EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into on this
___________ day of July 2005 (the "Execution Date"), by and betweent Reality
Wireless Networks, Inc., a Nevada corporation ("Reality "), Reality Acquisition,
Inc., a Washington corporation ("Acquisition Sub"), and Arabian Recab for
Trading Co., a corporation duly incorporated under the laws of Saudi Arabia
("Arabian Recab").
RECITALS
A. Reality wishes to merge with Arabian Recab the ("Merger"), on the terms and
conditions set forth in this Agreement; and
B. Upon consummation of the Merger (defined in Section 1.2 below), Acquisition
Sub shall merge with and into Arabian Recab, and Arabian Recab shall become a
wholly-owned subsidiary of Reality; and
C. Existing owners of Arabian Recab shall receive shares of common stock of
Reality as provided herein; and
D. All issued and outstanding Arabian Recab capital and ownership rights ("Recab
Rights") (other than shares to be canceled in accordance with Section 1.1(b))
shall be converted into fully paid and nonassessable shares of common stock, par
value $0.001 per share, of Reality representing, on a pro rata basis,
approximately 98% of the fully diluted number of shares of common stock of
Reality to be issued and outstanding immediately after Closing (the "Reality
Shares"). As of the Effective Time (defined in Section 1.2), all outstanding
Recab Rights shall no longer be outstanding and shall automatically be canceled
and shall cease to exist, and each holder of an Recab Rights shall cease to have
any rights with respect thereto, except the right to receive the portion of the
Reality Shares to be issued in consideration therefore in accordance with this
Agreement.
E. It is the intent of the parties that the Merger qualify as a tax-free
corporate reorganization under Section [368(a)(2)(E)] of the Internal Revenue
Code of 1986, as amended (the "Code").
Accordingly, the parties hereby agree as follows:
1. MERGER.
1.1. Effect on Capital Stock. As of the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any of Recab Rights or any
shares of capital stock of Acquisition Sub:
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(a) Capital Stock of Acquisition Sub. Each issued and outstanding share of
capital stock of Acquisition Sub shall be converted into one share of Treasury
Stock of Arabian Recab.
(b) Cancellation of Treasury Stock of Arabian Recab owned by Arabian Recab. Each
share of Arabian Recab that is owned by Arabian Recab shall automatically be
cancelled and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefore.
(c) Conversion of the Recab Rights. All Recab Rights (other than shares to be
canceled in accordance with Section 1.1(b)) shall be converted into fully paid
and nonassessable shares of common stock, par value $0.001 per share, of the
Reality Shares necessary to give effect to the relative ownership of Reality
Shares by Arabian Recab Share holders expressed above in Recital D. As of the
Effective Time, all the Recab Rights shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate representing any such shares of Recab Rights shall cease to have any
rights with respect thereto, except the right to receive the portion of the
Reality Shares to be issued in consideration therefore in accordance herewith.
1.2 Articles of Merger. The Merger shall be effectuated at the Effective Time
pursuant to the Articles of Merger ("Articles of Merger") filed in accordance
with applicable provisions of Saudi Arabia, Washington law and Nevada (the
"Applicable Law"). The Articles of Merger shall be filed together with any other
filings or recordings required by the Applicable Law in connection with the
Merger as soon as practicable after the Closing (as defined below in Section
2.1). The term "Effective Time" as used in this Agreement means the time at
which the Merger becomes effective under the laws of Washington and shall occur
as soon as practicable following the 20th day after Reality 's filing of
Schedule 14C in definitive form that has been approved by the Securities and
Exchange Commission (the "SEC"), which shall be filed, in part, in connection
with the necessary Reality shareholder approval, of this Agreement, in
definitive form (the "Schedule 14C," further described below").
1.3 Procedure. Each and all of the Recab Rights outstanding immediately prior to
the Effective Time shall, immediately after the Effective Time, be exchanged for
a certificate or certificates evidencing ownership of the applicable number of
the Reality Shares. At the Closing (as defined below in Section 2.1) Recab
Rights shall cease to be outstanding and shall be converted into and exchanged
for the Reality Shares. The Reality Shares exchanged for Recab Rights shall be
referred to herein as the "Closing Shares".
1.4 Name Change. At the Effective Time, the articles of incorporation of Reality
shall be amended such that the name "Reality , Inc." shall become "Recab
International Inc."
