sets forth
the
aging of such Accounts Receivable.
26
5.9.
No Undisclosed Liabilities. Except
as set forth in Schedule 5.9, the Company has no Liabilities except for
current Liabilities incurred in the Ordinary Course of Business since the
date
of the Balance Sheet, none of which, individually or in the aggregate, exceed
$25,000.
5.10.
Taxes.
(a)
Filing of Tax Returns. The Company has duly and timely filed
(or caused to be filed) with the appropriate taxing authorities all Tax Returns
required to be filed. All such Tax Returns filed are complete and
accurate in all material respects. All Taxes owed by the Company or
any Company Stockholder (whether or not shown on any Tax Return) have been
timely paid in full. The Company is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim
has ever been made by an authority in a jurisdiction where the Company does
not
file Tax Returns or may be subject to taxation by that
jurisdiction.
(b)
Payment of Taxes. The unpaid Taxes of the Company (i) did not,
as of the date of the Financial Statements, exceed the reserve for Tax liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Balance
Sheet contained in the Financial Statements (rather than in any notes thereto),
and (ii) will not exceed that reserve as adjusted for operations and
transactions through the Closing Date in accordance with the past custom
and
practice of the Company in filing its Tax Returns.
(c)
Audits, Investigations, Disputes or Xxxxxx.Xx deficiencies for Taxes have
been claimed, proposed or assessed by any taxing or other governmental authority
against the Company. There are no pending or, to the Knowledge of the
Company, Threatened audits, investigations, disputes or claims or other Actions
for or relating to any Liability for Taxes with respect to the Company, and
there are no matters under discussion with any governmental authorities,
or
known to the Company, with respect to Taxes that are likely to result in
an
additional Liability for Taxes with respect to the Company. Audits of
federal, state and local Tax Returns by the relevant taxing authorities have
been completed for the periods set forth in Schedule 5.10 and, except as
set forth in such Schedule, neither the Company nor any predecessor has been
notified that any taxing authority intends to audit a Tax Return for any
other
period. The Company has delivered to Buyer complete and accurate
copies of federal, state and local Tax Returns of the Company and any
predecessors for the last two (2) years ended December 31, 2006, and complete
and accurate copies of all examination reports and statements of deficiencies
assessed against or agreed to by the Company since the Company's
inception. The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. No power of attorney granted by the Company
with respect to any Taxes is currently in force.
27
(d)
Lien. There are no Encumbrances for Taxes (other than for
current Taxes not yet due and payable) on any of the assets of the Company
or
any shares of Company Common Stock.
(e)
Tax Sharing Agreements. There are no Tax-sharing agreements or
similar arrangements (including indemnity arrangements) with respect to or
involving the Company or any of its assets or Business, and after the Closing
Date, the Company, its assets, and its Business shall not be bound by any
such
Tax-sharing agreements or similar arrangements or have any Liability thereunder
for amounts due in respect of periods prior to the Closing Date.
(f)
Parachute Payments. The Company is not a party to any
agreement, Contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of IRC § 280G.
(g)
As of the date hereof, the Company has no knowledge of any conditions that
exist
that could reasonably be expected to prevent or impede the Merger and the
Subsequent Merger, taken together, from qualifying as a reorganization within
the meaning of Section 368(a)(2)(D) of the Code.
5.11.
No Material Adverse Change. Since
the date of the Balance Sheet, there has not been any Material Adverse Change
in
the business, operations, properties, prospects, assets or condition (financial
or other) of the Company.
5.12.
Employee Benefits.
(a)
Other than as such is described in Schedule 5.12, the Company has at no
time offered or maintained any Benefit Plans.
(b)
Each Benefit Plan has been maintained in compliance with its terms and with
the
requirements prescribed by all applicable Legal Requirements and is in good
standing in respect of such applicable Legal Requirements and each Benefit
Plan
that is required to be registered under applicable Laws is duly registered
with
the relevant Governmental Body.
(c)
The Company has caused to be delivered the following documents to
Buyer:
(i)
true and complete copies of all the text of the Benefit Plans (where no text
exists, a summary has been provided) and any related trust agreements, insurance
contracts or other documents governing those plans, all as amended to the
date
hereof; and
28
(ii)
a copy of all materials or documents distributed to new or existing members
of
the Benefit Plans during the last three years.
(d)
No event or circumstance has occurred since the date of those documents which
would reasonably be expected to adversely affect the information contained
herein or therein.
(e)
No promises or commitments have been made by the Company to amend any Benefit
Plan, to provide increased benefits thereunder or to establish any new benefit
plan.
(f)
The liabilities of the Company under any Benefit Plan are properly accrued
and
reflected in the Financial Statements.
(a)
Except as set forth in Schedule 5.13(a): (i) the Company
and each of the Designated Stockholders are not, and have not been at any
time
since the inception of the Company, in violation of any Legal Requirement
applicable to the Company, the Designated Stockholders, the conduct of their
Business or the ownership of their assets or property, or by which any of
them
are bound, except for violations which are not continuing and which, in any
event, did not and will not, individually or in the aggregate, have a Material
Adverse Effect on the Company and (ii) no event has occurred or
circumstance exists or has been alleged that (with or without notice or lapse
of
time) may constitute or result in a violation by the Company or any Designated
Stockholder of, or a failure on the part of the Company or any Designated
Stockholder to comply with, any such Legal Requirement or give rise to any
obligation on the part of the Company or any Designated Stockholder to
undertake, or to bear all or any portion of the cost of, any remedial action
of
any nature, except for violations, failures or obligations which, individually
or in the aggregate, would not have a Material Adverse Effect on the
Company.
(b)
The Company holds and is in compliance with, and Schedule 5.13(b) sets
forth, all material governmental qualifications, registrations, filings,
privileges, franchises, licenses, permits, approvals or authorizations
(collectively, the "Licenses") necessary for the lawful conduct and
operation of the Business as currently conducted and operated. The
Licenses are valid and in full force and effect and, other than as a result
of
facts or circumstances relating to Buyer, shall remain so immediately following
consummation of the Transactions. To the Knowledge of the Company, no
Person has alleged any violation or failure to comply by the Company with
any
License listed or required to be listed on Schedule 5.13(b), no
suspension, cancellation or termination of any such License is Threatened,
and
no event has occurred or circumstance exists that may (with or without notice
or
lapse of time) constitute or result directly or indirectly in a violation
of or
a failure to comply with any term or requirement of any such License or result
directly or indirectly in the revocation, withdrawal, suspension, cancellation
or termination of, or any modification to, any such License.
29
(a)
Except as set forth in Schedule 5.14, there is no pending
Proceeding:
(i)
that has been commenced by or against the Company or any Designated Stockholder,
or to the Knowledge of the Company, that otherwise relates to or may affect
the
Business of, or any of the assets or property owned or used by, the Company;
or
(ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, any of the Transactions.
No
such
Proceeding has been Threatened and, to the Knowledge of the Company, no event
has occurred or circumstance exists that (with or without notice or lapse
of
time) may give rise to or serve as a basis for the commencement of any such
Proceeding. The Designated Stockholders have delivered to Buyer
copies of all pleadings, correspondence, and other documents relating to
each
Proceeding listed in Schedule 5.14. The Proceedings listed in
Schedule 5.14 will not, individually or in the aggregate, have a Material
Adverse Effect on the Company or on its ability to operate or conduct its
business or own or use its assets after the Closing.
(b)
Except as set forth in Schedule 5.14:
(i)
there is no Order to which the Company or any of the assets owned or used
by the
Company, is subject;
(ii)
the Designated Stockholders are not subject to any Order that relates to
the
Business of, or any of the assets owned or used by, the Company;
and
(iii)
to the Knowledge of the Company, no manager, agent or Employee of the Company
is
subject to any Order that prohibits such manager, agent or Employee from
engaging in or contributing any conduct, activity or practice relating to
the
Business of the Company.
Except
as
set forth in Schedule 5.15, since the date of the Balance Sheet, the
Company has conducted its Business only in the Ordinary Course of Business
and
there has not been any:
30
(a)
(i) change in authorized or issued shares of Company Common Stock or equity
of the Company; (ii) grant of any option or right to purchase shares of
Company Common Stock or equity of the Company; (iii) issuance of any
security convertible into such Company Common Stock or equity; (iv) grant
of any registration rights; (v) purchase, redemption, retirement or other
acquisition by the Company of any shares of any such Company Common Stock
or
equity; or (vi) declaration or payment of any dividend or other
distribution or payment in respect of such shares of Company Common Stock
or
equity;
(b)
amendment to the Organizational Documents of the Company;
(c)
payment or increase by the Company of any bonuses, salaries or other
compensation (including management or other similar fees) to any shareholder,
director, officer or entry into any employment, severance or similar Contract
with any manager or Employee;
(d)
adoption of, or increase in the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
severance or other employee benefit plan for or with any of the Employees
of the
Company or any increase in the payment to or benefits under any Benefit Plan
for
or with any employees of the Company;
(e)
damage to or destruction or loss of any asset or property of the Company,
whether or not covered by insurance, that would have a Material Adverse Effect
on the Company;
(f)
entry into, termination or acceleration of, or receipt of notice of termination
of (i) any material license, distributorship, dealer, sales representative,
joint venture, credit or similar agreement or (ii) any Contract or
transaction involving a Liability by or to the Company of at least
$25,000;
(g)
sale (other than sales in the Ordinary Course of Business), lease or other
disposition of any asset or property of the Company;
(h)
mortgage, pledge or imposition of any Lien or other Encumbrance on any asset
or
property of the Company, including the sale, lease or other disposition of
any
of the Intellectual Property Assets;
(i)
delay or failure to repay when due any obligation, including without limitation,
accounts payable and accrued expenses;
(j)
accrual of any expenses except for such accruals in the Ordinary Course of
Business;
(k)
capital expenditures in excess of $25,000;
(l)
cancellation or waiver of any claims or rights with a value to the Company
in
excess of $25,000;
31
(m)
payment, discharge or satisfaction of any Liability by the Company, other
than
the payment, discharge or satisfaction of Liabilities in the Ordinary Course
of
Business;
(n)
incurrence of or increase in, any Liability, except in the Ordinary Course
of
Business, or any accelerated or deferred payment of or failure to pay when
due,
any Liability;
(o)
loan to, or any agreement with, any Employee other than an employment
agreement;
(p)
failure to preserve intact the current business organization of the Company,
keep available the services of its current officers, Employees and agents
and
maintain the relations and good will with its suppliers, customers, landlords,
creditors, Employees, agents and others having business relationships with
them;
(q)
change in the accounting methods used by the Company;
(r)
election made, extension granted or waiver of a statute of limitations with
respect to Taxes or settlement or compromise any federal, state, local or
foreign claim or Liability for Taxes; or
(s)
legally binding and enforceable agreement, whether oral or written, by the
Company with respect to or to do any of the foregoing.
5.16.
Contracts; No Defaults.
(a)
Schedule 5.16 contains a complete and accurate list, and the Company has
made available to Buyer true and complete copies, of:
(i)
each Applicable Contract that involves or will involve performance of services
or delivery of goods by the Company of an amount or value, individually or,
for
a series of related Applicable Contracts, in the aggregate, in excess of
$25,000;
(ii)
each Applicable Contract that involves performance of services or delivery
of
goods or materials to the Company during any twelve (12) month period of
an
amount or value, individually or, for a series of related Applicable Contracts,
in the aggregate, in excess of $25,000;
(iii)
each Applicable Contract that was not entered into in the Ordinary Course
of
Business;
(iv)
each lease, rental or occupancy agreement, license, installment and conditional
sale agreement of the Company and each other Applicable Contract, in each
case
affecting the ownership, title to, use of, occupancy, or any leasehold or
other
interest in, any real or personal property (except personal property leases
and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 and with terms of less than one
year);
32
(v)
each licensing agreement of the Company and each other Applicable Contract,
in
each case with Intellectual Property, including agreements with current or
former Employees, consultants or contractors regarding the appropriation
or the
non-disclosure of any of the Intellectual Property Assets;
(vi)
each collective bargaining agreement of the Company and each other Applicable
Contract, in each case to or with any labor union or other Employee
representative of a group of Employees and each other written employment
or
consulting agreement with any Employees or consultants;
(vii)
each joint venture or partnership of the Company (however named) and each
other
Applicable Contract, in each case involving a sharing of profits, losses,
costs
or Liabilities by the Company with any other Person;
(viii)
each Applicable Contract containing covenants that in any way purport to
restrict the business activity of the Company or any of its Affiliates or
limit
the freedom of the Company or any of its Affiliates to engage in any line
of
business or to compete with any Person;
(ix)
each Applicable Contract providing for payments to or by any Person based
on
sales, purchases or profits, other than direct payments for goods;
(x)
each power of attorney granted by or to the Company that is currently, or
will
be at the Closing, effective and outstanding;
(xi)
each Applicable Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by the Company
to
be responsible for consequential damages;
(xii)
each Applicable Contract for capital expenditures in excess of
$10,000;
(xiii)
each Applicable Contract which, to the Knowledge of the Company, will result
in
a material loss to the Company;
(xiv)
each Applicable Contract in effect presently or during the last twelve (12)
months between the Company and its former or current stockholders, directors,
officers and Employees;
(xv)
each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance in excess of
$25,000 extended by the Company, other than in the Ordinary Course of
Business;
33
(xvi)
each severance agreement or similar arrangement that provides any obligations
(absolute or contingent) for the Company or any other Person to make any
payment
to any officer, director, or Employee or stockholder of the Company after
termination; and
(xvii)
each amendment, supplement, and modification (whether oral or written) in
respect of any of the foregoing.
