AGREEMENT AND PLAN OF EXCHANGE
THIS
AGREEMENT (the “
Agreement ”),
dated as of January 31, 2008, by and among each of the persons
listed on the signature page hereof (each, a “
Member ”
and jointly and severally, the “
Members ”),
ForgeHouse LLC, a Georgia limited liability company (the
“
Operating Company ”),
and Milk Bottle Cards Inc., a Nevada corporation (“
Publico ”).
WITNESSETH:
WHEREAS,
each Member owns of record and beneficially the percentage of
capital me mbership
interests (the “
Interests ”)
of the Operating Company set forth opposite each such
Member’s name on the annexed Schedule 1;
WHEREAS,
the Members’ Interests represent all of the profit and
loss interests of the Operating Company and 70 percent of the
capital interests of the Operating Company;
WHEREAS,
Publico is a publicly-held company with a class of securities
publicly quotable on the OTC Electronic Bulletin Board that
files periodic reports with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended (the “
Exchange Act ”);
WHEREAS,
Publico will divest itself of its current business activities
effective at Closing; and
WHEREAS,
the Members are desirous of exchanging all of their Interests
to Publico for an aggregate of 10,500,000 (post-split) shares
(the “
Exchange Shares ”)
of Publico’s common stock, par value $.001 per share (the
“
Publico Common Stock ”).
NOW,
THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereby agree as
follows:
ARTICLE 1.
EXCHANGE
Section 1.1
Exchange of Interests .
On the terms and subject to the conditions set forth in this
Agreement, at Closing: (1) each Member hereby agrees to sell,
assign, transfer and deliver its, his or her respective Interest to
Publico, free and clear of all liens, claims, charges or
encumbrances, and (2) Publico shall issue and deliver to the
Members the number of Exchange Shares to be issued to each Member,
as set forth on Schedule 1.1, free and clear of all liens, claims,
charges or encumbrances other than those created by any Member (the
“
Transaction ”).
Section 1.2
Share Restrictions. The
Exchange Shares shall be subject to the following
restrictions:
(a)
The
Members, for a period of two years following Closing (the
“
Two-Year Period ”),
shall not sell, transfer, assign, pledge, hypothecate, or otherwise
derive any economic value (other than the receipt of dividends)
therefrom, except in accordance with Sections 1.2(b), 1.2(d), and
1.2(e) of this Agreement.
(b)
Each
of John A. Britchford-Steel, Jose Alonso, Patrick Palmer, and
Gina Palmer (each, an “
Individual ,”
and collectively, the “
Individuals ”)
is currently providing services to the Operating Company and, at
Closing, each shall become an at-will employee of Publico or its
affiliates (individually and collectively the “
Aggregate Entities ”),
subject to the terms of the respective written employee agreement
between Publico and the respective Individuals, which are effective
at Closing and listed on Schedule 1.2(b) hereto (collectively, the
“
Employment Agreements ”).
If, during the Two-Year Period, an Individual is dismissed for
“Cause” or shall terminate employment without
“Good Reason” (as those terms are defined below), and
notwithstanding the prohibitions and provisions of Section 1.2(a),
above, all of the Exchange Shares then-owned by such Individual
shall be subject to a right of first refusal in favor of all other
Individuals as a group (on a pro-rata basis) and, in respect of any
such Exchange Shares then remaining unpurchased, thereafter in
favor of holders of Publico’s Series A preferred stock as a
group (on a pro-rata basis). The per-share right of first refusal
price shall be equal to the lessor of (i) ninety percent (90%) of
the 10-day volume-weighted average trading prices for the ten
trading days prior to such termination of employment or (ii)
$0.75.
(i)
“
Cause ”
means any of the following that has a material adverse effect on
Publico: (a) a material breach by the respective Individual of any
term of his or her respective Employment Agreement; (b) an
intentional refusal or failure to follow the lawful and reasonable
instructions of the Chief Executive Officer (or, if Individual is
the Chief Executive Officer, the Board of Directors) or an
individual to whom the Chief Executive Officer (or, if Individual
is the Chief Executive Officer, the Board of Directors) instructed
the respective Individual to report (as appropriate); (c) a willful
or habitual neglect of duties; (d) misconduct on the part of the
respective Individual that is materially injurious to one or more
of the Aggregate Entities; (e) any act of fraud or embezzlement in
respect of one or more of the Aggregate Entities or any of their
respective funds, properties or assets; (f) conviction of the
respective Individual of a felony or of a plea of guilty or nolo
contendre involving a felony, whether or not involving one or more
of the Aggregate Entities; (g) willful misconduct or gross
negligence by the participant in connection with the performance of
the respective Individual’s duties to one or more of the
Aggregate Entities or willful violation of one or more of the
Aggregate Entities’ policies; (h) intentional dishonesty by
the respective Individual in the performance of the his or her
duties to one or more of the Aggregate Entities; (i) any fraud,
theft, misappropriation of or embezzlement by the respective
Individual in connection with the performance of his or her duties
to one or more of the Aggregate Entities; (j) engagement by the
respective Individual in the use of illegal substances or alcohol,
which use has impaired his or her ability, as determined by the
Board of Directors of Publico, on an ongoing basis, to perform his
or her duties to one or more of the Aggregate Entities; or (k)
breach by the respective Individual of any terms and conditions set
forth in any non-competition, non-solicitation and/or
non-disclosure agreement executed by him or her. A determination of
Cause shall be made by the Board of Directors of Publico. With
regard to clauses (a) through (c) and (k), the respective
Individual may cure such breach within thirty (30) days of his or
her receipt of written notice from Publico; provided, however, that
such cure period shall not be applicable if, in the case of clause
(a) or (k), the Board of Directors, in its sole discretion, has
determined that such breach is not capable of being fully cured;
provided, further, that, upon the second occurrence of a breach
under clauses (a) through (c) or (k), no such cure period need be
extended to the respective Individual.