2. CLOSING AND SUBSEQUENT CONDITIONS.
2.1 Date, Time and Place of Closing. The Merger contemplated by this Agreement
shall take place at a closing to be held at The Xxxx Law Group, PLLC, and shall
be deemed effective upon the execution of this Agreement (the "Closing"), and
shall remain subject to completion and satisfaction of certain conditions
subsequent to the Closing (the "Conditions Subsequent"). The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
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2.2 Arabian Recab Conditions Subsequent. Following the Closing and prior to the
Effective Time, unless otherwise stated herein, Arabian Recab shall deliver the
following documents to Reality (collectively, the "Arabian Recab Closing
Documents"):
2.2.1 Arabian Recab Share Certificates. Certificates, or equivalent
documentation thereof, representing all of Recab Rights;
2.2.2 Articles of Merger. The Articles of Merger (to be prepared by the
Xxxx Law Group, PLLC (the "OLG")) to be filed with the state of Washington and,
in necessary, under applicable provisions under the laws of Saudi Arabia,
executed by Arabian Recab;
2.2.3 Arabian Recab Officer's Certificate. A certificate (to be prepared
by the OLG with the assistance of Arabian Recab)) dated as of the Closing Date
executed by a duly authorized officer of Arabian Recab certifying that all
necessary actions have been taken by Arabian Recab's shareholders and directors
to authorize the transactions contemplated by this Agreement and that all
representations and warranties made by Arabian Recab in this Agreement are
complete and correct in all material respects as of the Closing Date as if made
on the Closing Date;
2.2.4 Resolutions. Copies of signed resolutions of the board of directors
and the shareholders of Arabian Recab approving the Merger with Acquisition Sub
and Arabian Recab Inc. and the execution by Arabian Recab of this Agreement;
2.2.5 Appraisal Xxxxxx.Xx the event that shareholders of Arabian Recab are
entitled to "appraisal rights" pursuant to the laws of Saudi Arabia or
Washington law, copies of all written appraisal notices and forms sent by
Arabian Recab to the shareholders of Arabian Recab as required by Saudi Arabia
or Washington law, including any waiver of "appraisal rights" by Arabian Recab
Shareholders;
2.2.6 Other Documents and Instruments. Such other documents and
instruments as Reality 's counsel may deem to be necessary or advisable to
effect the transactions contemplated by this Agreement.
2.3 Reality Closing Documents. Following the Closing and prior to the Effective
Time, Reality shall deliver or cause to be delivered to Arabian Recab the
following documents (collectively, the "Reality Closing Documents"):
2.3.1 Articles and Certificate of Merger. The Certificate of Merger to be
filed with the State of Washington, executed by Reality and Acquisition Sub,
respectively;
2.3.2 Reality Share Certificates. Executed minutes of a special meeting of
the board of directors of Reality authorizing the issuance of one or more stock
certificates in the name of each of Arabian Recab Shareholders representing such
Arabian Recab Shareholder's ownership of the Reality Shares;
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2.3.3 Good Standing Certificate. A certificate issued by the Nevada
Secretary of State indicating that Reality is qualified and in good standing
within such jurisdiction and a certificate issued by the Washington Secretary of
State indicating that the Reality Acquisition, Inc., is qualified and in good
standing within such jurisdiction;
2.3.4 Reality Officer's Certificate. A certificate dated as of the
Effective Time executed by a duly authorized officer of Reality certifying that
all necessary actions have been taken by Reality 's officers and directors to
authorize the transactions contemplated by this Agreement and that all
representations and warranties made by Reality in this Agreement are complete
and correct in all material respects as of the Closing Date as if made on the
Closing Date;
2.3.5 Resolutions. Copies of signed resolutions of the board of directors
and documented evidence of shareholders of Reality approving the Merger with;
2.3.6 Appraisal Xxxxxx.Xx the event that shareholders of Reality are
entitled to "appraisal rights" pursuant to Nevada law, copies of all written
appraisal notices and forms sent by Reality to the shareholders of Reality as
required by Nevada law;
2.3.7 Such other documents and instruments as Arabian Recab's counsel may
deem to be necessary or advisable to effect the transactions contemplated by
this Agreement.
2.4 Schedule 14C. Upon Execution of this Agreement, Reality shall prepare and
file with the SEC a Schedule 14C to disclose to shareholder approval of the
following:
(1) Reality 's authority to enter into, consummate, and take all action
necessary and proper to effect this Agreement;
(2) A reverse split of the issued and outstanding Reality common stock
(the Reverse Split") such that the pre-Merger Reality shareholders
shall retain a post Merger, post Reverse Split ownership interest of
not less than two percent (2%) of the merged entity immediately
following the time at which the Reverse Split becomes effective.
2.5 Board of Directors. The parties hereto agree that Xxxxx Xxxxxxx, the current
director of Reality , Inc., shall retain a seat on the board of Directors of the
merged entity for a period of not less than the time between the Effective Time
and the next election of the board of directors of the merger entity. Any change
to the composition of the board of directors shall require the mutual agreement
of both parties.
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3. REPRESENTATIONS AND WARRANTIES OF ARABIAN RECAB.
Arabian Recab represents and warrants to Reality that the statements contained
in this Section 3 are correct and complete as of the date of this Agreement in
all material respects.
3.1 Organization of Arabian Recab. Arabian Recab is Saudi Arabia duly organized,
validly existing, and in good standing under the laws of the Saudi Arabia.
Arabian Recab has all the requisite power and authority to own, lease and
operate all of its properties and assets and to carry on its business as
currently conducted and as proposed to be conducted. Arabian Recab is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
licensing or qualification necessary and where the failure to be so qualified
would, individually or in the aggregate, have a Material Adverse Effect upon it.
As used in this Agreement, the term "Material Adverse Effect" with respect to
any party, shall mean any change or effect that is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets or liabilities of such party and such party's subsidiaries
taken as a whole.
3.2 Authorization. Subject to the approval of its shareholders, Arabian Recab
has full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and Arabian Recab Closing Documents and to
perform its obligations hereunder and thereunder. This Agreement constitutes,
and Arabian Recab Closing Documents will constitute, valid and legally binding
obligations of Arabian Recab, enforceable in accordance with their respective
terms and conditions.
3.3 Noncontravention. Neither the execution and the delivery of this Agreement
or Arabian Recab Closing Documents, nor the consummation of the transactions
contemplated hereby or thereby by Arabian Recab, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Arabian Recab is subject or any provision of its articles of
incorporation or bylaws, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which Arabian Recab is a party or by which it is bound or to which any of its
assets is subject. Arabian Recab does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement.