(b)
Except as set forth in Schedule 5.16, no Company Stockholder (or any
Affiliate thereof) has (or by the express terms thereof may acquire) any
rights
under, and no Company Stockholder has (or by the express terms thereof may
become subject to) any obligation or liability under any Contract that relates
to the business of, or any of the assets owned or used by, the
Company;
(c)
Except as set forth in Schedule 5.16, each Contract identified or
required to be identified in Schedule 5.16 is in full force and effect
and is legal, valid, binding and enforceable in accordance with its terms
against the Company and, to the Knowledge of the Company, against all of
the
parties thereto.
(d)
Except as set forth in Schedule 5.16:
(i)
the Company is, and at all times since January 1, 2007, has been, in compliance
in all material respects with all terms and requirements of each Contract
identified or required to be identified on Schedule 5.16;
(ii)
to the Knowledge of the Company, each other Person that has or had any
obligation or Liability under any Applicable Contract identified or required
to
be identified on Schedule 5.16 is, and at all times since January 1, 2007
has been, in compliance with all material terms and requirements of such
Applicable Contract;
(iii)
to the Knowledge of the Company, no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with,
or
result in a violation or breach of, or give the Company or any other Person
the
right to declare a default or exercise any remedy under, or to accelerate
the
maturity or performance of, or to cancel, terminate or modify, any Contract
identified or required to be identified on Schedule 5.16;
and
(iv)
the Company has not given to or received from any other Person, at any time
since January 1, 2007, any written or, to the Knowledge of the Company, other
notice or communication regarding any actual, alleged, possible or potential
violation or breach of, or default under, any Contract identified or required
to
be identified in Schedule 5.16.
(e)
There are no renegotiations of, attempts to renegotiate, and there are no
outstanding rights to renegotiate any material amounts paid or payable to
the
Company under current or completed Contracts with any Person and no such
Person
has made written demand for such renegotiation.
34
(f)
The Contracts relating to the provision of products or services by the Company
have been entered into in the Ordinary Course of Business and have been entered
into without the commission of any act alone or in concert with any other
Person, or any consideration having been paid or promised, that is or would
be
in violation of any Legal Requirement.
5.17.
Insurance. Schedule
5.17 contains a true and complete list (including the names and addresses
of
the Company's insurers, the names of the Persons to whom such insurance have
been issued, the expiration dates thereof, the annual premiums and payment
terms
thereof, whether it is a "claims made" or an "occurrence" policy and a brief
description of the interests insured thereby) of all liability, property
and
other insurance policies currently in effect that insure the Business, the
Employees or the Company. Each such insurance policy is valid and
binding and in full force and effect, no premiums due thereunder have not
been
paid and Seller has not received any notice of cancellation or termination
in
respect of any such policy or is in default thereunder. To the
Knowledge of the Company, such insurance policies are placed with financially
sound and reputable insurers and, in light of the nature of the Business
and the
Company, are in amounts and have coverages that are reasonable and customary
for
Persons engaged in such business and having such assets and
properties. Neither the Company nor the Person to whom such policy
has been issued has received notice that any insurer under any policy referred
to in this Section is denying liability with respect to a claim thereunder
or
defending under a reservation of rights clause.
5.18.
Environmental Matters. Except
as set forth in Schedule 5.18: The Company does not need any
Licenses under Environmental Laws in connection with the conduct of the
Business. The Company, in connection with the Business, has, at all
times, conducted, held and used, and is continuing to conduct, hold and use,
its
affairs, business and properties (including without limitation the Business)
in
accordance in all material respects with all applicable Environmental
Laws. At no time have any Hazardous Materials been released, emitted,
discharged, deposited, issued, sprayed, injected, abandoned, buried, spilled,
incinerated, disposed, leaked, poured, emptied, dumped or placed on, in,
under
or adjacent to any immoveable or real property owned, or used or leased by
the
Company in connection with the Business.
5.19.
Labor and Employee Relations. The
Company is not and has never been throughout the period of operation of the
Company (and no predecessor corporation or other entity has been) a party
to any
collective bargaining or other labor Contract. There has not been,
and there is not presently pending or existing, and, to the Knowledge of
the
Company, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, lock-out or Employee grievance process, (b) any Proceeding against
or
affecting the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, or (c) any application
for
certification of a collective bargaining agent. No event has occurred
or circumstance exists that could provide the basis for any work stoppage
or
other labor dispute. There is no lockout of any Employees by the
Company, and no such action is contemplated by the Company. The
Company has complied in all material respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar Taxes, occupational safety and health, and plant
closing. The Company is not liable for the payment of any
compensation, damages, Taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing Legal
Requirements. Schedule 5.19 sets forth the names of all
Persons currently and previously employed by the Company since the date of
its
inception. To the Knowledge of the Company, no Employee, or manager of the
Company is a party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, noncompetition, or proprietary rights agreement,
between such Employee, manager and any other Person that in any way adversely
affects or will affect (i) the performance of such Employee's duties as an
Employee or manager of the Company, or (ii) the ability of the Company to
conduct its Business, including any such agreement or arrangement with the
Designated Stockholders or the Company by any such Employee or
manager. To the Knowledge of the Company, no manager or other key
Employee of the Company intends to terminate his employment with the
Company.
35
5.20.
Intellectual Property.
(a)
Schedule 5.20(a) sets forth a complete and correct list of all
unregistered Marks (as such term is defined within the definition of
Intellectual Property Rights) owned, by the Company (collectively, "Owned
Marks"). The Company does not own any registered Marks or
applications therefor. Except as set forth in
Schedule 5.20(a):
(i)
The Company is the owner of all right, title and interest in and to all Owned
Marks, except as provided in Schedule 5.20(a), in each case free and
clear of any and all Encumbrances, covenants, conditions and restrictions
or
other adverse claims or interests of any kind or nature and the Company has
not
received any notice or claim (whether written or oral) challenging its ownership
of the Owned Marks or suggesting that any other Person has any claim of legal
or
beneficial ownership or other claim or interest with respect
thereto;
(ii)
The Company has not received any notice or claim (whether written or oral)
challenging the validity or enforceability of the Owned Marks and no Owned
Marks
have been or are now involved in any opposition or cancellation proceeding
and,
to the Knowledge of the Company, no such action is Threatened with respect
to
any of the Owned Marks;
(iii)
The Company has not granted to any Person any right, license or permission
to
use any of the Owned Marks (other than under the Contracts disclosed in
Schedule 5.20(a)); and
(iv)
The Company does not use any Marks other than the Owned Marks or Marks for
which
it has the necessary rights under the Licensed Technology
Agreements.
36
(b)
The Company owns no Patents, registrations or applications
therefor. The Company does not use any Patents other than Patents for
which it has the necessary rights under the Licensed Technology Agreements.
Schedule 5.20(b) hereto sets forth a true, correct and complete list of
all Patents for which the Company has rights under the Licensed Technology
Agreements. The Company is not, nor has it received any notice that
it is, in default under any Licensed Technology Agreement with respect to
the
Patents.
(c)
The Company owns no registered Copyrights (whether registered in the United
States or in any foreign jurisdiction and as the term Copyright is defined
within the definition of Intellectual Property Rights) or any pending
applications for registration of Copyrights anywhere in the
world. All material Copyrights owned by the Company, including but
not limited to software in which the Company owns copyrights, are referred
to
herein as the "Owned Copyrights". Except as set forth on
Schedule 5.20(c) or 5.20(g):
(i)
The Company is the owner of all right, title and interest in and to all Owned
Copyrights in each case free and clear of any and all Encumbrances, covenants,
conditions and restrictions or other adverse claims or interests of any kind
or
nature and the Company has not received any notice or claim (whether written
or
oral) challenging its ownership of the Owned Copyrights or suggesting that
any
other Person has any claim of legal or beneficial ownership with respect
thereto;
(ii)
The Company has not received any notice or claim (whether written or oral)
challenging the validity or enforceability of the Owned Copyrights or any
threat
or other indication of an intention on the part of any Person to bring a
claim
that any Owned Copyright is invalid or is unenforceable;
(iii)
The Company has not granted to any other Person any right, license or permission
to use any of the Owned Copyrights (other than under the Contracts disclosed
at
Schedule 5.20(c) or 5.20(g); and
(iv)
The Company does not use or hold for use any Copyrights other than the Owned
Copyrights and Copyrights for which it has the necessary rights under the
Licensed Technology Agreements.
(d)
All Trade Secrets used by the Company are either owned by the Company, are
included in the Licensed Intellectual Property.
(e)
Schedule 5.20(e) sets forth a complete and accurate list of all Contracts
granting to the Company any material right to use or practice any Intellectual
Property Rights (collectively, the "Licensed Technology Agreements"),
including for each the title and the parties thereto and the expiration dates
thereof. The Company has in its possession or control: (A) correct
and complete, fully-executed copies of all Licensed Technology Agreements
that
are identified in Schedule 5.20(e); and (B) correct and complete copies
of all documents relating to each item of licensed Intellectual Property
in the
Licensed Technology Agreements. The Company has delivered to Buyer
correct and complete, fully-executed copies of all of the Licensed Technology
Agreements. Except as set forth on Schedule 5.20(e) there are
no restrictions on the direct or indirect (i) transfer of any license, or
any
interest therein, held by the Company in respect of the Intellectual Property
or
(ii) direct or indirect changes of control of the Company. Except for
the fees identified in Schedule 5.20(e) for the Licensed Technology
Agreements identified therein, no licensing fees, royalties, volume or
milestone-based payment or other payment obligations of any kind are due
or
payable by the Company in connection with the Intellectual Property Rights
licensed by the Company, other than maintenance fees. Except as set
forth in Schedule 5.20(e):
37
(i)
the Licensed Technology Agreements together expressly confer on the Company
valid and enforceable rights under or in respect of all of the Intellectual
Property Rights that are not owned exclusively by the Company and that are
used
or practiced in the Business (collectively, the "Licensed Intellectual
Property");
(ii)
all Licensed Technology Agreements are in full force and effect, and the
Company
is not, nor has it received any notice that it is, in default or breach
thereof;
(iii)
there are no outstanding and no threatened disputes or disagreements between
the
Company and any other party with respect to any Licensed Technology
Agreement;
(iv)
neither the execution and delivery of this Agreement, nor the consummation
of
the Transactions, will conflict with or result in a breach of (or adversely
impact Buyer's rights under) any of the terms, conditions or provisions of,
or
constitute a default under, or result in the impairment of any rights under,
any
Licensed Technology Agreement; and
(v)
the rights licensed under each Licensed Technology Agreement will be exercisable
by the Company on and immediately after the Closing to the same extent as
exercisable by the Company prior to the Closing.
(f)
Schedule 5.20(f) separately lists and identifies all (A) computer
programs, (B) computer databases (including, but not limited to, databases
used
in conjunction with such computer programs) and (C) documentation,
specifications, manuals and materials associated therewith, owned, licensed
or
used by Company, excluding generally available off-the-shelf computer and
work
station software (collectively, the "Software Rights"). Except
as set forth in Schedule 5.20(f), all right, title and interest in and to
the Software is owned by the Company free and clear of all Liens, are fully
transferable to Buyer, and no party other than the Company has any interest
in
the Software.
(i)
The computer software included in the Software Rights (the "Software")
performs in all material respects in accordance with the documentation and
other
written materials related to the Software and is free from substantial defects
in programming and operations, is in machine readable form, contains all
current
revisions of such Software, and includes all computer programs, materials,
tapes, know-how, object and source codes, other written materials, know-how
and
processes related to the Software. As of the Closing, the Company has
delivered to Buyer complete and correct copies of the Software in its current
form and all user and technical documentation related thereto.
38
(ii)
All copies of the Software embodied in physical form are being delivered
to
Buyer at or prior to the closing.