(ii)
“
Good Reason ”
means as to any Individual the occurrence of any of the following
without the consent of such Individual: (a) a material diminution
of such Individual’s compensation; (b) a material diminution
in the Individual’s authority, duties or responsibilities
(including, without limitation, a requirement that the Individual
report to a corporate officer rather than directly to the board of
directors of one or more of the Aggregate Entities); or (c) a
material change in the geographic location at which the Individual
works; provided that for purposes of this Agreement, a
“material change” in geographic location shall mean a
change in the geographic location at which the Individual works
that increases the distance from his or her residence, as of the
Closing Date, to such location by more than fifty (50) miles;
provided, however, that in no event shall a termination by the
Individual be deemed to have been for “Good Reason” if
(i) the Individual fails to give Publico written notice of the
applicable Good Reason event within 90 days after such event first
occurs or (ii) one or more of the Aggregate Entities corrects such
event in all material respects within 30 days following its receipt
of such written notice from the Individual.
(c)
Notwithstanding
anything contained in this Section 1.2, this Section 1.2 does
not provide to any Individual any rights, privileges, or
guarantees beyond what is in the Employment
Agreements.
(d)
Trust; Permitted Transfers .
(i)
During
the Two-Year Period, the Exchange Shares owned by each of the
Members, excluding Renee Harrison, shall be held ‘in
trust’ by a licensed attorney of each Member’s
choice for the benefit of such Member, in connection with the
obligations and restrictions of those certain Lock-Up
Agreements by and among Publico and the respective Members,
dated as of the Closing Date (collectively, the “
Lock-Up Agreements ”).
(ii)
Notwithstanding
the potential restrictions set forth in Section 1 of the
Lock-Up Agreements, during the Two-Year Period, should a
Member desire to transfer its shares to its respective
beneficial owners, such Member may, at any time and from time
to time, without any prior consent and without violating any
other condition hereof or of the relevant Lock-Up Agreement,
transfer its Exchange Shares to such beneficial owners. Upon
such transfer, the beneficial owners of the respective Member
shall hold the Exchange Shares subject to all the terms and
conditions hereof and all terms and conditions set forth in
the relevant Lock-Up Agreement and shall provide notice to
Publico of such transfer within five (5) business days.
Furthermore, such beneficial owners shall be subject to the
provisions of Section 1.2(d)(i), above.
(iii)
Notwithstanding
the potential restrictions set forth in Section 1 of the
Lock-Up Agreements, during the Two-Year Period, the Exchange
Shares referenced in this Section 1.2(d) may be transferred to
any trust or entity by the Member or its beneficial owners, at
any time and from time to time, so long as each such transfer
is for tax or estate planning purposes of such beneficial
owner. Upon such transfer, such trust or entity shall hold the
Exchange Shares subject to all the terms and conditions hereof
and as set forth in the relevant Lock-Up Agreement and shall
provide notice to Publico of such transfer within five (5)
business days. Furthermore, such trust or entity shall be
subject to the provisions of Section 1.2(d)(i), above, unless,
in the case of a trust, compliance with such provisions would
materially reduce the tax or estate planning
benefits.
(e)
Notwithstanding
the potential restrictions set forth in Section 1 of the
Lock-Up Agreements, if an Individual is dismissed by Publico
as an employee for any reason other than for Cause or
terminates employment for Good Reason (the “
Terminated Individual ”),
such Terminated Individual may, at any time and from time to time
during the two-year period commencing on the Closing Date, sell,
transfer, or otherwise dispose of shares of common stock (owned of
record or beneficially or underlying such Terminated
Individual’s options to purchase shares of common stock),
subject to the limitations and in the manner set forth hereinafter
in this Section 1.2(e). Such dispositions shall be (i) to any other
stockholder of Publico at a price per share no less than the
average of the high and low closing price, if the common stock is
then-listed on a national securities exchange, or, if not so
listed, the average of the high and low bid price, in either case,
as of the immediately preceding business day; (ii) in
“brokers’ transactions” within the meaning of
Section 4(4) of the Securities Act of 1933, as amended (the
“
Securities Act ”),
and as further defined in Rule 144(g) promulgated by the Securities
and Exchange Commission thereunder; or (iii) in transactions
directly with a “market maker,” as that term is defined
in Section 3(a)(38) of the Exchange Act. Such dispositions, in
aggregate, shall not exceed the Trickle Amount (as defined below)
in each calendar quarter from and after such dismissal. Aggregate
dispositions during partial calendar quarters shall be on a
pro-rata basis. Any unused allocation of the aggregate dispositions
shall not carry-over to any subsequent quarter. For the purposes of
this Section 1.2(e), “
Trickle Amount ”
shall mean $25,000 in Value (as defined below) per beneficial
owner, that is a Terminated Individual; and “
Value ”
shall mean, in the case of (i), above, the product of the number of
shares sold multiplied by the relevant average price, and in the
case of (ii) and (iii), above, the net value received from sales in
ordinary brokerage transactions or to a market maker. For clarity,
if such “Terminated Individual” is John
Britchford-Steel or Jose Alonso and any relevant shares are held of
record by TWE International, LLC and/or any successor trust or
entity, then such Trickle Amount shall relate to such
person’s beneficial interest in such shares, aggregated with
the shares underlying such person’s options to purchase
common stock; and if such “Terminated Individual” is
Patrick Palmer or Gina Palmer and any relevant shares are held of
record by Palmer Trust and/or any successor trust or entity, then
such Trickle Amount shall relate to such person’s beneficial
interest in such shares, aggregated with the shares underlying such
person’s options to purchase common stock.