3.4 Disclosure. The representations and warranties contained in this Section 3
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 3 not misleading.
3.5 Capitalization. The authorized capital and ownership rights (previously
defined as the "Recab Rights") of Arabian Recab Inc., at the Closing Date, shall
consist of 47,200,000 Recab Rights. All Recab Rights of Arabian Recab have been
duly authorized and validly issued, and are fully paid and nonassessable. All of
the outstanding Recab Rights (and options to purchase such Recab Rights) and
other outstanding securities of Arabian Recab have been duly and validly issued
in compliance with the laws of Saudi Arabia. Except as set forth on Schedule 3.5
there are no outstanding or authorized subscriptions, options, warrants, plans
or, except for this Agreement and as contemplated by this Agreement, other
agreements or rights of any kind to purchase or otherwise receive or be issued,
or securities or obligations of any kind convertible into, any Recab Rights,
ownership interests or other securities of Arabian Recab, and there are no
dividends (or similar rights) which have accrued or been declared but are unpaid
on the ownership rights of Arabian Recab. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to Arabian
Recab. Recab Rights are duly authorized and validly issued, fully paid and
nonassessable. Recab Rights are not subject to any preemptive rights or other
similar restrictions.
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3.6 Tax Treatment. As of the date of this Agreement, Arabian Recab has no reason
to believe that the Merger, in its entirety, will not qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
3.7 Noncontravention. Neither the execution and the delivery of this Agreement
or the Arabian Recab Closing Documents, nor the consummation of the transactions
contemplated hereby or thereby, by Arabian Recab will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Arabian Recab is subject, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Arabian Recab is a party or by which Arabian Recab is bound
or to which Arabian Recab is subject. Arabian Recab does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the parties to
consummate the transactions contemplated by this Agreement.
3.8 Financial Statements and Financial Condition. Each of the financial
statements (the "Financial Statements") submitted in connection with filing the
post-Merger entities consolidated and audited financial statements to be
included on a Form 8-K filed within 71 days following the filing of a Form 8-K
disclosing this Agreement (such documents, to the extent necessary to comply
with the Rules and Regulations of the SEC, deemed the "Reports") with the SEC
shall be prepared from, and is in accordance with, the books and records of
Arabian Recab, shall comply with all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, and shall be prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated results of operations and cash flows (and
changes in financial position, if any) of Arabian Recab, as at the date(s)
thereof or for the period(s) presented therein.
3.9 Absence of Material Change. Following the Closing Date and prior to the
Effective Time, there have been no change in the business, operations, financial
condition or liabilities of Arabian Recab as stated in the Reports that would
result in a Material Adverse Effect on Arabian Recab.
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3.10 Litigation. Except as provided in the Reports and Financial Statements, or
otherwise disclosed to Reality prior to the Effective Time on Schedule 3.10,
there shall have been actions, suits, claims, inquiries, proceedings or
investigations before any court, tribunal, commission, bureau, regulatory,
administrative or governmental agency, arbitrator, body or authority pending or
threatened against Arabian Recab which would reasonably be expected to result in
any liabilities, including defense costs, in excess of $10,000 U.S. in the
aggregate. Arabian Recab is not the named subject of any order, judgment or
decree and is not in default with respect to any such order, judgment or decree.
3.11 Taxes and Tax Returns. Except as provided in the Reports and Financial
Statements, or otherwise disclosed to Reality prior to the Effective Time,
Arabian Recab has timely and correctly filed tax returns and reports
(collectively, "Returns") required by applicable law to be filed (including,
without limitation, estimated tax returns, income tax returns, excise tax
returns, sales tax returns, use tax returns, property tax returns, franchise tax
returns, information returns and withholding, employment and payroll tax
returns) and all such returns were (at the time they were filed) correct in all
material respects, and have paid all taxes, levies, license and registration
fees, charges or withholdings of any nature whatsoever reflected on such Returns
to be owed and which have become due and payable except for any that is being
contested in good faith.
3.12 Compliance with Applicable Law.
3.12.1 Arabian Recab holds all licenses, certificates, franchises, permits
and other governmental authorizations ("Permits") necessary for the lawful
conduct of its business and such Permits are in full force and effect, and
Arabian Recab is in all material respects complying therewith, except where the
failure to possess or comply with such Permits would not have, in the aggregate,
a Material Adverse Effect on Arabian Recab.
3.12.2 Arabian Recab is and for the past three years has been in
compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules, regulations and orders applicable to the operation, conduct
or ownership of its business or properties except for any noncompliance which is
not reasonably likely to have, in the aggregate, a Material Adverse Effect on
Arabian Recab.
3.13 Contracts and Agreements. Arabian Recab is not a party to or bound by any
commitment, contract, agreement or other instrument which limits the freedom of
Arabian Recab to compete in any line of business or with any person, except to
the extent disclosed on Schedule 3.13. Arabian Recab is not in default on any
material contract, agreement or other instruments.
3.14 Affiliate Transactions.
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3.14.1 Except as otherwise disclosed on Schedule 3.14, Arabian Recab has
not engaged in, and is not currently obligated to engage in (whether in writing
or orally), any transaction with any Affiliated Person (as defined below)
involving aggregate payments by or to Arabian Recab of $10,000 U.S. or more.