(iii)
Company has kept the source code for the Software secret, has not deposited
it
with an escrow agent and has not disclosed it to any person or entity other
than
certain employees or independent contractors of Company who are subject to
the
terms of a binding confidentiality agreement with respect
thereto. Company has taken all reasonable, appropriate measures to
protect the confidentiality and proprietary nature of the Software, including
without limitation, the use of the confidentiality agreements with all of
its
employees or independent contractors having access to the Software source
and
object code.
(iv)
Except as set forth in Schedule 5.20(f)(iv), none of the Company's
Intellectual Property or products that are distributed by the Company use,
incorporate or have embedded in them any source, object or other software
code
subject to an "open source," "copyleft" or other similar types of license
terms
(including, without limitation, any GNU General Public License, Library General
Public License, Lesser General Public License, Mozilla License, Berkeley
Software Distribution License, Open Source Initiative License, MIT, Appache
or
public domain licenses, and the like) that requires or would reasonably be
expected to require, or conditions, or would reasonably be expected to
condition, the use or distribution of any of the Company's Intellectual Property
or products or the disclosure, licensing or distribution of any source code
of
the Company, or that would otherwise subject any source code of the Company
to
the terms of any such type of license.
(g)
The Contracts disclosed in Schedule 5.20(g) constitute every agreement
(whether written or oral) pursuant to which the Company has granted to any
Person any right to distribute, develop, prepare derivative works based on,
support or maintain or otherwise commercially exploit any content, software
or
technology of the Company, or any license by the Company to any Person of
any
rights with respect to any Intellectual Property Rights, including any
value-added reseller agreements, exclusive and non-exclusive license agreements,
joint development or marketing agreements, and strategic alliance agreements
(collectively, "Technology Exploitation Agreements"). Except
as set forth in Schedule 5.20(g):
(i)
all Technology Exploitation Agreements are in full force and effect and the
Company and to the Knowledge of the Company any other party thereto are not
in
breach thereof;
39
(ii)
there are no outstanding and no threatened disputes or disagreements between
the
Company and any other party with respect to any Technology Exploitation
Agreement; and
(iii)
neither the execution and delivery of this Agreement, nor the consummation
of
the Transactions, will conflict with or result in a breach of (or adversely
impact Buyer's rights under) any of the terms, conditions or provisions of,
or
constitute a default under, or result in the impairment of any rights under,
any
Technology Exploitation Agreement.
(h)
Except as identified in Schedule 5.20(h), no approval or consent of any
person is needed so that the interest of Buyer in the Intellectual Property
Rights shall continue to be in full force and effect following the Transactions
contemplated by this Agreement, and the Company is not subject to any
restriction, agreement, instrument, order, judgment or decree which would
be
violated or breached by the consummations of the Transactions contemplated
by
this Agreement.
(i)
The Software, Owned Marks, the Owned Copyrights, the Licensed Intellectual
Property and the Trade Secrets constitute all of the Intellectual Property
Rights necessary for the conduct of the Business as currently conducted and
constitute all of the Intellectual Property Rights necessary to operate the
Business after the Closing in substantially the same manner as the business
heretofore has been operated by the Company. The Company has
delivered to Buyer prior to the execution of this Agreement documentation
with
respect to any invention, process, design, computer program or other know-how
or
trade secret included in the Intellectual Property, which documentation is
accurate in all material respects and reasonably sufficient in detail and
content to identify and explain such invention, process, design, computer
program or other known-how or trade secret and to facilitate its use without
reliance on the special knowledge or memory of any Person.
(j)
The conduct of the Company's Business as conducted prior to or on the Closing
Date, does not, to the Knowledge of the Company, interfere with, infringe
upon,
contribute to infringement upon, induce infringement upon, misappropriate
or
unlawfully use any Intellectual Property of any Person. The Company has never
received any threat, charge, complaint, claim, demand or notice alleging
such
interference, infringement, misappropriation or violation (including an claim
that the Company must license or refrain from using any Intellectual Property
of
a Person), there are not any facts of which the Company is aware which could
give rise to a threat, charge, complaint, claim, demand or notice. To
the Knowledge of the Company, no Person has interfered with, infringed upon
or
misappropriated any Intellectual Property Rights of the Company.
(k)
The Company has taken commercially reasonable and customary measures and
precautions necessary to protect and maintain the confidentiality of all
Trade
Secrets and Software source code in which the Company has any right, title
or
interest and otherwise to maintain and protect the full value of all such
Trade
Secrets and Software.
40
(l)
Each employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for
Buyer. To the Knowledge of the Company, no employee of the Company is
in default under, and the consummation of the transactions contemplated by
this
Agreement will not result in a default of, any term of any employment contract,
agreement or arrangement relating to the Intellectual Property Rights or
any
noncompetition arrangement, or any other agreement or any restrictive covenant
relating to the Intellectual Property Rights. The Company does not
have any obligation to compensate any Person for the development, use, sale
or
exploitation of the Intellectual Property Rights nor has the Company granted
to
any other Person or entity any license, option or other rights to develop, use,
sell or exploit in any manner the Intellectual Property Rights whether requiring
the payment of royalties or not. No former or current employee has filed,
asserted in writing, or to the Knowledge of the Company, threatened any claim
against the Company in connection with his or her involvement in Intellectual
Property Rights used in and material to the Company's business. To
the Knowledge of the Company, no current or former employee has any Patents
issued or applications pending for any device, process, design or invention
of
any kind now used or needed by the Company which Patents or applications
have
not been assigned to the Company.
5.21.
Certain Payments. Neither
the Company, nor any of its directors, officers, agents or Employees or any
other Person affiliated with or acting for or on behalf of the Company, has
at
any time, in violation of any Legal Requirement, (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback or other payment
to any
Person, private or public, regardless of form, whether in money, property
or
services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for
or
in respect of the Company or any of its Affiliates, or (b) established or
maintained any fund or asset that has not been recorded in the books and
records
of the Company in violation of any Legal Requirement.
5.22.
No Other Agreements to Sell
Assets or Equity of the
Company. Neither
the Company, nor any of its directors, officers or Affiliates has any commitment
or legal obligation, absolute or contingent, to any other Person or firm,
other
than as contemplated by the Transactions, to sell, assign, transfer or effect
a
sale of any of the assets of the Company (other than inventory and products
in
the Ordinary Course of Business), to sell or effect a sale of Company Common
Stock, to effect any merger, acquisition, consolidation, liquidation,
dissolution or other reorganization of the Company or to enter into any
agreement or cause the entering into of an agreement with respect to any
of the
foregoing.
5.23.
Relationships with Related
Parties. Except
as set forth in Schedule 5.23, neither the Company, nor any Person
related to or affiliated with any Designated Stockholder owns or has owned
(of
record or as a beneficial owner) an equity interest or any other financial
or
profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with
the
Company at substantially prevailing market prices and on substantially
prevailing market terms or (ii) engaged in a business competing with the
Company
with respect to any line of the products or services of the Company in any
market presently served by the Company except for less than one percent (1%)
of
the outstanding capital stock of any such competing business that is publicly
traded on any recognized exchange or in the over-the-counter
market. Except as set forth in Schedule 5.23, no Person
related to or affiliated with any Company Stockholder is a party to any Contract
with, or has any claim or right against, the Company.
41
5.24.
Customers and Suppliers. Schedule
5.24 contains a complete and accurate list of the ten (10) largest suppliers
and ten (10) largest customers of the Company (based upon dollars billed
by the
Company), during the Company's last fiscal year, showing the approximate
total
xxxxxxxx by the Company from each such customer during such fiscal
year. Since the date of the Balance Sheet, there has been no material
adverse change in the business relationship with any suppliers or customer
named
in Schedule 5.24 or required to be named therein, and there has been no
threat or indication of any material adverse changes.
5.25.
Bank Accounts, Powers of Attorney. Schedule
5.25 sets forth an accurate and complete list showing the name and address
of each bank in which the Company has any account, safe deposit box, borrowing
arrangement or certificate of deposit, the number of any such account or
any
such box and the names of all Persons authorized to draw thereon or to
have
access thereto.
5.26.
Brokers and Finders. The
Company, the Designated Stockholders and their respective agents have incurred
no obligation or Liability for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement. The
Designated Stockholders agree to indemnify Buyer against and to hold Buyer
harmless from, any claims for brokerage or similar commission or other
compensation which may be made against Buyer by any third party in connection
with the Transactions, which claim is based upon such third party having
acted
as broker, finder, investment banker, advisor, consultant or appraiser
or in any
similar capacity on behalf of either of the Designated Stockholders or
any of
their Affiliates.
5.27.
Disclosure. No
representation or warranty of the
Designated Stockholders or the Company in this Agreement and no statement
by
them in the Disclosure Schedule is a misstatement of a material fact or
omits to
state a material fact necessary to make the statements herein or therein,
in
light of the circumstances in which they were made, not misleading.
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer
hereby represents and warrants to the Company and the Designated Stockholders
as
follows:
6.1.
Organization of Buyer. Buyer
is duly organized, validly existing and in good standing under the laws
of the
State of Utah.
42
(a)
This Agreement constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer, in accordance with its terms. Upon the
execution and delivery by Buyer of the Transaction Documents to which it
is a
party, such Transaction Documents will constitute the legal, valid and binding
obligations of Buyer, enforceable against Buyer, in accordance with their
respective terms, except where such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (ii) the general principles of
equity,
regardless of whether asserted in a proceeding in equity or at
law. Subject to the terms of this Agreement, Buyer has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement and the Transaction Documents to which it is a party and to perform
its obligations under this Agreement and the Transaction Documents to which
it
is a party.
(b)
Except as set forth in Schedule 6.2, neither the execution and delivery
of this Agreement by Buyer, nor the consummation or performance of any of
the
Transactions by Buyer, will give any Person the right to prevent, delay or
otherwise interfere with any of the Transactions pursuant to: (i) any
provision of Buyer's Organizational Documents; (ii) any resolution adopted
by
the board of directors of Buyer; (iii) any Legal Requirement or Order to
which
Buyer may be subject; or (iv) any Contract to which Buyer is a party or by
which
Buyer may be bound, except in the case of each of clauses (iii) and (iv)
above,
for such contraventions, conflicts, violations, Liabilities, reassessments,
revaluations, breaches or creations of Encumbrances which, individually and
in
the aggregate, would not have a Material Adverse Effect with respect to
Buyer. Except as set forth in Schedule 6.2, Buyer is not and
will not be required to obtain any Consent from any Person in connection
with
the execution and delivery of this Agreement or the consummation or performance
of any of the Transactions.
6.3.
Proceedings. There
is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal,
or
otherwise interfering with, any of the Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
6.4.
Brokers or Finders. Buyer
has incurred no obligation or Liability, for brokerage or finders' fees or
agents' commissions or other similar payment in connection with this Agreement
and will indemnify and hold the Designated Stockholders harmless from any
such
payment alleged to be due by or through Buyer as a result of the action of
Buyer.
6.5.
Capitalization. The
authorized capital stock of the Buyer consists of (a) 100,000,000 shares
of
Buyer Common Stock, of which 49,637,252 shares were issued and outstanding
as of
October 12, 2007, and (b) 100 shares of Series "D" Preferred Stock, $0.001
par
value per share, of which 27 shares are issued and outstanding as of October
12,
2007. The rights and privileges of each class of the Buyer’s capital stock are
set forth in the Buyer’s Certificate of Incorporation. All of the
shares of Buyer Common Stock to be issued in connection with the transactions
contemplated by this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Buyer’s
Certificate of Incorporation or By-laws or any agreement to which the Buyer
is a
party or is otherwise bound.
43
6.6.
Reports and Financial Statements. The
Buyer has made available to the Company complete and accurate copies, as
amended
or supplemented, of each annual, quarterly and current report filed by Buyer
with the SEC since January 1, 2006 (the "Buyer Reports"). The
Buyer Reports constitute all of the documents required to be filed by the
Buyer
under Section 13 or subsections (a) or (c) of Section 14 of the Exchange
Act
with the SEC from January 1, 2006 through the date of this
Agreement. The Buyer Reports complied in all material respects with
the requirements of the Exchange Act and the rules and regulations thereunder
when filed. As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
in
light of the circumstances under which they were made, not
misleading. The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) complied
as
to form in all material respects with applicable accounting requirements
and the
published rules and regulations of the SEC with respect thereto when filed,
(ii)
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby (except as may be indicated therein or in the
notes
thereto, and in the case of quarterly financial statements, as permitted
by Form
10 Q under the Exchange Act), and (iii) fairly present the consolidated
financial condition, results of operations and cash flows of the Buyer as
of the
respective dates thereof and for the periods referred to therein.
6.7.