Section 1.3
Delivery of Interests/Shares .
Subject to the terms and conditions hereof, at the Closing, (a) the
Members shall transfer to Publico their Interests by delivering the
certificates evidencing the Interests, accompanied by duly endorsed
security powers, with signatures notarized, in form and substance
satisfactory to Publico permitting the transfer of the Interests to
Publico; and (b) Publico shall deliver to each Member stock
certificate(s) registered in the name of such Member representing
the Exchange Shares issued to such Member.
Section 1.4
Supplemental Action .
If, at any time after the Closing Date, the Members or Publico
shall determine that any further conveyances, agreements,
documents, instruments, and assurances or any further action is
necessary or desirable to carry out the provisions of this Article
1, the Members or Publico, as the case may be, shall execute and
deliver any and all proper conveyances, agreements, documents,
instruments, and assurances and perform all necessary or proper
acts to carry out the provisions of this Article 1.
ARTICLE 2.
CLOSING; CLOSING DATE
Section 2.1 The
exchange of the Members’ Interests for the Exchange Shares as
contemplated hereby (the “
Closing ”)
shall take place at 8:30 a.m. PST on January 31, 2008, at the
offices of Bryan Cave LLP, 1900 Main Street, Suite 700, Irvine,
California 92614, or such other time or date as the parties hereto
may mutually agree in writing. The date upon which the Closing
occurs is herein called the “
Closing Date .”
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF
OPERATING COMPANY AND MEMBERS
Except
(i) as set forth in the written disclosure letter delivered at
or prior to the execution hereof to Publico (the
“
Operating Company/Members Disclosure Letter
”), (ii) as set forth in the agreements referred to in
Sections 6.16 and 7.16 of this Agreement, and (iii) for the
representations and warranties set forth in Section 3.28, which are
only made by the Members (for the purpose of this Article 3,
“Members” shall not include Renee Harrison, unless
otherwise stated), on a joint and several basis (excluding Renee
Harrison, who shall only be severally liable), the Operating
Company and Members, jointly and severally, hereby represent and
warrant to Publico as set forth in this Article 3. The Operating
Company/Members Disclosure Letter shall be arranged in sections or
subsections corresponding to the number and lettered sections and
subsections contained in this Article 3. The disclosures in each
section or subsection of the Operating Company/Members Disclosure
Letter that qualify any representation or warranty shall qualify
only the correspondingly numbered representation and warranty in
this Article 3, except to the extent it is reasonably clear from a
reading of the disclosure that such disclosure is applicable to
other representations and warranties herein.
Section 3.1
Organization; Good Standing; Authority; Compliance With
Law .
(a)
Operating
Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of
Georgia and has all requisite power and authority to own,
lease and operate its properties and to carry on its business
as now conducted. Operating Company is duly licensed or
qualified and is in good standing to transact business as a
foreign limited liability company in each jurisdiction in
which the character of the properties owned or leased by it
therein or in which the nature of its business makes such
qualification or licensing necessary, except where the failure
to be so licensed or qualified would not have, individually or
in the aggregate, an Operating Company Material Adverse
Effect. For purposes of this Agreement, an “
Operating Company Material Adverse Effect ”
means a material adverse effect on the business, operations,
prospects, assets (including intangible assets), financial
condition or results of operations of Operating Company taken as a
whole.
(b)
The
business of Operating Company has been operated in compliance
with all laws, ordinances, regulations and orders of all
governmental entities, except for violations that would not
have, individually or in the aggregate, an Operating Company
Material Adverse Effect. Operating Company has all permits,
certificates, licenses, approvals, consents and other
authorizations (collectively, “
Government Approvals ”)
of all governmental and regulatory agencies, entities, commissions,
boards, bureaus, tribunals, officials or authorities, whether
Federal, state or local (collectively, “
Governmental Agencies ”),
required by law with respect to the operation of its business,
except those the absence of which would not, individually or in the
aggregate, have an Operating Company Material Adverse Effect or
prevent or delay consummation of the Transaction. All such
Government Approvals are in full force and effect, and Operating
Company is in compliance with all conditions and requirements of
the Government Approvals and with all rules and regulations
relating thereto, other than failures that would not have,
inadvertently or in the aggregate, an Operating Company Material
Adverse Effect. Neither Operating Company nor the Members have
received any notices of violations of any Federal, state or local
laws, regulations or ordinances relating to the Operating
Company’s business, operations, prospects, or assets that, if
it were determined that a violation had occurred, would have an
Operating Company Material Adverse Effect.
(c)
The
articles of organization and other charter documents,
operating agreement, organizational documents, and
partnership, shareholder, joint venture or similar agreements
(and in each such case, all amendments thereto) of Operating
Company are listed in Section 3.1(c) of the Operating
Company/Members Disclosure Letter, true and correct copies of
which have previously been delivered to Publico or its
counsel.
Section 3.2
Authorization, Validity and Effect of
Agreements .