3.14.2 For purposes of this Section 3.14, "Affiliated Person" means:
(a) a director, executive officer or Controlling Person (as defined
below) of Arabian Recab;
(b) a spouse of a director, executive officer or Controlling Person
of Arabian Recab;
(c) a member of the immediate family of a director, executive
officer, or Controlling Person of Arabian Recab who has the same home as such
person;
(d) any corporation or organization (other than Arabian Recab) of
which a director, executive officer or Controlling Person of Arabian Recab is a
chief executive officer, chief financial officer, or a person performing similar
functions or is a Controlling Person of such other corporation or organization;
(e) any trust or estate in which a director, executive officer, or
Controlling Person of Arabian Recab or the spouse of such person has a
substantial beneficial interest or as to which such person or his spouse serves
as trustee or in a similar fiduciary capacity; and
(f) for purposes of this Section 3.14, "Controlling Person" means any
person or entity which, either directly or indirectly, or acting in concert with
one or more other persons or entities owns, controls or holds with power to
vote, or holds proxies representing ten percent or more of the outstanding
common stock or equity securities.
3.15 Limited Representations and Warranties. Except for the representations and
warranties of Reality expressly set forth in Section 4, Arabian Recab has not
relied upon any representation and warranty made by or on behalf of Reality in
making its determination to enter into this Agreement and consummate the
transactions contemplated by this Agreement.
3.16 Disclosure. No representation or warranty made by a Arabian Recab contained
in this Agreement, and no statement contained in the Schedules delivered by
Arabian Recab hereunder, contains any untrue statement of a material fact or
omits any material fact necessary in order to make a statement herein or
therein, in light of the circumstances under which it is made, not misleading.
3.17 Title to Property.
3.17.1 Real Property. Arabian Recab does not own or lease, directly or
indirectly, any real property, except as otherwise disclosed to Reality on
Schedule 3.17.1.
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3.17.1 Environmental Matters. Arabian Recab does not have any financial
liability under any environmental laws except as otherwise disclosed to Reality
on Schedule 3.17.2.
3.19 Appraisal Rights. Arabian Recab agrees that, within forty-five (45) days
following the Closing, it shall have has complied in full with any and all
provisions of Saudi Arabia law relating to "appraisal rights".
4. REPRESENTATIONS AND WARRANTIES OF REALITY
Reality hereby represents and warrants to Arabian Recab that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement in all material respects.
4.1 Organization. Reality is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Nevada. Reality has all the
requisite power and authority to own, lease and operate all of its properties
and assets and to carry on its business as currently conducted and as proposed
to be conducted. Reality is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such licensing or qualification necessary and where the failure to
be so qualified would, individually or in the aggregate, have a Material Adverse
Effect upon it.
4.2 Authorization of Transaction. Reality has full power and authority to
execute and deliver this Agreement and the Reality Closing Documents and to
perform all obligations hereunder and thereunder. This Agreement constitutes,
and the Reality Closing Documents will constitute, the valid and legally binding
obligation of Reality enforceable in accordance with their respective terms and
conditions.
4.3 Capitalization. The authorized capital stock of Reality consists of
500,000,000 shares of common stock, $.001 par value, of which approximately zero
shares are issued and outstanding, and 100,000,000 shares of preferred stock,
$.001 par value, of which approximately 350,000,000 shares of common stock are
issued outstanding and zero (0) shares of preferred stock currently designated
are issued and outstanding. All issued and outstanding shares of Reality stock
have been duly authorized and validly issued, and are fully paid and
nonassessable. To the extent necessary to consummate the post-Merger
capitalization as determined by the parties hereto, Reality shall obtain
requisite shareholder approval of it shareholders as part of the Reality
Shareholders approval of the merger. All of the outstanding shares of common
stock (and options to purchase common stock) and other outstanding securities of
Reality have been duly and validly issued in compliance with federal and state
securities laws. With the exception of the convertible debentures executed by
Reality , copies of which have been provided to Arabian Recab, there are no
outstanding or authorized subscriptions, options, warrants, plans or, except for
this Agreement and as contemplated by this Agreement, other agreements or rights
of any kind to purchase or otherwise receive or be issued, or securities or
obligations of any kind convertible into, any shares of capital stock or other
securities of Reality , and there are no dividends which have accrued or been
declared but are unpaid on the capital stock of Reality . There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to Reality . The Reality Shares are duly authorized and validly
issued, fully paid and nonassessable. The Reality Shares are not subject to any
preemptive rights or other similar restrictions.
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4.4 Subsidiaries. Except for the Acquisition Sub created in connection with this
Agreement, and Genesis Acquisition Sub, through which Reality retains a pending
5% interest in Genesis Electronics, Inc., a Delaware corporation, and which
transaction is required in order to effect this Agreement, Reality does not own,
directly or indirectly, any capital stock or other equity interest in any
corporation, partnership or other entity.
4.5 Noncontravention. Neither the execution and the delivery of this Agreement
or the Reality Closing Documents, nor the consummation of the transactions
contemplated hereby or thereby, by Reality will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Reality is subject, or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Reality is a party or by which Reality is bound. Reality does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the parties to
consummate the transactions contemplated by this Agreement.
4.6 Financial Statements and Financial Condition. Each of the financial
statements (the "Financial Statements") included in the reports (the "Reports")
filed with the SEC has been prepared from, and is in accordance with, the books
and records of Reality , currently complies with all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, has been prepared in accordance with U.S.
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly presents in all material respects the consolidated results of operations
and cash flows (and changes in financial position, if any) of Reality , as at
the date(s) thereof or for the period(s) presented therein.