Absence of Material Adverse
Change. Since
June 30, 2007, there has not occurred any Material Adverse Effect on
Buyer.
6.8.
Litigation. Except
as disclosed in the Buyer Reports, as of the date of this Agreement, there
is no
Legal Proceeding which is pending or, to the Buyer’s knowledge, threatened
against the Buyer or any subsidiary of the Buyer which, if determined adversely
to the Buyer or such subsidiary, would have, individually or in the aggregate,
a
Material Adverse Effect on Buyer or which in any manner challenges or seeks
to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.
6.9.
Interim Operations of Merger
Sub. I-Corp.
Merger Sub, LLC was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no business
activities other than as contemplated by this Agreement.
6.10.
Tax Matters. As
of the date hereof, neither Buyer, Acquisition Sub nor Merger Sub has knowledge
of any conditions that exist that could reasonably be expected to prevent
or
impede the Merger and the Subsequent Merger, taken together, from qualifying
as
a reorganization within the meaning of Section 368(a)(2)(D) of the
Code.
44
ACTIONS
OF THE DESIGNATED STOCKHOLDERS, THE COMPANY, AND BUYER BEFORE AND AFTER THE
CLOSING DATE
Each
of
the Designated Stockholders, the Company and Buyer covenant and agree with
each
other as follows:
7.1.
Access and Investigation. Between
the date of this Agreement and the Closing, the Company will, and the Designated
Stockholders will cause the Company to, (a) afford Buyer and its Representatives
full and free access to the Company's personnel, properties (including
subsurface testing), Contracts, books and records and other documents and
data,
(b) furnish Buyer and its Representatives with copies of all such Contracts,
books and records and other existing documents and data as they may reasonably
request, and (c) furnish Buyer and its Representatives with such additional
financial, operating and other data and information as they may reasonably
request.
7.2.
Operation of Business. Between
the date of this Agreement and the Closing, the Company will use its
commercially reasonable efforts to:
(a)
conduct its business only in the Ordinary Course of Business;
(b)
preserve intact its current business organization, keep available the services
of its current officers, Employees and agents and maintain the relations
and
good will with its suppliers, customers, landlords, creditors, Employees,
agents
and others having business relationships with it;
(c)
maintain all of the assets of the Company in customary repair, order and
condition; and
(d)
confer with Buyer and its Representatives concerning operational matters
of a
material nature.
7.3.
Negative Covenants. Except
as otherwise expressly permitted by this Agreement, between the date of this
Agreement and the Closing, the Company will not, without the prior written
consent of Buyer (which shall not be unreasonably withheld, delayed or
conditioned), take any affirmative action or fail to take any reasonable
action
within its control, as a result of which any of the changes or events listed
in
Section 5.15 is likely to occur.
7.4.
Required Approvals. As
promptly as practicable after the date of this Agreement, each party will
make
all filings required by Legal Requirements to be made by it in order to
consummate the Transactions. Between the date of this Agreement and
the Closing, the parties will (a) cooperate with respect to all filings that
they may elect to make or may be required by Legal Requirements to make in
connection with the Transactions and (b) cooperate in obtaining all consents
identified in Schedules 5.2 or 6.2.
45
7.5.
Notification. Between
the date of this Agreement and the Closing, each party to this Agreement
will
promptly notify each other party hereto in writing if such party becomes
aware
of any fact or condition that causes or constitutes a Breach of any of its
representations and warranties as of the date of this Agreement, or if such
party becomes aware of the occurrence after the date of this Agreement of
any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence
or
discovery of such fact or condition; provided, however, that such
disclosure shall not be deemed to cure any Breach of a representation or
warranty. Should any such fact or condition require any change in the
Disclosure Schedules if such Schedules were dated the date of the occurrence
or
discovery of any such fact or condition, the discovering party will promptly
deliver to each other party a supplement to the Disclosure Schedules specifying
such change. During the same period, each party of to this Agreement
will promptly notify each other party hereto of the occurrence of any Breach
of
any covenant or agreement by such party in this Article VII or of the
occurrence of any event that may make the satisfaction of the conditions
in
Articles VIII and IX impossible or unlikely; provided,
however, that such disclosure shall not be deemed
to cure any Breach of a
covenant or agreement or to satisfy a condition. Each party to this
Agreement shall promptly notify each other party hereto of any default, the
threat or commencement of any Proceeding or any development that occurs before
the Closing that could in any way materially effect such party, the business
or
assets of such party or the ability of such party to consummate the
Transactions.
7.6.
No Negotiation. Unless
this Agreement is earlier terminated pursuant to Article XI, neither the
Company nor the Designated Stockholders nor any of their respective Affiliates
or Representatives will directly or indirectly (a) solicit, initiate, seek,
encourage or support any inquiries, proposals or offers from any Person (other
than Buyer) relating to, (ii) furnish any non-public information to any Person
(other than Buyer) relating to, (iii) facilitate any inquiries or the making
of
any proposal which constitutes or may reasonably be expected to lead to,
(iv)
engage in any discussion or negotiations with or consider the merits of,
or
accept any unsolicited inquiries or proposals from any Person (other than
Buyer)
relating to, any transaction involving the sale of all or a substantial portion
of the business or assets of the Company or any Company Common Stock, whether
through an asset sale, equity sale, merger, consolidation, reorganization,
recapitalization, share exchange, business combination or similar transaction
involving the Company (each such transaction referred to herein as a
"Alternative Acquisition Proposal"). The Company and the
Designated Stockholders will immediately notify Buyer if any discussions
or
negotiations are sought to be initiated, any inquiry or proposal is made,
or any
information is requested with respect to any Alternative Acquisition Proposal
and notify Buyer of the terms of any proposal which any of them or their
respective Representatives may receive in respect of any such Alternative
Acquisition Proposal, including without limitation, the identity of the
prospective purchaser or soliciting party and the material terms of the
proposal. The Company and the Designated Stockholders shall also
provide Buyer with a copy of any offer.
7.7.
Commercially Reasonable
Efforts. Between
the date of this Agreement and the Closing, each of the parties to this
Agreement will use its commercially reasonable efforts to cause the conditions
in Articles VIII and IX to be satisfied.
46
7.8.
Tax Matters.
(a)
Tax Periods Ending on or before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company and any of its Subsidiaries for all periods ending on or
prior
to the Closing Date which are filed after the Closing Date. Buyer
shall permit the Stockholder Representative to review and comment on each
such
Tax Return described in the preceding sentence prior to filing and shall
make
such revisions to such Tax Returns as are reasonably requested by the
Stockholder Representative.
(b)
Tax Periods Beginning Before and Ending After the Closing
Date. Buyer shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns of the Company for Tax periods which begin
before the Closing Date and end after the Closing Date. Buyer shall
permit the Stockholder Representative to review and comment on each such
Tax
Return described in the preceding sentence to the extent it relates to periods
prior to the Closing prior to filing and shall make such revisions to such
Tax
Returns as are reasonably requested by the Stockholder
Representative.
(c)
Cooperation on Tax Matters.
(i)
Buyer, the Designated Stockholders and the Stockholder Representative shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Agreement and
any
audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request)
the
provision of records and information which are reasonably relevant to any
such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation
of
any material provided hereunder. The Designated Stockholders shall,
(A) retain all books and records with respect to Tax matters pertinent to
the
Company relating to any Taxable period beginning before the Closing Date
until
the expiration of the statute of limitations (and, to the extent notified
by
Buyer or the Stockholder Representative, any extensions thereof) of the
respective Taxable periods, and to abide by all record retention agreements
entered into with any Taxing authority, and (B) give Buyer reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if Buyer so requests, the Designated Stockholders shall allow
Buyer
to take possession of such books and records. Buyer and the
Designated Stockholders further agree, upon request, to use their commercially
reasonable efforts to obtain any certificate or other document from any
Governmental Body or any other Person as may be necessary to mitigate, reduce
or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the Transactions).
(ii)
The Stockholder Representative shall promptly notify Buyer, in writing upon
receipt by any Designated Stockholder or any of Affiliate of a Designated
Stockholder of written notice of any pending or threatened federal, state,
local
or foreign Tax audits or assessments relating to the income, properties or
operations of the Company.
47
(d)
Tax Elections. The Company shall not make or change any
election with respect to Taxes or settle or compromise any material Tax
Liability or refund after the date hereof without Buyer's prior written consent
(which shall not be unreasonably withheld).
(e)
Characterization of Payments. Any payments made to the Designated
Stockholders or Buyer pursuant to Section 7.8 or 10.3 shall
constitute an adjustment of the consideration paid for the Company Common
Stock
for Tax purposes and shall be treated as such by Buyer and the Designated
Stockholders on their Tax Returns to the extent permitted by law.
(f)
FIRPTA Certificate. The Company shall deliver to Buyer at or
prior to the Closing a certificate, in the form attached hereto as Exhibit
D, duly executed and acknowledged, certifying the facts that would exempt
the Transactions from withholding pursuant to the provisions of the Foreign
Investment in Real Property Tax Act.
(g)
Backup Withholding. At or prior to the Closing, each
Designated Stockholder shall deliver to Buyer a properly completed IRS Form
W-9
(or suitable substitute form), establishing an exemption from backup
withholding.
(h)
Carrybacks. The parties agree and acknowledge that any net
operating losses or similar Tax attribute of the Company is an asset of the
Company that (subject to any applicable limitations imposed by law) is being
acquired by Buyer pursuant to the Merger, and that the Company shall not
elect
to carry back any such Tax attributes to prior years of the Company or otherwise
act so as to limit the ability of Buyer to use such attributes subsequent
to the
Merger.
(i)
Certain Matters. The parties intend that the Reverse Merger
and the Subsequent Merger, taken together, will qualify as a reorganization
within the meaning of Section 368(a)(2)(D) of the Code, and each shall use
its
reasonable best efforts to cause the Reverse Merger and the Subsequent Merger
to
so qualify. None of the Company, any Company Stockholder, Buyer,
Acquisition Sub or Merger Sub shall knowingly take any action, cause any
action
to be taken, fail to take any commercially reasonable action or cause any
commercially reasonable action to fail to be taken, which action or failure
to
act would reasonably be expected to prevent the Reverse Merger and the
Subsequent Merger, taken together, from qualifying as a reorganization within
the meaning of Section 368(a)(2)(D) of the Code.
48
CONDITIONS
PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's
obligation to consummate the Merger and to take the other actions required
to be
taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the
Closing, of each of the following conditions (any of which may be waived
by
Buyer, in whole or in part):
8.1.
Accuracy of Representations. Each
of the representations and warranties of the Company and the Designated
Stockholders set forth in this Agreement shall have been accurate in all
material respects as of the date of this Agreement and shall be accurate
in all
material respects as of the Closing Date as if made on and as of the Closing
(other than representations and warranties which address matters only as
of a
particular date which shall have been accurate in all material respects as
of
such particular date) (it being understood that, for purposes of determining
the
accuracy of such representations and warranties, for purposes of this Section
8.1, all "Material Adverse Effect" qualifications and other materiality
qualifications contained in such representations and warranties shall be
disregarded) and the Company shall have provided Buyer with a certificate
from
an executive officer of the Company to this effect.
8.2.
Performance.
(a)
All of the covenants and obligations that the Company, the Designated
Stockholders and the Stockholder Representative are required to perform or
to
comply with pursuant to this Agreement at or prior to the Closing must have
been
performed and complied with in all material respects.
(b)
The Company, the Designated Stockholders and the Stockholder Representative
must
have delivered each of the documents required to be delivered by the Company,
the Designated Stockholders and the Stockholder Representative, respectively,
pursuant to Section 4.2.
8.3.
Consents. Each
of the Consents identified in Schedule 5.2 must have been obtained and
must be in full force and effect.
8.4.
No Proceedings. From
the date of this Agreement, no Proceeding shall be pending or Threatened
before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, Order, decree, ruling or charge would: (a)
prevent consummation of any of the Transactions contemplated by this Agreement;
(b) cause any of the Transactions contemplated by this Agreement to be rescinded
following consummation; (c) affect materially and adversely the right of
Buyer
to control the Company; or (d) affect materially and adversely the right
of any
of the Company to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling or charge shall be in
effect).
8.5.
No Material Adverse Change. No
Material Adverse Change shall have occurred.
49
8.6.
Xxxxxxxx Employment
Agreement. Buyer
and Xx. Xxxxxxxx shall have entered into the Xxxxxxxx Employment
Agreement.
8.7.
No Prohibition. Neither
the consummation nor the performance of any of the Transactions will, directly
or indirectly (with or without notice or lapse of time), materially contravene,
or conflict with, or result in a material violation of, or cause Buyer to
suffer
any material adverse consequence under, (a) any applicable Legal
Requirement or Order or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise formally proposed by or before any
Governmental Body.