The Operating Company and the Members (including Renee Harrison)
have the requisite power and authority to execute and deliver this
Agreement and to consummate the Transaction. The managers of
Operating Company have taken all necessary action to approve this
Agreement and the Transaction. The Operating Company and the
Members have taken all actions necessary to exempt the Transaction
from the operation of any “fair price,”
“moratorium,” “control share acquisition,”
or other similar anti-takeover statute or regulation enacted under
any state or federal law of the United States. This Agreement
constitutes the valid and legally binding obligation of the
Operating Company and the Members (including Renee Harrison),
enforceable against the Operating Company and the Members
(including Renee Harrison) in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors’ rights.
Section 3.3
Capitalization .
As of the date hereof, the Members (including Renee Harrison) own
all the profit and loss interests in Operating Company and 70
percent of the capital interest. All outstanding capital interests
of Operating Company (“
Operating Company Interest ”)
are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights or rights of first refusal created by
statute, the articles of organization or operating agreement of
Operating Company or any agreement to which Operating Company is a
party or by which it is bound, and free of any liens or
encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof or under applicable federal or
state securities or “blue sky” laws. Operating Company
has no outstanding bonds, debentures, notes or other obligations
the holders of which have or upon the happening of certain events
would have the right to vote (or which are convertible into or
exercisable or exchangeable for securities having the right to
vote) with the holders of any interest of Operating Company on any
matter. There are no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements,
appreciation rights or similar derivative securities or instruments
or commitments that obligate Operating Company to issue, transfer
or sell any Operating Company membership interests or make any
payments in lieu thereof. There are no agreements or understandings
to which Operating Company is a party with respect to the voting of
any Operating Company Interest or which restrict the transfer of
any such Interests, nor does the Operating Company or the Members
(including Renee Harrison) have knowledge of any such agreements or
understandings with respect to the voting of any such Interest or
which restrict the transfer of any such Interest. There are no
outstanding contractual obligations of Operating Company to
repurchase, redeem or otherwise acquire any Operating Company
Interest or any other securities of Operating Company. Operating
Company is not under any obligation, contingent or otherwise, by
reason of any agreement to register any of its securities under the
Securities Act. True and complete copies of all agreements and
instruments relating to the securities described above and in
Section 3.3 of the Operating Company/Members Disclosure Letter have
been provided to Publico and such agreements and instruments have
not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or
instruments in any case from the form provided to
Publico.
Section 3.4
Other Interests .
Operating Company does not own directly or indirectly any interest
or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or other entity (other
than investments in short term investment securities).
Section 3.5
No Violation .
Neither the execution and delivery by the Operating Company and the
Members of this Agreement nor the consummation by the Operating
Company and the Members of the Transaction will: (i) conflict with
or result in a breach of any provisions of Operating
Company’s articles of organization or operating agreement;
(ii) violate, result in a breach of any provision of, or constitute
a default under, or require any approval or consent under or result
in the termination or in a right of termination or cancellation of,
or accelerate the performance required by or result in a material
adverse change to, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties owned or
leased by Operating Company under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or
any license, franchise, permit, lease, contract, agreement or other
instrument to which Operating Company and/or any of the Members is
a party, or by which Operating Company and/or any of the Members or
any of the properties owned or leased by Operating Company is bound
or affected, except for any of the foregoing matters in this clause
which, individually or in the aggregate, would not have an
Operating Company Material Adverse Effect and would not reasonably
be expected to prevent, materially alter or materially delay the
Transaction; (iii) contravene or conflict with or constitute a
violation of any provision of any law, rule, regulation, judgment,
injunction, order or decree binding upon or applicable to Operating
Company; or (iv) require any consent, approval or authorization of,
or declaration, filing or registration with, any governmental or
regulatory authority that has not been obtained or made, except
where the failure to obtain any such consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not have an Operating
Company Material Adverse Effect and could not reasonably be
expected to prevent, materially alter or materially delay the
Transaction.
Section 3.6
Auditors .
To the Operating Company’s and the Members’ knowledge,
the auditor of the Operating Company’s financial statements
provided to Publico pursuant to this Agreement has at all times
since the date of enactment of the Sarbanes-Oxley Act been: (i) a
registered public accounting firm (as defined in Section 2(a)(12)
of the Sarbanes-Oxley Act); (ii) “independent” with
respect to Operating Company within the meaning of Regulation S-X
under the Exchange Act; and (iii) in compliance with subsections
(g) through (l) of Section 10A of the Exchange Act and the rules
and regulations promulgated by the SEC and the Public Operating
Company Accounting Oversight Board thereunder.
Section 3.7
Financial Statements .
The Operating Company has delivered to Publico true and complete
copies of the audited balance sheet of the Operating Company at
December 31, 2006, and the related consolidated statements of
income, changes in interest-holders' equity, and cash flow for each
of the two years in the period ended December 31, 2006 and for the
period from June 24, 2002 (inception) to December 31, 2006, and
unaudited consolidated balance sheet of Operating Company at
September 30, 2007, and the related unaudited consolidated
statements of income, changes in interest-holders’ equity,
and cash flow for both the three (3) and nine (9) month periods
ended September 30, 2007 and 2006 (collectively, the “
Operating Company Financials ”).