4.7 Absence of Material Change. As of the Execution Date, there has been no
change in the business, operations, financial condition or liabilities of
Reality as stated in the Financial Statements that would result in a Material
Adverse Effect on Reality .
4.8 Litigation. Except as provided in the Reports and Financial Statements, or
otherwise disclosed to Arabian Recab on Schedule 4.8 prior to the Execution
Date, there are no actions, suits, claims, inquiries, proceedings or
investigations before any court, tribunal, commission, bureau, regulatory,
administrative or governmental agency, arbitrator, body or authority pending or
threatened against Reality which would reasonably be expected to result in any
liabilities, including defense costs, in excess of $10,000 U.S. in the
aggregate. Reality is not the named subject of any order, judgment or decree and
is not in default with respect to any such order, judgment or decree.
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4.9 Taxes and Tax Returns. Except as provided in the Reports and Financial
Statements, or otherwise disclosed to Arabian Recab on Schedule 4.9 prior to the
Execution Date, Reality has timely and correctly filed tax returns and reports
(collectively, "Returns") required by applicable law to be filed (including,
without limitation, estimated tax returns, income tax returns, excise tax
returns, sales tax returns, use tax returns, property tax returns, franchise tax
returns, information returns and withholding, employment and payroll tax
returns) and all such returns were (at the time they were filed) correct in all
material respects, and have paid all taxes, levies, license and registration
fees, charges or withholdings of any nature whatsoever reflected on such Returns
to be owed and which have become due and payable except for any that is being
contested in good faith. Any unpaid U.S. Federal income taxes, interest and
penalties of Reality do not exceed $5,000 U.S. in the aggregate.
4.10 Employees. Reality has one (1) employee, Xx. Xxxxx Xxxxxxx, Chief Executive
Officer.
4.11 Compliance with Applicable Law. Reality affirms that:
4.11.1 Reality holds all licenses, certificates, franchises, permits and
other governmental authorizations ("Permits") necessary for the lawful conduct
of its business and such Permits are in full force and effect, and Reality is in
all material respects complying therewith, except where the failure to possess
or comply with such Permits would not have, in the aggregate, a Material Adverse
Effect on Reality .
4.11.2 Reality is and for the past three years has been in compliance with
all foreign, federal, state and local laws, statutes, ordinances, rules,
regulations and orders applicable to the operation, conduct or ownership of its
business or properties except for any noncompliance which is not reasonably
likely to have, in the aggregate, a Material Adverse Effect on Reality .
4.12 Contracts and Agreements. Reality is not a party to or bound by any
commitment, contract, agreement or other instrument which involves or could
involve aggregate future payments by Reality of more than $10,000 U.S., (ii)
Reality is not a party to or bound by any commitment, contract, agreement or
other instrument which is material to the business, operations, properties,
assets or financial condition of Reality , and (iii) no commitment, contract,
agreement or other instrument, other than charter documents, to which Reality is
a party or by which Reality is bound, limits the freedom of Reality to compete
in any line of business or with any person. Reality is not in default on any
contract, agreement or other instruments.
4.13 Affiliate Transactions.
4.13.1 Except as otherwise disclosed on Schedule 4.13, Reality has not
engaged in, and is not currently obligated to engage in (whether in writing or
orally), any transaction with any Affiliated Person (as defined below) involving
aggregate payments by or to Reality of $10,000 U.S. or more.
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4.13.2 For purposes of this Section 4.13, "Affiliated Person" means:
(a) a director, executive officer or Controlling Person (as defined
below) of Reality ;
(b) a spouse of a director, executive officer or Controlling Person
of Reality ;
(c) a member of the immediate family of a director, executive
officer, or Controlling Person of Reality who has the same home as such person;
(d) any corporation or organization (other than Reality ) of which a
director, executive officer or Controlling Person of Reality is a chief
executive officer, chief financial officer, or a person performing similar
functions or is a Controlling Person of such other corporation or organization;
(e) any trust or estate in which a director, executive officer, or
Controlling Person of Reality or the spouse of such person has a substantial
beneficial interest or as to which such person or his spouse serves as trustee
or in a similar fiduciary capacity; and
(f) for purposes of this Section 4.13, "Controlling Person" means
any person or entity which, either directly or indirectly, or acting in concert
with one or more other persons or entities owns, controls or holds with power to
vote, or holds proxies representing ten percent or more of the outstanding
common stock or equity securities.
4.14 Limited Representations and Warranties. Except for the representations and
warranties of Arabian Recab expressly set forth in Section 3, Reality has not
relied upon any representation and warranty made by or on behalf of Arabian
Recab in making its determination to enter into this Agreement and consummate
the transactions contemplated by this Agreement.
4.15 Disclosure. No statement contained in the Schedules delivered by Reality
hereunder contains any untrue statement of a material fact or omits any material
fact necessary in order to make a statement herein or therein, in light of the
circumstances under which it is made, not misleading.
4.16 Title to Property.
4.16.1 Real Property. Reality does not own or lease, directly or
indirectly, any real property.
4.16.2 Environmental Matters. Reality does not have any financial
liability under any environmental laws.
4.17 Personal Property. Reality does not own any personal property the current
fair market value of which is more than $1,000 U.S. in the aggregate.
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4.18 Intellectual Property. Reality does not own or lease, directly or
indirectly, any Intellectual Property. "Intellectual Property", for purposes of
this Agreement, shall mean: patents, patent applications, trademarks, trademark
registrations, applications for trademark registration, trade names, service
marks, registered Internet domain names, licenses and other agreements with
respect to any of the foregoing to which Reality is licensor or licensee. In
addition, there are no pending or threatened, claims against Reality by any
person as to any of the Intellectual Property, or their use, or claims of
infringement by Reality on the rights of any person and no valid basis exists
for any such claims.