8.8.
No Claim Regarding Company
Common Stock Ownership or
Merger Consideration. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right
to
acquire or to obtain beneficial ownership of, any Company Common Stock, or
any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Merger Consideration payable for
the Company Common Stock.
8.9.
Company Stockholder
Approval. Company
Stockholders holding at least 90% of the outstanding shares of Company Common
Stock shall have approved this Agreement and the Transaction.
8.10.
Employee Releases. The
individuals identified on Schedule 4.3(b) shall have executed and
delivered to Buyer release agreements reasonably acceptable to
Buyer.
CONDITIONS
PRECEDENT TO THE DESIGNATED STOCKHOLDERS
AND
THE
COMPANY'S OBLIGATION TO CLOSE
The
Designated Stockholders' and the Company's obligation to consummate the Merger
and to take the other actions required to be taken by the Designated
Stockholders and the Company, as the case may be, at the Closing are subject
to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Designated Stockholders in
whole
or in part):
9.1.
Accuracy of Representations. The
representations and warranties of Buyer and Acquisition Sub set forth in
this
Agreement shall have been accurate in all material respects as of the date
of
this Agreement and shall be accurate in all material respects as of the Closing
Date as if made on and as of the Closing Date (other than representations
and
warranties which address matters only as of a particular date which shall
have
been accurate in all material respects as of such particular date) (it being
understood that for purposes of this Section 9.1, all "Material Adverse
Effect" qualifications and other materiality qualifications contained in
such
representation and warranties shall be disregarded), and Buyer shall have
provided the Company with a certificate from an executive officer of Buyer
to
this effect.
50
9.2.
Buyer's Performance.
(a)
All of the covenants and obligations that Buyer is required to perform or
to
comply with pursuant to this Agreement at or prior to the Closing must have
been
duly performed and complied with in all material respects.
(b)
Each document required to be delivered by Buyer pursuant to
Section 4.2 must have been delivered.
9.3.
Consents. Each
of the Consents identified in Schedule
6.2 must have been obtained and must be in full force and
effect.
9.4.
No Injunction. There
must not be in effect any Legal Requirement or any injunction or other Order
that (a) prohibits the exchange of the Merger Consideration for the Company
Common Stock and (b) has been adopted or issued or has otherwise become
effective, since the date of this Agreement.
INDEMNIFICATION;
REMEDIES
10.1. Survival
of Representations, Etc. The
representations and warranties of the Company, the Designated Stockholders
and
Buyer contained herein shall survive for twenty-four (24) months after the
Closing; provided, however, that the representations and
warranties contained in Sections 5.2(a), 5.3, 5.10 and
5.26 shall continue to survive until
sixty (60) days after the
expiration of the applicable statute of limitations (giving effect to any
waiver
or extension thereof). The right to indemnification, payment of
Damages or other remedy based on such representations, warranties, covenants
and
obligations will not be affected by any investigation conducted with respect
to,
or any Knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any
such
representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on
the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or other remedies based
on
such representations, warranties, covenants and obligations.
10.2.
Indemnification.
(a)
By the Designated Stockholders and the Company
Stockholders. The Designated Stockholders and the Company
Stockholders, and shall, on a several basis in proportion to their respective
Pro Rata Share of Merger Consideration to be received by such parties hereunder
(subject to Section 10.2(c)), indemnify, save and hold harmless Buyer and
its Affiliates and Subsidiaries and each of their respective Representatives
(collectively, the "Buyer Indemnified Parties"), from and against any and
all costs, losses, Liabilities (but only to the extent known and matured),
obligations, damages, lawsuits, deficiencies, claims, demands and expenses
(whether or not arising out of third-party claims), including but not limited
to
interest, penalties, costs of mitigation, attorneys' fees and all amounts
paid
in investigation, defense or (subject to the limitations set forth herein)
settlement of any of the foregoing ("Damages"), incurred in connection
with, arising out of or resulting from: (i) any Breach of any representation
or
warranty made by the Company in this Agreement; (ii) any Breach of any
covenant or agreement made by the Company in this Agreement and (iii) the
matters set forth in Schedule 10.2(a).
51
The
term
"Damages" as used in this Section 10.2 is not limited to matters
asserted by third parties against any indemnified party, but includes Damages
incurred or sustained by an indemnified party in the absence of third party
claims. The amount of any Damages for which any indemnified party
shall be entitled to indemnification under this Agreement shall be net of
the
cash benefit actually received, if any, by such indemnified party in excess
of
the Claim amount with respect to the event, fact, circumstance or condition
that
resulted from the Damages from any insurance proceeds. Notwithstanding anything
to the contrary contained herein, no indemnified party shall have any obligation
to seek recovery of any Damages under such indemnified party's
insurance.
(b)
By Buyer. Buyer shall indemnify, save and hold harmless the
Designated Stockholders and their respective Affiliates and Representatives
(the
"Designated Stockholder Indemnified Parties") from and against any and
all Damages incurred in connection with, arising out of, resulting from or
incident to: (i) any Breach of any representation or warranty made by
Buyer in this Agreement; or (ii) any Breach of any covenant or agreement
made by Buyer in this Agreement.
(c)
Additional Indemnity. Notwithstanding the terms of Section
10.2(a), subject to Section 10.2(e), Xxxxxxx Xxxxxxxx, in his
individual capacity, shall indemnify, save and hold harmless the Buyer
Indemnified Parties from and against any and all Damages incurred in connection
with, arising out of or resulting from any indemnifiable Claim under Section
10.2(a) to the extent that such Damages are not severally recoverable under
Section 10.2(a) by a Buyer Indemnified Party from the Company
Stockholders other than Xxxxxxx Xxxxxxxx pursuant to offset of such Damages
against any Earn Out Consideration then due and payable by Buyer to the Company
Stockholders at the time of such Claim in accordance with this
Agreement.
(d)
Defense of Claims. If a claim for Damages (a "Claim") is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes aware of
any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 10.2. If any
lawsuit or enforcement action is filed against any party entitled to the
benefit
of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The
failure of any indemnified party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the extent that the
indemnifying party has been actually prejudiced by such
failure. After such notice, if the indemnifying party shall
acknowledge in writing to the indemnified party that the indemnifying party
shall be obligated under the terms of its indemnity hereunder in connection
with
such lawsuit or action, then the indemnifying party shall be entitled, if
it so
elects at its own cost, risk and expense, (i) to take control of the defense
and
investigation of such lawsuit or action, (ii) to employ and engage attorneys
of
its own choice, but, in any event, reasonably acceptable to the indemnified
party, to handle and defend the same unless the named parties to such action
or
proceeding (including any impleaded parties) include both the indemnifying
party
and the indemnified party and the indemnified party has been advised in writing
by counsel that there may be one or more legal defenses available to such
indemnified party that are different from or additional to those available
to
the indemnifying party, in which event the indemnified party shall be entitled,
at the indemnifying party's cost, risk and expense, to separate counsel of
its
own choosing and (iii) to compromise or settle such lawsuit or action, which
compromise or settlement shall be made only with the written consent of the
indemnified party, such consent not to be unreasonably withheld, conditioned
or
delayed.
52
If
the
indemnifying party fails to assume the defense of such lawsuit or action
within
fifteen (15) calendar days after receipt of the Claim Notice, the indemnified
party against which such lawsuit or action has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right
to
undertake, at the indemnifying party's cost and expense, the defense, compromise
or settlement of such lawsuit or action on behalf of and for the account
and
risk of the indemnifying party; provided, however, that such
lawsuit or action shall not be compromised or settled without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld, conditioned or delayed. If the indemnified party settles or
compromises such lawsuit or action without the prior written consent of the
indemnifying party, the indemnifying party will bear no liability hereunder
for
or with respect to such lawsuit or action. In the event the
indemnified party assumes the defense of the lawsuit or action, the indemnified
party will keep the indemnifying party reasonably informed of the progress
of
any such defense, compromise or settlement. The indemnifying party
shall be liable for any settlement of any action effected pursuant to and
in
accordance with this Section 10.2 and for any final judgment (subject to
any right of appeal) and the indemnifying party agrees to indemnify and hold
harmless an indemnified party from and against any Damages by reason of such
settlement or judgment.
(e)
Limitation on Indemnity/Commitments.
(i)
The indemnification obligation of the Company Stockholders and Buyer pursuant
to
Sections 10.2(a) or (b), respectively, with respect to any Breach
of any representation or warranty shall be limited to Claims for Damages
made
prior to the last date of survival thereof referred to in Section
10.1. The indemnification obligation of the Company Stockholders
and Buyer with respect to any Breach of any covenant or agreement pursuant
to
Sections 10.2(a) or 10.2(b), respectively, shall survive for the
applicable statute of limitations, subject to the terms of this
Agreement.
53
(ii)
Neither (a) the termination of the representations or warranties contained
herein, nor (b) the expiration of the indemnification obligations described
above, will affect the rights of a Person in respect of any Claim made by
such
Person received by the indemnifying party prior to the expiration of the
applicable survival period set forth in Section 10.1.
(iii)
Notwithstanding any other provision herein to the contrary, neither the Company
Stockholders nor Buyer shall be required to indemnify any Person under this
Article X in connection with Damages related to the failure to be true
and correct of any representations or warranties of the Designated Stockholders
and the Company, on the one hand, or Buyer, on the other hand, in Articles
V and VI, respectively, (i) until the aggregate amount of Damages
sustained, suffered or incurred pursuant by reason of or arising from breaches
of such representations and warranties exceeds $35,000 in the aggregate (the
"Deductible"), in which case the indemnifying party shall be responsible
for all Damages in excess of the Deductible, and (ii) for an aggregate amount
of
Damages exceeding an amount equal to 40% of the aggregate Merger Consideration
actually paid or due and payable by Buyer pursuant to this Agreement (the
"Cap"); provided, that there shall be no Deductible or Cap with
respect to Damages related to the failure to be true and correct of any of
the
representations and warranties in
Sections 5.2(a), 5.3,
5.10, and 5.26 or 6.4,
the matters set forth on Schedule
10.2(a) or for any Damages arising as a result of fraud or willful breach
on the
part of the indemnifying party.
(iv)
For purposes of determining the Breach or failure of any representations
or
warranties to be true and correct, the Breach of any covenants and agreements,
and calculating Damages hereunder, any materiality or Material Adverse Effect
qualifications in the representations, warranties, covenants and agreements
shall be disregarded.
(v)
The indemnity obligations of the Company Stockholders (including the obligation
of Xx. Xxxxxxxx individually pursuant to Section 10.2(c)) hereunder may
be satisfied through payment of cash or forfeiture to Buyer of shares of
restricted Buyer Common Stock valued at the Stock Price per share as determined
at the election of the Stockholder Representative.
(vi)
Following the Closing, except with respect to claims for fraud or willful
breach, the rights of the Indemnified Parties under this Article X shall
be the
sole and exclusive remedy of the Indemnified Parties with respect to claims
resulting from or relating to any misrepresentation or any Breach of any
representation, warranty, covenant, agreement or other provision of this
Agreement, any certificate, instrument, or other document delivered in
connection herewith.
(f)
Cooperation. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and its Representatives
(including without limitation its attorneys) in the investigation, trial
and
defense of such lawsuit or action and any appeal arising therefrom;
provided, however, that the indemnified party may, at its own
cost, participate in negotiations, arbitrations and the investigation, trial
and
defense of such lawsuit or action and any appeal arising
therefrom. The parties shall cooperate with each other in any
notifications to insurers.
54
(g)
Offset. Buyer shall offset indemnifiable Damages in accordance
with this Article X and any other amounts payable to Buyer pursuant to
this Agreement, against any Earnout Consideration to the extent that any
Earnout
Consideration is due and payable at the time of final resolution of a Claim
pursuant to Article X before seeking to recover any indemnification
claim against any other source.
10.3.
Tax Indemnification. In
addition to any indemnity obligations under Section 10.2(a), subsequent to
the Closing, the Company Stockholders shall, jointly and severally,
indemnify, save and hold Buyer (and its Affiliates, successors and assigns)
harmless from and against, up to an aggregate amount equal to the aggregate
Merger Consideration actually paid by Buyer pursuant to this Agreement (i)
any
and all Taxes of the Company or any Designated Stockholder (for which the
Company is liable) with respect to any Tax year or portion thereof ending
on or
before the Closing Date (or for any Tax year beginning before and ending
after
the Closing Date to the extent allocable (as determined in the following
sentence) to the portion of such period beginning before and ending on the
Closing Date), (ii) the unpaid Taxes of any Person (other than the Company
or
any Designated Stockholder) under Treasury Regulations Section 1.1502-6 (or
any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise, and (iii) any and all Damages incurred in connection
with, arising out of, resulting from, or incident to any of the Taxes described
in the foregoing clauses (i) and (ii). For purposes of the preceding
sentence, in the case of any Taxes that are imposed on a periodic basis and
are
payable for a Tax period that includes (but does not end on) the Closing
Date,
the portion of such Tax that relates to the portion of such Tax period ending
on
the Closing Date shall (i) in the case of any Taxes other than Taxes based
upon
or related to income or receipts, be deemed to be the amount of such Tax
for the
entire Tax period multiplied by a fraction the numerator of which is the
number
of days in the Tax period ending on the Closing Date and the denominator
of
which is the number of days in the entire Tax period, and (ii) in the case
of
any Tax based upon or related to income or receipts, be deemed equal to the
amount which would by payable if the relevant Tax period ended on the Closing
Date.