The Operating Company Financials (i) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the footnotes to the
Operating Company Financials and that the interim financial
statements may not have notes thereto and other presentation items
that may be required by GAAP and are subject to normal and
recurring year-end adjustments that are not reasonably expected to
be material in amount), (ii) fairly present in all material
respects the consolidated financial position and operating results
and cash flows of Operating Company as of the dates and for the
periods indicated therein, (iii) comply as to form in all material
respects with the published rules and regulations of the SEC as
would be applicable thereto if Operating Company were subject to
the reporting requirements of the Exchange Act, and (iv) in the
case of the interim financial statements, have been reviewed by the
auditor of Operating Company to the same extent as if Operating
Company were subject to the reporting requirements of the Exchange
Act.
Section 3.8
Litigation .
(a)
There
are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which Operating
Company or any of the Members, in their capacity as Members,
is a party or by which any of its properties or assets are
bound or likely to be affected and (ii) no actions, suits or
proceedings pending against Operating Company or any of the
Members, in their capacity as Members, or to which any of
their respective properties or assets are subject or, to the
knowledge of the Operating Company or the Members, threatened
against Operating Company or any Member, in their capacity as
a Member, or to which any of their respective properties or
assets are subject, at law or in equity, that in each such
case could, individually or in the aggregate, have an
Operating Company Material Adverse Effect.
(b)
There
are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which the
Members, in their capacity as individuals, are a party or by
which any of their Interests are bound or likely to be
affected, and (ii) no actions, suits or proceedings pending
against Members, in their capacity as individuals, or to which
any of their Interests are subject or, threatened against
Member, in their capacity as individuals, or to which any of
its Membership Interests are subject, at law or in equity,
that in each such case could, individually or in the
aggregate, have an Operating Company Materials Adverse
Effect.
Section 3.9
Absence of Certain Changes
. Since
December 31, 2006, Operating Company has conducted its business
only in the ordinary course of such business and consistent with
past practices and there has not been any:
(a)
Operating
Company Material Adverse Effect;
(b)
amendment
or change in the articles of organization or operating
agreement of Operating Company;
(c)
incurrence,
creation or assumption by Operating Company of (i) any
mortgage, deed of trust, security interest, pledge, lien,
title retention device, collateral assignment, claim, charge,
restriction or other encumbrance of any kind on any of the
assets or properties of Operating Company; or (ii) any
obligation or liability of any indebtedness for borrowed
money;
(d)
issuance
or sale of any debt or equity securities of Operating Company,
or the issuance or grant of any options, warrants or other
rights to acquire from Operating Company, directly or
indirectly, any debt or equity securities of Operating
Company;
(e)
payment
or discharge by Operating Company of any security interest,
lien, claim, or encumbrance of any kind on any asset or
property of, or the payment or discharge of any liability that
was not either shown or reflected on the Operating Company
Financials or incurred in the ordinary course of Operating
Company’s business after September 30, 2007, in an
amount in excess of $50,000 for any single liability to a
particular creditor;
(f)
purchase,
license, sale, assignment or other disposition or transfer, or
any agreement or other arrangement for the purchase, license,
sale, assignment or other disposition or transfer, of any of
the assets, properties or goodwill of Operating Company other
than a license or sale of any product or products of Operating
Company made in the ordinary course of Operating
Company’s business;
(g)
damage,
destruction or loss of any property or asset, whether or not
covered by insurance, having (or likely with the passage of
time to have) an Operating Company Material Adverse
Effect;
(h)
declaration,
setting aside or payment of any dividend on, or the making of
any other distribution in respect of, the membership interests
of Operating Company, any split, combination or
recapitalization of the membership interests of Operating
Company or any direct or indirect redemption, purchase or
other acquisition of the membership interests of Operating
Company or any change in any rights, preferences, privileges
or restrictions of any outstanding security of Operating
Company;
(i)
increase
in the compensation payable or to become payable to any of the
officers, managers, or employees of Operating Company, or any
bonus or pension, insurance or other benefit payment or
arrangement (including without limitation interest awards,
interest option grants, interest appreciation rights or
interest option grants) made to or with any of such officers,
employees or agents;
(j)
obligation
or liability incurred by Operating Company to any of its
officers, managers or interest-holders except for normal and
customary compensation and expense allowances payable to
officers in the ordinary course of Operating Company’s
business consistent with past practice;
(k)
making
by Operating Company of any loan, advance or capital
contribution to, or any investment in, any officer, manager or
interest-holder of Operating Company or any firm or business
enterprise in which any such person had a direct or indirect
material interest at the time of such loan, advance, capital
contribution or investment;
(l)
entering
into, amendment of, relinquishment, termination or non-renewal
by Operating Company of any contract, lease, transaction,
commitment or other right or obligation other than in the
ordinary course of its business or any written or oral
indication or assertion by the other party thereto of any
material problems with Operating Company’s services or
performance under such contract, lease, transaction,
commitment or other right or obligation or of such other
party’s demand to amend, terminate or not renew any such
contract, lease, transaction, commitment or other right or
obligation;
(m)
material
change in the manner in which Operating Company extends
discounts, credits or warranties to customers or otherwise
deals with its customers;
(n)
entering
into by Operating Company of any transaction, contract or
agreement that by its terms requires or contemplates a
required minimum current and/or future financial commitment,
expenses (inclusive of overhead expenses) or obligation on the
part of Operating Company or involving in excess of $50,000
(provided that the amount of such financial commitments and
expenses for all such transactions, contracts or agreements
does not exceed $150,000 in the aggregate, excluding legal and
accounting fees associated with the Agreement) or that is not
entered into in the ordinary course of Operating
Company’s business, or the conduct of any business or
operations by Operating Company that is other than in the
ordinary course of Operating Company’s business;
or
(o)
license,
transfer or grant of a right under any Operating Company
Intellectual Property (as defined in Section 3.22 below),
other than those licensed, transferred or granted in the
ordinary course of business consistent with its past
practices.