4.19 Insurance. Reality does not own, directly or indirectly, any insurance
policies with respect to the business and assets of Reality .
4.20 Powers of Attorney. Reality does not have any powers of attorney
outstanding other than those in the ordinary course of business with respect to
routine matters.
4.21 Product Claims. No product or service liability claim is pending against
Reality or against any other party with respect to the products or services of
Reality .
4.22 SEC Reports and Financial Statements. Reality has filed with the SEC, and
has heretofore made available to Arabian Recab, complete and correct copies of
all forms, reports, schedules, statements and other documents required to be
filed by Reality under the Securities Act, and the Exchange Act (as such
documents have been amended or supplemented since the time of their filing)
(collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
(including without limitation, any financial statements or schedules included
therein) (a) did not contain any untrue statement of a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Securities Act and Exchange Act (as the case may be) and all applicable rules
and regulations of the SEC promulgated thereunder. Each of the financial
statements included in the SEC Reports has been prepared from, and is in
accordance with, the books and records of Reality , complies with all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, has been prepared in accordance
with U.S. generally accepted accounting principles ("U.S. GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presents in all material respects the consolidated
results of operations and cash flows (and changes in financial position, if any)
of Reality , as at the date(s) thereof or for the period(s) presented therein.
4.23 Appraisal Rights. Reality has complied and is in full compliance with any
and all provisions of Nevada law relating to "appraisal rights".
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5. COVENANTS OF THE PARTIES.
5.1 Conduct of the Business of Reality . During the period from the Closing
Date, and the Effective Time, Reality will conduct its business and engage in
transactions only in the ordinary course consistent with past practice. During
such period, Reality will use its best efforts to (a) preserve its business
organization intact, and (b) maintain its current status as a company whose
shares are traded on the Over The Counter Bulletin Board. In addition, without
limiting the generality of the foregoing, Reality agrees that from the date of
this Agreement to the Closing Date, except as otherwise consented to or approved
by Arabian Recab in writing (which consent or approval shall not be unreasonably
withheld, delayed or conditioned) or as permitted or required by this Agreement
or as required by law, Reality will not:
5.1.1 grant any severance or termination pay to or enter into or amend any
employment agreement with, or increase the amount of payments or fees to, any of
its employees, officers or directors other than salary increases to employees
consistent with past increases;
5.1.2 guarantee the obligations of any person except in the ordinary
course of business consistent with past practice;
5.1.3 enter into or amend or terminate any long term (one year or more)
contract (including real property leases);
5.1.4 engage or participate in any material transaction or incur or
sustain any material obligation otherwise than in the ordinary course of
business;
5.1.5 increase the number of employees;
5.1.6 acquire any real property; or
5.1.7 agree to do any of the foregoing.
5.2 No Solicitation and Liquidated Damages. During the period from the Closing
Date, and the Effective Time, neither Reality nor any of its directors,
officers, shareholders, representatives, agents or other persons controlled by
any of them, shall, directly or indirectly encourage or solicit, or hold
discussions or negotiations with, or provide any information to, any persons,
entity or group other than Arabian Recab concerning any merger, sale of
substantial assets not in the ordinary course of business, sale of shares of
capital stock or similar transactions involving Reality . Reality will promptly
communicate to Arabian Recab the identity of any interested or inquiring party,
all relevant information surrounding the interest or inquiry, as well as the
terms of any proposal that Reality may receive in respect of any such
transaction. If this Agreement is terminated by Reality due to uncured breach of
this Section 5.2, then Arabian Recab shall be entitled to Twenty-Five Thousand
Dollars ($25,000) U.S. from Reality as liquidated damages. Such liquidated
damages shall constitute full payment and the exclusive remedy for any damages
suffered by Arabian Recab by reason of such breach and the terms of this
Agreement. Reality and Arabian Recab agree that actual damages would be
difficult to ascertain and that $25,000 U.S. is a fair and equitable amount to
reimburse Arabian Recab for such damages and the termination of this Agreement.
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5.3 Access to Properties and Records; Confidentiality.
5.3.1 Reality shall permit Arabian Recab and its representatives
reasonable access to its properties and shall disclose and make available to
Arabian Recab all books, papers and records relating to the assets, stock,
ownership, properties, obligations, operations and liabilities of Reality ,
including but not limited to, all books of account (including the general
ledger), tax records, minute books of directors and stockholders meetings,
organizational documents, bylaws, material contracts and agreements, filings
with any regulatory authority, accountants work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which
Arabian Recab may have a reasonable interest, in each case during normal
business hours and upon reasonable notice. Reality shall not be required to
provide access to or disclose information where such access or disclosure would
jeopardize the attorney-client privilege or would contravene any law, rule,
regulation, order, judgment, decree or binding agreement entered into prior to
the date of this Agreement. The parties will use all reasonable efforts to make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
5.3.2 All information furnished by Reality to Arabian Recab or the
representatives or affiliates of Arabian Recab pursuant to, or in any
negotiation in connection with, this Agreement shall be treated as the sole
property of Reality until consummation of the Merger and if the Merger shall not
occur Arabian Recab and its affiliates, agents and advisors shall upon written
request return to Reality all documents or other materials containing,
reflecting, referring to such information, and shall keep confidential all such
information and shall not disclose or use such information for competitive
purposes for a period of two (2) years. The obligation to keep such information
confidential shall not apply to (i) any information which (w) Arabian Recab can
establish by evidence was already in its possession (subject to no obligation of
confidentiality) prior to the disclosure thereof by Reality ; (x) was then
generally known to the public; (y) becomes known to the public other than as a
result of actions by Arabian Recab or by the directors, officers, employees,
agents or representatives of Arabian Recab; or (z) was disclosed to Arabian
Recab, or to the directors, officers, employees or representatives of Arabian
Recab, solely by a third party not bound by any obligation of confidentiality;
or (ii) disclosure in accordance with the federal securities laws, a federal
banking laws, or pursuant to an order of a court or agency of competent
jurisdiction.