10.4.
Stockholder Representative. Upon
the Closing, Xxxxxxx Xxxxxxxx shall be constituted and appointed as agent
and
attorney-in-fact (the "Stockholder Representative") for and on behalf of
the Company Stockholders to give and receive notices and communications,
to
agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to Claims, and to take all actions necessary or appropriate in the
judgment of the Stockholder Representative for the accomplishment of the
foregoing. No bond shall be required of the Stockholder
Representative, and the Stockholder Representative shall receive no compensation
for its services in connection with the performance of its duties
hereunder. Upon execution of this Agreement by the Company and the
Designated Stockholders, the Company Stockholders shall, without any further
act
of the Company Stockholders, be deemed to have consented to and approved
the
appointment of the Stockholder Representative as the representative under
the
Transaction Agreements and as the attorney-in-fact and agent for and on behalf
of the Company and the Company Stockholders. A decision, act, consent
or instruction of the Stockholder Representative shall constitute a decision
of
the Company Stockholders and shall be final, binding and conclusive upon
the
Company Stockholders, and the Buyer and its Affiliates may rely upon any
decision, act, consent or instruction of the Stockholder Representative taken
in
such manner as being the decision, act, consent or instruction of the Company
and the Company Stockholders. The Buyer and its Affiliates are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
55
TERMINATION
11.1.
Termination Events. This
Agreement may, by notice given prior to or
at the Closing, be terminated:
(a)
by the Designated Stockholders, on the one hand, or by Buyer, on the other
hand,
if a Breach of any provision of this Agreement has been committed by the
other
party or its Affiliates and such Breach has not been cured within ten (10)
calendar days after notice of the Breach or has not been expressly waived
in
writing;
(b)
(i) by Buyer if any of the conditions in Article VIII have not been
satisfied as of the Drop Dead Date or if satisfaction of such a condition
is or
becomes impossible (other than through the failure of Buyer to comply with
its
obligations under this Agreement) and Buyer have not expressly waived such
condition in writing on or before the Closing; or (ii) by the Designated
Stockholders, if any of the conditions in Article IX has not been
satisfied as of the Drop Dead Date or if satisfaction of such a condition
is or
becomes impossible (other than through the failure of the Designated
Stockholders or the Company to comply with its obligations under this Agreement)
and the Designated Stockholders have not expressly waived such condition
in
writing on or before the Closing;
(c)
by mutual consent of Buyer and the Designated Stockholders; or
(d)
by either Buyer, on the one hand, or the Designated Stockholders, on the
other
hand, if the Closing has not occurred (other than through the failure of
any
party seeking to terminate this Agreement or any Affiliate thereof to comply
fully with its obligations under this Agreement) on or before November 30,
2007
(the "Drop Dead Date"), or such later date as the parties hereto may
agree upon.
11.2.
Effect of Termination. Each
party's right of termination under Section 11.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise
of
a right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 11.1, all further
obligations of the parties under this Agreement will terminate, except that
the
obligations in Sections 10.2 will survive; provided,
however, that if this Agreement is terminated by a party
because of the
Breach of this Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is
not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue
all
legal remedies will survive such termination unimpaired.
56
MISCELLANEOUS
12.1.
Assignment. Neither
this Agreement nor any of the rights or obligations hereunder may be assigned
by
any party without the prior written consent of the other party; except that
Buyer may, without such consent, assign all such rights to any lender as
collateral security and assign all such rights and obligations to a wholly-owned
Subsidiary (or a partnership controlled by Buyer) or Subsidiaries of Buyer
or to
a successor in interest to Buyer which shall assume all obligations and
Liabilities of Buyer under this Agreement. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
12.2.
Notices. All
notices, requests, demands and other communications which are required or
may be
given under this Agreement shall be in writing and shall be deemed to have
been
duly given when received if personally delivered; when transmitted if
transmitted by telecopy, electronic or digital transmission method; the day
after it is sent, if sent for next day delivery to a domestic address by
recognized overnight delivery service (e.g., Federal Express); and upon receipt,
if sent by certified or registered mail, return receipt requested. In
each case notice shall be sent to:
|
|
If
to the Designated
Stockholders or the Company, addressed
to:
|
|
|
0000
Xxxxx Xxxxx Xxxxxx
|
||
|
Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
|
||
|
Attn:
Xxxxxxx Xxxxxxxx
|
||
|
Telephone:
000 000 0000
|
||
|
Telecopy:
000 000 0000
|
||
|
|
with
a copy to:
|
|
|
WilmerHale
|
||
|
0000
Xxxxxxxxxx Xxxxxx
|
||
|
Xxxx
Xxxx, Xxxxxxxxxx 00000
|
||
|
Telephone:
000 000 0000
|
||
|
Facsimile:
000 000 0000
|
||
|
Attn:
Xxx X. Xxxxxx, Partner
|
||
|
|
If
to Buyer, addressed to:
|
|
|
Commerce
Planet, Inc.
|
||
|
00
X. Xx Xxxxxx Xxxx, Xxxxx #0
|
||
|
Xxxxxx,
Xxxxxxxxxx 00000
|
||
|
Telephone:
(000) 000-0000
|
||
|
Facsimile:
(000) 000-0000
|
||
|
Attn:
General Counsel
|
||
|
|
with
a copy to:
|
|
|
Sheppard,
Mullin, Xxxxxxx & Xxxxxxx LLP
0000
Xxxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Telephone:
(000) 000-0000
Facsimile:
(000)
000-0000
Attn:
C. Xxxxxx Xxxxxxx, Esq.
|
57
or
to such
other place and with such other copies as either party may designate as to
itself by written notice to the others.
12.3.
Choice of Law. This
Agreement shall be construed in accordance
with and governed by the laws of the State of California (without giving
effect
to its choice of law principles), except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is
a
party to or the subject of this Agreement, and as to those matters the law
of
the jurisdiction under which the respective entity derives its powers shall
govern.
12.4.
Entire Agreement; Amendments and Waivers. This
Agreement, together with all exhibits and schedules hereto (including the
Disclosure Schedule and the other agreements referred to herein), constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. Without limiting the
generality of the foregoing, Buyer acknowledges that neither the Company
nor any
of its directors, officers, or stockholders is making, and Buyer is not relying
on, any representation or warranty of the Company or any of the Designated
Stockholders other than the representations and warranties expressly set
forth
in this Agreement, and the Company and the Designated Stockholders acknowledge
that neither Buyer nor any of its directors, officers, or stockholders is
making, and the Company and the Designated Stockholders are not relying on,
any
representation or warranty other than the representations and warranties
of
Buyer expressly set forth in this Agreement. This Agreement may not
be amended except in an instrument in writing signed on behalf of each of
the
parties hereto. No amendment, supplement, modification or waiver of
this Agreement shall be binding unless executed in writing by the party to
be
bound thereby. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether
or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
12.5.
Multiple Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
12.6.
Expenses. Except
as otherwise expressly provided in this Agreement, the Designated Stockholders
will bear all expenses incurred by them, the Company or any of their respective
Representatives in connection with the Transactions. Except as otherwise
expressly provided in this Agreement, Buyer will bear all expenses incurred
by
Buyer or any of its Representatives in connection with the Transactions.
In the
event of termination of this Agreement, the obligation of each party to pay
its
own expenses will be subject to any rights of such party arising from a breach
of this Agreement by the other party.
58
12.7.
Invalidity. In
the event that any one or more of the provisions contained in this Agreement
or
in any other instrument referred to herein, shall, for any reason, be held
to be
invalid, illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such
instrument.
12.8.
Publicity. Except
as required by law, none of Buyer, the Company nor the Designated Stockholders
shall issue any press release or make any public statement regarding this
Agreement and the Transactions contemplated hereby, without prior written
approval of the other parties; provided, however, that in the case
of announcements, statements, acknowledgments or revelations which either
party
is required by law to make, issue or release, the making, issuing or releasing
of any such announcement, statement, acknowledgment or revelation by the
party
so required to do so by law shall not constitute a breach of this Agreement
if
such party shall have given, to the extent reasonably possible, not less
than
two (2) calendar days prior notice to the other party, and shall have attempted,
to the extent reasonably possible, to clear such announcement, statement,
acknowledgment or revelation with the other party. Each party hereto
agrees that it will not unreasonably withhold any such consent or
clearance. Buyer may, with the consent of the Designated
Stockholders, issue or make an appropriate press release or public announcement
after the Closing.
(a)
Each party hereto will hold, and will use its commercially reasonable efforts
to
cause its Affiliates, and their respective Representatives to hold, in strict
confidence from any Person (other than any such Affiliate or Representative),
unless (i) compelled to disclose by judicial or administrative process
(including without limitation in connection with obtaining the necessary
approvals of this Agreement and the Transactions of any Governmental Body)
or by
other Legal Requirements or (ii) disclosed in a Proceeding brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder,
all documents and information concerning the other party or any of its
Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the Transactions, except
to
the extent that such documents or information can be shown to have been (a)
previously known by the party receiving such documents or information, (b)
in
the public domain (either prior to or after the furnishing of such documents
or
information hereunder) through no fault of such receiving party or (c) later
acquired by the receiving party from another source if the receiving party
is
not aware that such source is under an obligation to another party hereto
to
keep such documents and information confidential; provided that following
the
Closing the foregoing restrictions will not apply to Buyer's use of documents
and information concerning the Business and the Company furnished by the
Company
hereunder or when a party has to assert rights against another pursuant to
this
Agreement. In the event the Transactions are not consummated, upon
the request of the other party, each party hereto, will, and will cause its
Affiliates and their respective Representatives to, promptly redeliver or
cause
to be redelivered all copies of documents and information furnished by the
other
party in connection with this Agreement or the Transactions and destroy or
cause
to be destroyed all notes, memoranda, summaries, analyses, compilations and
other writings related thereto or based thereon prepared by the party furnished
such documents and information or its Representatives.
59
(b)
The parties hereto recognize that the laws and public policies of the various
states of the United States may differ as to the validity and enforceability
of
covenants similar to those set forth in this Section 12.9. It
is the intention of the parties that the provisions of this Section 12.9
be enforced to the fullest extent permissible under the laws and policies
of
each jurisdiction in which enforcement may be sought and that the
unenforceability (or the modification to conform to such laws or policies)
of
any provisions of this Section 12.9 shall not render unenforceable, or
impair, the remainder of the provisions of this Section
12.9. Accordingly, if any provision of this Section
12.9(b) shall be determined to be invalid or unenforceable, such invalidity
or unenforceability shall be deemed to apply only with respect to the operation
of such provision in the particular jurisdiction in which such determination
is
made and not with respect to any other provision or jurisdiction;
(c)
The parties hereto acknowledge and agree that any remedy at law for any breach
of the provisions of this Section 12.9 would be inadequate and the
Company hereby consents to the granting by any court of an injunction or
other
equitable relief, without the necessity of actual monetary loss being proved,
in
order that the breach or threatened breach of such provisions may be effectively
restrained.
12.10.
Burden and Benefit. This
Agreement shall be binding upon and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns. There
are no third party beneficiaries of this Agreement; provided,
however, that any Person that is not a party to this Agreement but,
by
the terms of Section 10.2, is entitled to indemnification, shall be
considered a third party beneficiary of this Agreement, with full rights
of
enforcement as though such Person was a signatory to this
Agreement.
(a)
Service of Process. Each of the parties hereto irrevocably
consents to the service of any process, pleading, notices or other papers
by the
mailing of copies thereof by registered, certified or first class mail, postage
prepaid, to such party at such party's address set forth herein, or by any
other
method provided or permitted under California law.
(b)
Consent and Jurisdiction. Each party hereto irrevocably and
unconditionally: (i) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the United States
District Court for the Central District of California or, if such court does
not
have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in the County Los Angeles, California; (ii) consents to the
jurisdiction of any such court in any such suit, action or proceeding; and
(iii)
waives any objection which such party may have to the laying of venue of
any
such suit, action or proceeding in any such court.