Section 3.10
Taxes .
Except where such failure would not have, individually or in the
aggregate, an Operating Company Material Adverse
Effect:
(a)
Operating
Company has paid or caused to be paid all federal, state,
local, foreign, and other taxes, and all deficiencies, or
other additions to tax, interest, fines and penalties
(collectively, “
Taxes ”),
owed or accrued by it and due and payable through the Closing Date
(including any Taxes payable pursuant to Treasury Regulation
§1.1502-6 (and any similar state, local or foreign
provision));
(b)
Operating
Company has timely filed all federal, state, local and foreign
tax returns (collectively, “
Tax Returns ”)
required to be filed by it through the date hereof, and all such
returns accurately set forth the amount of any Taxes relating to
the applicable period;
(c)
Operating
Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor,
interest-holder or other party;
(d)
The
Operating Company Financials reflect adequate reserves for
Taxes payable by Operating Company for all taxable periods and
portions thereof through the date of such financial
statements;
(e)
Since
December 31, 2006, Operating Company has made sufficient
accrual for Taxes in accordance with GAAP with respect to
periods for which Tax Returns have not been
filed;
(f)
There
are no outstanding agreements, waivers or arrangements
extending the statutory period of limitations applicable to
any claim for, or the period for the collection or assessment
of, Taxes due from Operating Company for any taxable period
and there have been no deficiencies proposed, assessed or
asserted for such Taxes;
(g)
There
are no closing agreements that could affect Taxes of Operating
Company for periods after the Closing Date pursuant to Section
7121 of the Internal Revenue Code of 1986, as amended (the
“
Code ”),
or any similar provision under state, local or foreign tax
laws;
(h)
No
audit or other proceedings by any court, governmental or
regulatory authority or similar authority has occurred, been
asserted or is pending and Operating Company has not received
notice that any such audit or proceeding may be
commenced;
(i)
[Reserved];
(j)
Operating
Company has not agreed or filed application to, or is not
required to, make any changes or adjustments to its accounting
method; and
(k)
There
is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to
the payment of any amount that would not be deductible by
Operating Company by reason of Section 280G or Section 162(m)
of the Code.
Section 3.11
Books and Records .
(a)
The
books of account and other financial records of Operating
Company are true, complete and correct in all material
respects, have been maintained in accordance with good
business practices, and are accurately reflected in all
material respects in the Operating Company
Financials.
(b)
The
minute books and other records of Operating Company contain
accurate records of all meetings and accurately reflect all
other action of the interest-holders and managers and any
committees of the managers of Operating Company.
Section 3.12
Properties .
(a)
Section
3.12(a) of the Operating Company/Members Disclosure Letter
sets forth a list of all real property currently, or at any
time in the past five (5) years, owned or leased by Operating
Company, and, with respect to all real property currently
leased by Operating Company, the name of the lessor, the date
of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease.
All such current leases are, to the knowledge of the Operating
Company and the Members, in full force and effect, are valid
and effective in accordance with their respective terms, and
there is not to the knowledge of the Operating Company or the
Members any existing material default or event of default
under any such lease (or event which with notice or lapse of
time, or both, would constitute such a material
default).
(b)
Operating
Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed,
used or held for use in its business, free and clear of any
liens, except as reflected in the Operating Company Financials
and except for liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or
affected thereby.
Section 3.13
Condition and Sufficiency of Assets
.
The buildings, plants, structures and equipment owned by Operating
Company are sufficient for the continued conduct of Operating
Company’s business after the Closing in substantially the
same manner as conducted prior to the Closing.
Section 3.14
Accounts Receivable .
All accounts receivable of Operating Company that are reflected in
the Operating Company Financials or on the accounting records of
Operating Company as of the Closing Date (collectively, the
“
Accounts Receivable ”)
represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course
of business. Unless paid prior to the Closing Date, the Accounts
Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown in the Operating
Company Financials or on the accounting records of Operating
Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the
reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than
the reserve reflected in the Operating Company Financials
represented of the Accounts Receivable reflected therein and 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 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 or agreement
relating to the amount or validity of an Accounts Receivable.
Section 3.14 of the Operating Company/Members Disclosure Letter
contains a complete and accurate list of all Accounts Receivable as
of the date of the Operating Company Financials, which list sets
forth the aging of such Accounts Receivable.
Section 3.15
Inventory .
Operating Company does not own any inventory, whether or not
required to be reflected in the Operating Company
Financials.
Section 3.16
Contracts; No Defaults .