5.4 Regulatory Matters.
5.4.1 The parties will cooperate with each other and use all reasonable
efforts to prepare all necessary documentation, to effect all necessary filings
and to obtain all necessary permits, consents, approvals, and authorizations of
all third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement including, without limitation, those
that may be required from the SEC, other regulatory authorities, or Arabian
Recab's shareholders. Reality and Arabian Recab shall each have the right to
review reasonably in advance all information relating to Reality or Arabian
Recab, as the case may be, and any of their respective subsidiaries, together
with any other information reasonably requested, which appears in any filing
made with or written material submitted to any governmental body in connection
with the transactions contemplated by this Agreement.
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5.4.2 Reality and Arabian Recab will promptly furnish each other with
copies of written communications received by Reality or Arabian Recab or any of
their respective subsidiaries from, or delivered by any of the foregoing to, any
governmental body in respect of the transactions contemplated by this Agreement.
5.5 Further Assurances. Subject to the terms and conditions of this Agreement,
each of the parties agrees to use all commercially reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
5.6 Public Announcements. Prior to the Effective Time, no party will issue or
distribute any information to its shareholders or employees, any news releases
or any other public information disclosures with respect to this Agreement or
any of the transactions contemplated by this Agreement without the consent of
the other parties or their designated representative, except as may be otherwise
required by law.
5.7 Appraisal and Dissenters' Rights. Notwithstanding any other provision in
this Agreement to the contrary, Arabian Recab agrees to be responsible for any
and all payments required to be made by Reality to shareholders of Reality in
connection with the "appraisal" and/or "dissenters" rights provided to Reality
shareholders under Nevada law.
6. CONDITIONS PRECEDENT TO ARABIAN RECAB'S OBLIGATIONS.
The obligations of Arabian Recab to consummate the transactions contemplated by
this Agreement are subject to satisfaction of the following conditions at or
before the Effective Time and may be waived only in writing by Arabian Recab:
6.1 Reality 's Covenants, Representations and Warranties. All the covenants,
terms and conditions of this Agreement to be complied with or performed by
Reality at or before the Effective Time shall have been complied with and
performed in all respects. The representations and warranties made by Reality in
this Agreement shall be complete and correct at and as of the Effective Time
with the same force and effect as though such representations and warranties had
been made at and as of the Effective Time.
6.2 Delivery of Documents by Reality . Reality shall have duly executed and
delivered, or caused to be executed and delivered this Agreement and the Reality
Closing Documents.
6.3 Reality Shareholder Approval. This Agreement shall have been approved and
adopted by the affirmative votes of that amount of Reality 's outstanding
capital stock necessary for the consummation of the Merger pursuant to Nevada
law.
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6.4 Other Approvals. All authorizations, consents, orders or approvals of any
United States federal or state governmental agency necessary for the
consummation of the Merger or the transactions contemplated by this Agreement
(other than such actions, approvals or filings which, pursuant to the terms of
this Agreement, are to take place on or after the Closing) shall have been
filed, occurred or been obtained.
6.5 No Litigation. No administrative investigation, action, suit or proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement shall be pending or threatened.
6.6 Current Liabilities of Reality . Reality 's liabilities shall not materially
deviate from that reflected in its Form 10-KSB for the year ended September 30,
2004 nor from that reflected in its most recently filed Form 10-QSB filed prior
to the Execution Date and/or most recently Financial Statement and the Reports.
6.7 Appraisal Rights. Reality shall have complied with any and all provisions of
the Nevada General Business Law relating to "appraisal rights".
6.8 Absence of Material Change. There shall have been no change in the business,
operations, financial condition or liabilities of Reality as stated in the
Financial Statements that has had a Material Adverse Effect on Reality .
6.9 Certificate. A certificate issued by the Nevada Secretary of State
indicating that Reality is qualified and in good standing within such
jurisdiction shall have been delivered to Arabian Recab.
6.10 Due Diligence. Arabian Recab shall be satisfied with its due diligence
review of Reality and all of Reality 's affiliated entities including, but not
limited to, any subsidiaries, parents or brother or sister corporations of
Reality .
6.11 Closing Schedules. Reality shall, along with and as part of the requisite
Closing Documents, submit a schedule of outstanding liabilities to be satisfied
in accordance with Arabian Recab's expectations as set forth in this Agreement
prior to, and as a condition of, the closing.
7. CONDITIONS PRECEDENT TO REALITY 'S OBLIGATIONS.
The obligations of Reality to consummate the transactions contemplated by this
Agreement are subject to satisfaction of the following conditions at or before
the Effective Time and may be waived only in writing by Reality :
7.1 Arabian Recab's Covenants, Representations and Warranties. All the
covenants, terms and conditions of this Agreement to be complied with or
performed by Arabian Recab on or before the Effective Time shall have been
complied with and performed in all respects. The representations and warranties
made by Arabian Recab in this Agreement shall be complete and correct at and as
of the Effective Time with the same force and effect as though such
representations and warranties had been made at and as of the Effective Time.