60
12.12.
Attorneys' Fees. If
any party to this Agreement brings an action to enforce its rights under
this
Agreement, the prevailing party shall be entitled to recover its costs and
expenses, including without limitation reasonable attorneys' fees, incurred
in
connection with such action, including any appeal of such action.
12.13.
Representation by Counsel. Each
party hereto represents and agrees with each other that it has been represented
by or had the opportunity to be represented by, independent counsel of its
own
choosing, and that it has had the full right and opportunity to consult with
its
respective attorney(s), that to the extent, if any, that it desired, it availed
itself of this right and opportunity, that it or its authorized officers
(as the
case may be) have carefully read and fully understand this Agreement in its
entirety and have had it fully explained to them by such party's respective
counsel, that each is fully aware of the contents thereof and its meaning,
intent and legal effect, and that it or its authorized officer (as the case
may
be) is competent to execute this Agreement and has executed this Agreement
free
from coercion, duress or undue influence.
12.14.
Titles. The
titles, captions or headings of the
Articles and Sections herein are inserted for convenience of reference only
and
are not intended to be a part of or to affect the meaning or interpretation
of
this Agreement.
12.15.
No Interpretation Against
Drafter. This
Agreement is the product of negotiations between the parties hereto represented
by counsel and any rules of construction relating to interpretation against
the
drafter of an agreement shall not apply to this Agreement and are expressly
waived.
12.16.
Post-Closing Operation of
the
Business. The
parties acknowledge that following the Closing, Buyer shall be entitled in
its
sole discretion to operate the Business of the Company in the manner it
determines, subject to obtaining approval of its Board of Directors, when
and as
necessary without regard to the effect thereof on any Transaction
Document. The parties further acknowledge that the Buyer may, in its
sole discretion, encumber any of the assets or assign or license any of the
Intellectual Property of the Business, without the consent of the Designated
Stockholders.
12.17.
Further Assurances. The
parties hereto agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents,
and (c) to do such other acts and things, all as may be reasonably
requested by another party hereto for the purpose of carrying out the intent
of
this Agreement and the Transactions contemplated by this
Agreement.
61
IN
WITNESS
WHEREOF, the parties hereto have caused this Agreement to be duly executed
on
their respective behalf, by their respective officers thereunto duly authorized,
all as of the day and year first above written.
COMMERCE
PLANET, INC.
By:
Its:
I-CORP.
ACQUISITION SUB, INC.
By:
Its:
I-CORP.
MERGER SUB, LLC
By:
Its:
IVENTA
CORPORATION
By: ________________________________
Its: ________________________________
DESIGNATED
STOCKHOLDERS:
Xxxxxxx
Xxxxxxxx
STOCKHOLDERS'
REPRESENTATIVE
XXXXXXX
XXXXXXXX
Xxxxxxx
Xxxxxxxx
XXXXXXX
XXXXXXXX
Xxxxxxx
Xxxxxxxx, in his individual capacity
TABLE
OF CONTENTS
| Page | |||
|
AGREEMENT
AND PLAN OF MERGER
|
1
|
||
|
RECITALS
|
1
|
||
|
ARTICLE
I DEFINITIONS
|
2
|
||
|
1.1.
|
Defined
Terms
|
2
|
|
|
1.2.
|
Other
Definitional and Interpretative Matters.
|
10
|
|
|
ARTICLE
II . THE TRANSACTIONS
|
11
|
||
|
2.1.
|
Approval
of the Reverse Merger
|
11
|
|
|
2.2.
|
The
Reverse Merger
|
11
|
|
|
2.3.
|
Effects
of the Reverse Merger.
|
12
|
|
|
2.4.
|
Merger
Consideration.
|
13
|
|
|
2.5.
|
Dissenting
Shares
|
15
|
|
|
2.6.
|
Surrender
and Payment.
|
15
|
|
|
2.7.
|
Subsequent
Merger.
|
18
|
|
|
ARTICLE
III . POST-CLOSING MATTERS
|
19
|
||
|
3.1.
|
Post-Closing
Adjustment.
|
19
|
|
|
ARTICLE
IV . CLOSING
|
20
|
||
|
4.1.
|
Closing
|
20
|
|
|
4.2.
|
Deliveries
at Closing.
|
21
|
|
|
4.3.
|
Other
Closing Transactions.
|
22
|
|
|
ARTICLE
V . REPRESENTATIONS AND WARRANTIES
OF
THE
COMPANY AND THE DESIGNATED
STOCKHOLDERS
|
23
|
||
|
5.1.
|
Organization
and Good Standing
|
23
|
|
|
5.2.
|
Authority;
No Conflict.
|
23
|
1
|
5.3.
|
Capitalization.
|
25
|
|
|
5.4.
|
Financial
Statements
|
25
|
|
|
5.5.
|
Books
and Records
|
25
|
|
|
5.6.
|
Title
to Properties; Encumbrances
|
26
|
|
|
5.7.
|
Condition
and Sufficiency of Assets
|
26
|
|
|
5.8.
|
Accounts
Receivable
|
26
|
|
|
5.9.
|
No
Undisclosed Liabilities
|
27
|
|
|
5.10.
|
Taxes.
|
27
|
|
|
5.11.
|
No
Material Adverse Change
|
28
|
|
|
5.12.
|
Employee
Benefits
|
28
|
|
|
5.13.
|
Compliance
with Legal Requirements; Governmental Licenses and
Permits.
|
29
|
|
|
5.14.
|
Absence
of Proceeding; Orders.
|
30
|
|
|
5.15.
|
Absence
of Certain Changes and Events.
|
30
|
|
|
5.16.
|
Contracts;
No Defaults.
|
32
|
|
|
5.17.
|
Insurance
|
35
|
|
|
5.18.
|
Environmental
Matters
|
35
|
|
|
5.19.
|
Labor
and Employee Relations
|
35
|
|
|
5.20.
|
Intellectual
Property
|
36
|
|
|
5.21.
|
Certain
Payments
|
41
|
|
|
5.22.
|
No
Other Agreements to Sell Assets or Equity of the Company
|
41
|
|
|
5.23.
|
Relationships
with Related Parties
|
41
|
|
|
5.24.
|
Customers
and Suppliers
|
42
|
|
|
5.25.
|
Bank
Accounts, Powers of Attorney
|
42
|
|
|
5.26.
|
Brokers
and Finders
|
42
|
|
|
5.27.
|
Disclosure
|
42
|
2
|
ARTICLE
VI . REPRESENTATIONS AND WARRANTIES OF
BUYER
|
42
|
||
|
6.1.
|
Organization
of Buyer
|
42
|
|
|
6.2.
|
Authorization;
No Conflict.
|
43
|
|
|
6.3.
|
Proceedings
|
43
|
|
|
6.4.
|
Brokers
or Finders
|
43
|
|
|
6.5.
|
Capitalization
|
43
|
|
|
6.6.
|
Reports
and Financial Statements
|
44
|
|
|
6.7.
|
Absence
of Material Adverse Change
|
44
|
|
|
6.8.
|
Litigation
|
44
|
|
|
6.9.
|
Interim
Operations of Merger Sub
|
44
|
|
|
6.10.
|
Tax
Matters
|
44
|
|
|
ARTICLE
VII . ACTIONS OF THE DESIGNATED STOCKHOLDERS, THE COMPANY, AND
BUYER BEFORE AND AFTER THE CLOSING DATE
|
45
|
||
|
7.1.
|
Access
and Investigation
|
45
|
|
|
7.2.
|
Operation
of Business
|
45
|
|
|
7.3.
|
Negative
Covenants
|
45
|
|
|
7.4.
|
Required
Approvals
|
45
|
|
|
7.5.
|
Notification
|
46
|
|
|
7.6.
|
No
Negotiation
|
46
|
|
|
7.7.
|
Commercially
Reasonable Efforts
|
46
|
|
|
7.8.
|
Tax
Matters.
|
47
|
3
|
ARTICLE
VIII . CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO
CLOSE
|
49
|
||
|
8.1.
|
Accuracy
of Representations
|
49
|
|
|
8.2.
|
Performance.
|
49
|
|
|
8.3.
|
Consents
|
49
|
|
|
8.4.
|
No
Proceedings
|
49
|
|
|
8.5.
|
No
Material Adverse Change
|
49
|
|
|
8.6.
|
Xxxxxxxx
Employment Agreement
|
50
|
|
|
8.7.
|
No
Prohibition
|
50
|
|
|
8.8.
|
No
Claim Regarding Company Common Stock Ownership or Merger
Consideration
|
50
|
|
|
8.9.
|
Company
Stockholder Approval
|
50
|
|
|
8.10.
|
Employee
Releases
|
50
|
|
|
ARTICLE
IX . CONDITIONS PRECEDENT TO THE DESIGNATED STOCKHOLDERS AND
THE COMPANY'S OBLIGATION TO CLOSE
|
50
|
||
|
9.1.
|
Accuracy
of Representations
|
50
|
|
|
9.2.
|
Buyer's
Performance.
|
51
|
|
|
9.3.
|
Consents
|
51
|
|
|
9.4.
|
No
Injunction
|
51
|
|
|
ARTICLE
X . INDEMNIFICATION; REMEDIES
|
51
|
||
|
10.1.
|
Survival
of Representations, Etc.
|
51
|
|
|
10.2.
|
Indemnification.
|
51
|
|
|
10.3.
|
Tax
Indemnification
|
55
|
|
|
10.4.
|
Stockholder
Representative
|
55
|
|
|
ARTICLE
XI . TERMINATION
|
56
|
||
|
11.1.
|
Termination
Events
|
56
|
|
|
11.2.
|
Effect
of Termination
|
56
|
|
4
|
ARTICLE
XII . MISCELLANEOUS
|
57
|
||
|
12.1.
|
Assignment
|
57
|
|
|
12.2.
|
Notices
|
57
|
|
|
12.3.
|
Choice
of Law
|
58
|
|
|
12.4.
|
Entire
Agreement; Amendments and Waivers
|
58
|
|
|
12.5.
|
Multiple
Counterparts
|
58
|
|
|
12.6.
|
Expenses
|
58
|
|
|
12.7.
|
Invalidity
|
59
|
|
|
12.8.
|
Publicity
|
59
|
|
|
12.9.
|
Confidential
Information; No Disclosure
|
59
|
|
|
12.10.
|
Burden
and Benefit
|
60
|
|
|
12.11.
|
Service
of Process; Consent to Jurisdiction.
|
60
|
|
|
12.12.
|
Attorneys'
Fees
|
61
|
|
|
12.13.
|
Representation
by Counsel
|
61
|
|
|
12.14.
|
Titles
|
61
|
|
|
12.15.
|
No
Interpretation Against Drafter
|
61
|
|
|
12.16.
|
Post-Closing
Operation of the Business
|
61
|
|
|
12.17.
|
Further
Assurances
|
61
|
5
Exhibit
A
Designated
Stockholders
Xxxxxxx
Xxxxxxxx
6
Exhibit
B
EARNOUT
MILESTONES
12.18.
Earnout Milestones. If the Earnout Milestones set forth below
are achieved, then the Company Stockholders will receive, subject to terms
and
conditions of the Agreement, additional consideration at such times and on
the
terms set forth in this Exhibit B. Payments related to the successful
achievement of an Earnout Milestone (each, a "Payment Amount") will be
paid by Buyer to the Company Stockholders on a pro rata basis in accordance
with
their respective Pro Rata Shares. The Payment Amount will be payable
to each Company Stockholder in cash and shares of restricted Buyer Common
Stock
as set forth in this Exhibit B. In the case of Earnout Consideration
payable in shares of restricted Buyer Common Stock, each Company Stockholder
will receive a number of shares of Buyer Common Stock, rounded down to the
nearest share, equal to the product of (a) the quotient of (i) the Payment
Amount, divided by (ii) the average closing price of a share of Buyer Common
Stock (as reported on the OTCBB) for the five (5) trading days immediately
preceding the date of the applicable Milestone Notice, multiplied by (b)
such
Company Stockholder's Pro Rata Share.
(a)
Earnout Milestone One. For the period beginning on the Closing Date
and ending on the first anniversary of the Closing Date, if the Company produces
at least $800,000 of Net Profit, Buyer shall pay to the Company Stockholders
an
aggregate amount of $300,000 in shares of restricted Buyer Common Stock,
provided, that if for the period beginning on the Closing Date and ending
on the
first anniversary of the Closing Date, if the Company produces at least
$1,000,000 of Net Profit, Buyer shall pay to the Company Stockholders an
additional aggregate amount of $200,000 (for an aggregate of $500,000) in
shares
of restricted Buyer Common Stock.