(a)
Section
3.16(a) of the Operating Company/Members Disclosure Letter
contains a complete and accurate list, and the Members have
delivered to Publico true and complete copies,
of:
(i)
each
licensing agreement or other contract with respect to software
(collectively, the “
Software Licenses ”);
(ii)
each
contract with respect to the providing of consulting services
by Operating Company or any of its employees or agents, or by
any of the Members (collectively, the “
Consulting Contracts ”);
(iii)
[Reserved];
(iv)
each
contract that involves performance of services or delivery of
goods or materials to Operating Company of an amount or value
in excess of $10,000;
(v)
each
contract (other than the Software Licenses and the Consulting
Contracts) that was not entered into in the ordinary course of
business and that involves expenditures or receipts of
Operating Company in excess of $10,000;
(vi)
each
lease, rental or occupancy agreement, license, installment and
conditional sale agreement, and other contracts affecting the
ownership of, leasing of, title to, use of, 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 $10,000 and with terms of less than one
year);
(vii)
each
licensing agreement or other contract (other than the Software
Licenses) with respect to patents, trademarks, copyrights, or
other 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;
(viii)
each
collective bargaining agreement and other contract to or with
any labor union or other employee representative of a group of
employees;
(ix)
each
joint venture, partnership, and other contract (however named)
involving a sharing of profits, losses, costs, or liabilities
by Operating Company with any other person;
(x)
each
contract containing covenants that in any way purport to
restrict the business activity of Operating Company or any of
its affiliates or limit the freedom of Operating Company or
any of its affiliates to engage in any line of business or to
compete with any person;
(xi)
each
contract providing for payments to or by any person based on
sales, purchases, or profits, other than direct payments for
goods;
(xii)
each
power of attorney executed by a Member affecting or related to
its or his position as a Member that is currently effective
and outstanding;
(xiii)
each
contract entered into other than in the ordinary course of
business that contains or provides for an express undertaking
by Operating Company to be responsible for consequential
damages;
(xiv)
each
contract for capital expenditures in excess of
$10,000;
(xv)
each
written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by Operating
Company other than in the ordinary course of business;
and
(xvi)
each
amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Section
3.16 of the Operating Company/Members Disclosure Letter sets
forth reasonably complete details co ncerning
such contracts, including the parties to the contracts, the
amount of the remaining commitment of Operating Company under
the contracts, and Operating Company’s office where
details relating to the contracts are located.
(b)
(i)
No Interest-holder of Operating Company (and no affiliate of
any Interest-holder of Operating Company) has or may acquire
any rights under, and no Interest-holder of Operating Company
has or 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, Operating Company; and (ii) to
the knowledge of the Operating Company and the Members, no
officer, manager, agent, employee, consultant, or contractor
of Operating Company is bound by any contract that purports to
limit the ability of such officer, manager, agent, employee,
consultant, or contractor to (A) engage in or continue any
conduct, activity, or practice relating to the business of
Operating Company, or (B) assign to Operating Company or to
any other person any rights to any invention, improvement, or
discovery.
(c)
Each
contract identified or required to be identified in Section
3.16(a) of the Operating Company/Members Disclosure Letter is
in full force and effect and, to the knowledge of the
Operating Company and the Members, is valid and enforceable in
accordance with its terms.
(d)
(i)
Operating Company is, and at all times since formation, has
been, in full compliance with all applicable terms and
requirements of each contract under which it has or had any
obligation or liability or by which it or any of the assets
owned or used by it is or was bound, except where the failure
to so comply would not reasonably be expected to have an
Operating Company Material Adverse Effect; (ii) to the
knowledge of the Operating Company and the Members, each other
person that has or had any obligation or liability under any
contract under which it has or had any rights is, and at all
times since formation, has been, in full compliance with all
applicable terms and requirements of such contract, except
where the failure to so comply would not reasonably be
expected to have an Operating Company Material Adverse Effect;
(iii) to the knowledge of the Operating Company and the
Members, 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
Operating Company or 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; and (iv) Operating Company has not given
to or received from any other person, at any time since
formation, any written notice or other written communication
regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any
contract.
(e)
There
are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or
payable to Operating Company under current or completed
contracts with any person and, to the knowledge of the
Operating Company and the Members, no such person has made
written demand for such renegotiation.
(f)
The
contracts relating to the sale, design, manufacture, or
provision of products or services by Operating Company have
been entered into in the ordinary course of business and, to
the knowledge of the Operating Company and the Members, 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
Federal or state law.
Section 3.17
Environmental Matters .
Operating Company is not in violation of any laws, regulations,
judgments or consent decrees relating to hazardous substances or
hazardous waste (collectively, “
Environmental Laws ”),
which violation could reasonably be expected to result in an
Operating Company Material Adverse Effect. Neither Operating
Company nor, to the knowledge of the Operating Company or the
Members, any third party has used, released, discharged, generated,
manufactured, produced, stored, or disposed of in, on, or under or
about its owned or leased property or other assets, or transported
thereto or therefrom, any hazardous substances or hazardous wastes,
including asbestos, lead and petroleum, during the period of
Operating Company’s ownership or lease of such property in a
manner that could reasonably be expected to subject Operating
Company to a material liability under the Environmental Laws.
Operating Company has not received written notice from any
governmental authority that any property owned or leased by
Operating Company is in violation of any Environmental Laws. There
is no pending civil, criminal or administrative suit or other legal
proceeding against Operating Company with respect to any
Environmental Laws. Operating Company has provided Publico complete
copies of all environmental reports, assessments and studies in
Operating Company’s possession and control with respect to
properties owned or leased by Operating Company. As used in this
Agreement, the terms “
hazardous substances ”
and “
hazardous wastes ”
shall have the meanings set forth in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended,
and the regulations thereunder; the Resource Conservation and
Recovery Act, as amended, and the regulations thereunder; the
Federal Clean Water Act, as amended, and the regulations
thereunder; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Sections 136 et seq.; the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001 et seq.; the
Occupational Safety and Health Act of 1970; the Hazardous Materials
Transportation Act, as amended by the Hazardous Materials
Transportation Authorization Act of 1994, 49 U.S.C. Sections 5101
et seq.; the Toxic Substances Control Act, 15 U.S.C. Sections 2601
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Sections 2701 et
seq.; as each of these may be amended from time to time; and any
and state or local analogues to any of these statutes.