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7.2 Delivery of Documents by Arabian Recab. Arabian Recab shall have duly
executed and delivered, or caused to be executed and delivered, to Reality , or
at its direction, this Agreement, Recab Rights and Arabian Recab Closing
Documents.
7.3 Other Approvals. All authorizations, consents, orders or approvals of any
United States federal or state governmental agency necessary for the
consummation of the Merger or the transactions contemplated by this Agreement
(other than such actions, approvals or filings which, pursuant to the terms of
this Agreement, are to take place on or after the Closing) shall have been
filed, occurred or been obtained.
7.4 Arabian Recab Shareholder Approval. This Agreement shall have been approved
and adopted by the affirmative votes of that amount of Arabian Recab's
outstanding capital stock necessary for the consummation of the Merger pursuant
to the Applicable Law.
7.5 No Litigation. No administrative investigation, action, suit or proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement shall be pending or threatened.
7.6 Due Diligence. Reality shall be satisfied with its due diligence review of
Arabian Recab and all of Arabian Recab's affiliated entities including, but not
limited to, any subsidiaries, parents or brother or sister corporations of
Arabian Recab.
8. TERMINATION.
8.1 Termination of Agreement. This Agreement shall terminate as follows:
(a) at any time prior to the Effective Time by the mutual written
agreement of all parties;
(b) by Arabian Recab, in the event of a breach of any of the
representations or warranties or covenants made by Reality in this Agreement
that has not been cured within 30 days after notice of such breach as delivered
to Reality by Arabian Recab;
(c) by Reality in the event of any of the representations or warranties
made by Arabian Recab in this Agreement that has not been cured within 30 days
after notice of such breach as delivered to Arabian Recab by Reality ; or
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(d) by either Reality or Arabian Recab if the Effective shall have not
occurred by October 22, 2005 (the "Upset Date") provided, however, that the
right to terminate this Agreement pursuant to this clause shall not be available
to any party whose failure to fulfill any obligation of this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to have been
reached on or prior to such date.
9. MISCELLANEOUS.
9.1 Tax Treatment by the Parties. Unless otherwise required by law, the parties
shall treat the Merger as a reorganization under Section 368 of the Code for all
tax reporting purposes; furthermore, the parties shall not take, and have not
taken, any action that is inconsistent with reorganization treatment under
Section 368 of the Code.
9.2 No Third Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any person or entity other than the parties and their respective
successors and assigns.
9.3 Successors and Assigns. No party may assign either this Agreement or any of
its rights, interests, or obligations under this Agreement without the prior
written consent of all other parties. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective permitted successors and assigns.
9.4 Notices. All notices, requests, demands, claims, consents and other
communications required or permitted under this Agreement shall be in
writing. Any notice, request, demand, claim, communication or consent
under this Agreement shall be deemed duly given if (and shall be effective
two business days after) it is sent by certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:
If to Arabian Recab:
Xxxxxxx Xxxxxxx
0000 X Xxx Xxxx Xxxx #000
Xxxx Xxxxxxxxxx, XX 00000
The Xxxx Law Group
With a copy (which shallnot 000 Xxxxx Xxxxxx, Xxxxx 0000
constitute notice) to: Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
If to Reality : Xx. Xxxxx Xxxxxxx
C.E.O.
0000 Xxxxx Xxxxxxx Xx., Xxxxx 000
Xxx Xxxxxx, XX 00000
With a copy (which shall not The Xxxx Law Group
constitute notice) to: 000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
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9.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington.
9.6 Amendments and Waivers. This Agreement may be amended or waived only in a
writing signed by the party against which enforcement of the amendment or waiver
is sought.
9.7 Survival of Representations and Warranties. The representations and
warranties set forth in Sections 3 and 4 of this Agreement shall survive the
Effective Time and continue in full force and effect for a period of two years
after the Effective Time.
9.8 Severability. Any term or provision of this Agreement that is found to be
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of its remaining terms and provisions or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.9 Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.10 Construction. The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation.
9.11 Incorporation of Schedules. The Schedules referred to in and/or attached to
this Agreement are incorporated in this Agreement by this reference.
9.12 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same document. This Agreement may be executed by
facsimile.
9.13 Entire Agreement. This Agreement (including the Schedules referred to in
and/or attached to this Agreement), which constitutes the entire agreement among
the parties, supersedes any prior understandings, agreements, or representations
by or among the parties, written or oral to the extent they relate in any way to
the subject matter of this Agreement, and may only be changed by a writing
signed by both parties.
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9.14. No Finders and Brokers. No agent, broker, person or firm acting on behalf
of Reality or Arabian Recab under its authority is or will be entitled to any
commission, broker, finder, or financial advisory fees from any of the parties
hereto in connection with any of the transactions contemplated herein.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the date first listed above.
Reality :
REALITY WIRELESS NETWORKS, INC.:
By: /s/ Xxxxx Xxxxxxx
----------------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer
Arabian Recab:
ARABIAN RECAB, LLC
By: /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President and Chief Executive Officer
ACQUISITION SUB:
REALITY ACQUISITION, INC.
By: /s/ Xxxxx Xxxxxxx
----------------------------------------
Name: Xxxxx Xxxxxxx
Title: President and Secretary
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