(b)
Earnout Milestone Two. For the period beginning on the first
anniversary of the Closing Date and ending on the second anniversary of the
Closing Date, if the Company produces at least $2,400,000 of Net Profits,
as
calculated by Buyer in good faith, Buyer shall pay to the Company Stockholders
an aggregate amount of $300,000 in shares of restricted Buyer Common Stock,
plus an additional $300,000, payable in cash, provided, that if for
the
period beginning on the first anniversary of the Closing Date and ending
on
second anniversary of the Closing Date, the Company produces at least $3,000,000
of Net Profits, Buyer shall pay to the Company Stockholders an additional
aggregate amount of $200,000 (for an aggregate of $500,000) in shares of
restricted Buyer Common Stock, plus an additional $200,000 (for an
aggregate of $500,000) payable in cash.
12.19.
Calculation of Net Profits.
(a)
"Net Profit" for any period shall mean the Company's net profit for such
period calculated in accordance with GAAP as historically applied by
Buyer. For each Earnout Milestone period, Buyer shall prepare a
report containing an audited balance sheet of the Company and a related audited
statement of income for the applicable Earnout Milestone period, prepared
in
accordance with GAAP consistently applied, together with a written statement
setting forth the calculation of the Net Profit for the applicable Earnout
Milestone period based upon such report and stating that such calculation
and
report was prepared in accordance with this Agreement (such annual statement
of
the Company is hereinafter referred to as the "Earnout
Determination"). A copy of each such Earnout Determination shall
be delivered to the Stockholder Representative as soon as commercially
practicable and not later than ninety (90) days after the end of the Earnout
Milestone period to which the Earnout Determination relates. For
purposes of determining Net Profit for any period, Buyer shall account for
the
results of the Company on a separate stand-alone profit center basis and
without
regard to the results of other businesses and operations of Buyer, provided
that
any effects of any purchase accounting treatment or other accounting methods
or
procedures that apply solely due to the Transactions shall be disregarded
in the
calculation of Net Profit.
7
(b)
If a party does not agree that the Earnout Determination for a particular
Earnout Milestone period correctly states the Net Profit for such Earnout
Milestone period, such party shall promptly (but not later than thirty (30)
days
after the delivery of such Earnout Determination) give written notice to
the
other party of any objections thereto. If no notice of objections is
given within such thirty (30) day period the Earnout Determination shall
be
final and binding. In the event a party provides notice of objection,
the other party shall cause the Company to provide the objecting party and
its
representatives access to all books, records, accountants' work papers, tax
returns, financial statements and other data related to the Company, that
the
objecting party may reasonably request. If Buyer and Seller resolve
such objections, the Earnout Determination shall be adjusted accordingly
and
shall thereupon become final and conclusive upon all of the parties
hereto.
(c)
If the parties are unable in good faith to negotiate a resolution within
thirty
(30) days after written notice of objections is delivered to by a party,
the
items in dispute shall be submitted to a mutually acceptable nationally
recognized accounting firm (the "Independent Auditor") for final
determination. The Independent Auditor shall consider only the items
in dispute and shall be instructed to act within thirty (30) days (or such
longer period as Buyer and Seller may mutually agree in writing) to resolve
all
items in dispute. The determination of the Independent Auditor shall
be binding, final and conclusive upon all of the parties hereto, and the
Earnout
Determination shall be deemed adjusted in accordance with such
determination. If a party does not give written notice of any
objections within thirty (30) days after the delivery of an Earnout
Determination or if a party gives written notification of its acceptance
of an
Earnout Determination prior to the end of such thirty (30) day period, such
Earnout Determination shall thereupon be binding, final and conclusive upon
all
the parties hereto.
(d)
The Independent Auditor also shall determine, as between Buyer and the Company,
whose asserted position as to the amount of Net Profit of Company is the
furthest from the determination of Net Profit by the Independent Auditor,
which
non-prevailing party shall pay the reasonable fees and expenses of the
Independent Auditor.
(e)
In the event the Independent Auditor is for any reason unable or unwilling
to
perform the services required of it hereunder, Buyer and the Company agree
to
select another acceptable nationally recognized accounting firm to perform
the
services to be performed under this Section 1.2 by the Independent
Auditor. The term "Independent Auditor" shall include such other
accounting firm chosen in accordance with this Section
1.2(e). Subject to Article X, any payment to be made by
Buyer pursuant to this Section 1.2 shall be made within thirty (30) days
after the final determination of all disputes related to such payment in
accordance with this Section.
8
12.20.
Registration Rights. If (but without any obligation to do so)
the Buyer proposes to register any of its stock or other securities under
the
Securities Act, at any time subsequent to the first issuance of restricted
Buyer
Common Stock as Earnout Consideration, in connection with the public offering
of
such securities solely for cash (other than a registration on Form X-0, X-0
or
any successor form of registration statement, the Buyer shall give the holders
of Registrable Securities written notice of such registration at least twenty
(20) days prior to filing such registration statement with the Securities
and
Exchange Commission. Upon the written request of the any such holder
given within ten (10) days after receipt of such notice by such holder of
Registrable Securities, the Buyer shall cause to be registered under the
Securities Act up to fifty percent (50%) of all of the Registrable Securities
that each such holder has requested to be registered. "Registrable
Securities" shall mean shares of Buyer Common Stock issued or issuable as
Earnout Consideration pursuant to this Agreement.
The
Buyer
shall direct and use its reasonable best efforts to cause the managing
underwriter of a proposed underwritten offering to permit the holders of
Registrable Securities requested to be included in the registration to include
such Registrable Securities in the proposed offering and the Buyer shall
use its
reasonable best efforts to include such Registrable Securities in such proposed
offering on the same terms and conditions as any similar securities of the
Buyer
included therein. If the offering of which the Buyer gives notice is
a public offering involving an underwriter, the right of a holder of Registrable
Securities to registration pursuant to this Exhibit B shall be
conditioned upon (i) such holder’s participation in such underwriting and the
inclusion of the Registrable Securities to be sold by such holder in the
underwriting and (ii) such holder executing an underwriting agreement entered
into by the Buyer which includes customary terms and conditions relating
to
sales by stockholders. Notwithstanding the foregoing, in the case of
a firm commitment offering on underwriting terms appropriate for such a
transaction, if any such managing underwriter of recognized standing shall
advise the Buyer and such holders in writing that, in its opinion, the
distribution of all or a specified portion of the Registrable Securities
requested to be included in the registration concurrently with the securities
being registered by the Buyer would materially adversely affect the distribution
of such securities by increasing the aggregate amount of the offering in
excess
of the maximum amount of securities which such managing underwriter believes
can
reasonably be sold in the contemplated distribution, then the securities
to be
included in a registration which is a primary underwritten offering on behalf
of
the Buyer shall be reduced in the following order: (i) first,
Registrable Securities and such other securities requested to be included
by
holders of such other securities shall be excluded pro rata and (ii) second
the
securities the Buyer proposes to include therein shall be excluded.
12.21.
Rule 144. With a view to making available to the holders Registrable
Securities the benefits of Securities and Exchange Commission ("SEC") Rule
144
and any other rule or regulation of the SEC that may at any time permit a
holder
of Registrable Securities to sell Registrable Securities to the public without
registration or pursuant to a registration on Form S-3, the Buyer shall use
its
reasonable best efforts to:
(a)
make and keep available adequate current public information, as those terms
are
understood and defined in SEC Rule 144, at all times after the Effective
Time;
9
(b)
file with the SEC in a timely manner all reports and other documents required
of
the Buyer under the Securities Act and the Securities Exchange Act of 1934,
as
amended; and
(c)
furnish to any holder of Registrable Securities, so long as such holder owns
any
Registrable Securities, forthwith upon request (i) to the extent accurate,
a
written statement by the Buyer that it has complied with the reporting
requirements of SEC Rule 144; (ii) a copy of the most recent annual or quarterly
report of the Buyer and such other reports and documents so filed by the
Buyer;
and (iii) such other information as may be reasonably requested in availing
any
holder Registrable Securities of any rule or regulation of the SEC that permits
the selling of any such securities without registration.
BUYER
CAPITAL CONTRIBUTION TERMS
Funding
Commitment. Following the Closing, Buyer shall make available
cash to fund operations of the Company in the aggregate amount of up to
$1,500,000, subject to and in accordance with the terms and conditions set
forth
herein.
12.22.
Funding Schedule; Conditions to Funding. Subject to Section
1.3 below, Buyer shall make the following capital contributions to the
Company set forth under the heading "Capital Amount" on or around the dates
specified below upon achievement of each of the corresponding conditions
set
forth in the columns under the heading "Financial Metrics "on or prior to
the
applicable "Measuring Date," provided, however, that (a) such
capital contributions shall be made on the basis of the operating needs of
the
Company in order to meet payments and obligations on an "as needed" basis
and
(b) any excess cash balances shall be maintained by Buyer:
10
|
|
||||||
|
Financial
Metrics
|
||||||
|
Measuring
Date
|
Capital
Amount
|
Monthly
EBT
|
Cumulative
EBT
|
Accounts
Receivable
|
Accounts
Payable
|
Other
|
|
Closing
Date
|
$ 300,000
|
$ -
|
$ -
|
|||
|
Oct.
31, 2007
|
--
|
$ -
|
$ -
|
|||
|
Nov.
30, 2007
|
$ 250,000
|
$ -
|
$ -
|
|
|
(1)
Cumulative EBT must be break even.
(2)
Management of the Company shall have presented to Buyer a Tax
Plan and
such Tax Plan shall have been approved by management of Buyer
in its
reasonable discretion.
|
|
Dec.
31, 2007
|
$ -
|
$ -
|
$ -
|
|||
|
Jan.
31, 2008
|
$ 250,000
|
$ 25,000
|
$ 25,000
|
Accounts
receivable of the Company may be no more than 60 days of sales
outstanding
|
Accounts
payable of the Company may be no than 60 days outstanding.
|
Any
payroll tax delinquency of the Company must be fully resolved
and all
payroll tax accruals and deposits of the Company must be
current.
|
|
Feb.
29, 2008
|
$ -
|
$ 25,000
|
$ 50,000
|
|||
|
Mar.
31, 2008
|
$ 250,000
|
$ 50,000
|
$ 100,000
|
Accounts
receivable of the Company may be no more than 50 days of sales
outstanding
|
Accounts
payable of the Company may be no than 50 days outstanding.
|
|
|
Apr.
30, 2008
|
$ -
|
$ 60,000
|
$ 160,000
|
|||
|
May
31, 2008
|
$ 250,000
|
$ 70,000
|
$ 230,000
|
Accounts
receivable of the Company may be no more than 45 days of sales
outstanding
|
Accounts
payable of the Company may be no than 45 days outstanding.
|
|
|
Jun.
30, 2008
|
$ -
|
$ 80,000
|
$ 310,000
|
|||
|
July
31, 2008
|
$ 200,000
|
$ 95,000
|
$ 405,000
|
Accounts
receivable of the Company may be no more than 45 days of sales
outstanding
|
Accounts
payable of the Company may be no than 45 days outstanding.
|
|
|
Aug.
31, 2008
|
$ -
|
$ 115,000
|
$ 520,000
|
|||
|
Sept.
30, 2008
|
$ -
|
$ 135,000
|
$ 655,000
|
|||
|
Oct.
31, 2008
|
$ -
|
$ 160,000
|
$ 815,000
|
|||
|
Nov.
30, 2008
|
$ -
|
$ 190,000
|
$ 1,005,000
|
|||
|
Dec.
31, 2008
|
$ -
|
$ 225,000
|
$ 1,230,000
|
|||
11
For
purposes of the foregoing:
"EBT"
means earnings before taxes of the Company as calculated by Buyer in accordance
with GAAP as historically applied by Buyer.
"Cumulative
EBT" means the aggregate EBT for the period beginning on the
Closing Date and ending on the applicable Measuring Date.
"Monthly
EBT" means the aggregate EBT for the calendar month ending on
the
applicable Measuring Date.
"Tax
Plan" means a written plan setting forth in reasonable detail the
actions by which the Company intends to resolve any payroll tax delinquency
of
the Company.
12.23.
Conditions for Future Funding. If Financial Metrics for
any particular Measuring Date are not achieved, any additional funding
requirements of Buyer with respect to such Measuring Date and any subsequent
Measuring Date shall be made at the sole and absolute discretion of Buyer's
management upon consultation with management of the Company.
12.24.
For purposes of determining EBT. Buyer shall account for the results of
the Company on a separate stand-alone profit center basis and without regard
to
the results of other businesses and operations of Buyer, provided that any
effects of any purchase accounting treatment required with respect to the
Transactions shall be disregarded in the calculation of EBT.
12
Exhibit
C
Xxxxxxxx
Employment Agreement
13