Section 3.18
Brokers .
Operating Company has not entered into any contract, arrangement or
understanding with any person or firm that may result in the
obligation of such entity or Publico to pay any finder’s
fees, brokerage or agent’s commissions or other like payments
in connection with the negotiations leading to this Agreement or
the consummation of the Transaction. Neither the Operating Company
nor the Members are aware of any claim for payment of any
finder’s fees, brokerage or agent’s commissions or
other like payments in connection with the negotiations leading to
this Agreement or the consummation of the Transaction.
Section 3.19 [Reserved].
Section 3.20
Related Party Transactions .
Section
3.20 of the Operating Company/Members Disclosure Letter sets
forth all arrang ements,
agreements and contracts or understandings entered into by
Operating Company (which are or will be in effect as of or
after the date of this Agreement) with (i) any consultant (X)
involving payments in excess of $50,000 or (Y) which may not
be terminated at will by Operating Company that is a party
thereto without penalty, or (ii) any person who is an officer,
manager or affiliate of Operating Company. All such documents
are listed (and any unwritten arrangement or understanding is
accurately and completely described) in Section 3.20 of the
Operating Company/Members Disclosure Letter and the copies of
such documents, and such descriptions, all of which have
previously been provided to Publico and its counsel, are true,
complete and correct copies. Operating Company has not made
any payments to, received any services from, or is dependent
on any services of, any affiliate of Operating Company other
than services provided by officers and managers in such
capacities and payments to such officers and managers of
Operating Company in such capacities. Operating Company is not
a party to any arrangement, agreement, contract or
understanding of the type that would be grandfathered in or
prohibited by Section 402 of the Sarbanes-Oxley Act of 2002 if
Operating Company were subject to Section 402.
Section 3.21
Employee Matters and Benefit Plans
.
(a)
With
the exception of the definition of “Affiliate” set
forth in Section 3.21(a)(i) below (which definition shall
apply only to this Section 3.21 and Section 4.17), for
purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i)
“
Affiliate ”
shall mean any other person under common control with or otherwise
required to be aggregated with a person or any Subsidiary of such
person as set forth in Section 414(b), (c), (m) or (o) of the Code
and the regulations thereunder;
(ii)
“
Employee ”
shall mean any current, former or retired employee, officer, or
director of a person or any Subsidiary or any Affiliate of such
person;
(iii)
“
Employee Agreement ”
shall refer to any material management, employment, severance,
consulting, relocation, repatriation, or expiration agreement;
visas; work permit; or similar agreement or contract between a
person or any Subsidiary or Affiliate of such person and any
Employee or consultant that is not an Employee Plan;
(iv)
“
Employee Plan ”
shall refer to any plan, program, policy, practice, contract,
agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, interest or
interest-related awards, fringe benefits or other employee benefits
or remuneration of any kind, whether formal or informal, funded or
unfunded and whether or not legally binding, including without
limitation, each “employee benefit plan” within the
meaning of Section 3(3) of ERISA (as defined below), which is or
has been maintained, contributed to, or required to be contributed
to, by a person or any of its Subsidiaries or any Affiliate for the
benefit of any “Employee,” and pursuant to which such
person or any of its Subsidiaries or any Affiliate has or may have
any material liability contingent or otherwise;
(v)
“
ERISA ”
shall mean the Employee Retirement Income Security Act of 1974, as
amended;
(vi)
“
IRS ”
shall mean the Internal Revenue Service;
(vii)
“
Multiemployer Plan ”
shall mean any “Pension Plan” (as defined below) which
is a “multiemployer plan,” as defined in Sections 3(37)
and 4001(a)(3) of ERISA;
(viii)
“
Pension Plan ”
shall refer to each Operating Company and Subsidiary Employee Plan
that is an “employee pension benefit plan,” within the
meaning of Section 3(2) of ERISA; and
(ix)
“
Subsidiary ”
shall mean an entity controlled by another entity through the
ownership of greater than 50 percent of the former entity’s
voting securities.
(b)
Section
3.21(b) of the Operating Company/Members Disclosure Letter
contains an accurate and complete list of each Employee
Agreement of Operating Company. Operating Co
mpany
has no Employee Plans. No benefits under any Employee
Agreement of Operating Company will be increased, or subject
to accelerated vesting, by the occurrence of the Transaction,
nor will the value of any of the benefits thereunder be
calculated on the basis of the Transaction. Neither Operating
Company nor any of its Affiliates has any announced plan or
commitment, whether legally binding or not, to establish any
new Employee Plan or Employee Agreement, to modify any
Employee Agreement (except to the extent required by law or to
conform any such Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to
Publico in writing, or as required by this Agreement), or to
enter into any Employee Plan or Employee Agreement, nor does
it have any intention or commitment to do any of the
foregoing.
(c)
Operating
Company has provided to Publico correct and complete copies of
all material documents embodying or relating to each Employee
Agreement.
(d)
Neither
Operating Company nor any of its Affiliates currently
maintain, sponsor, participate in or contribute to, nor have
they ever maintained, established, sponsored, participated in,
or contributed to, any Pension Plan which is subject to Part 3
of Subtitle B of Title I of ERISA, Title IV of ERISA or
Section 412 of the Code.
(e)
At
no time has Operating Company or any of its Affiliates
contributed to or been requested or obligated to contribute to
any Multiemployer Plan.
(f)
Except
as required by local, state or federal law, no Employee
Agreement provides, or is required to provide, life insurance,
medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason,
and Operating Company has never represented, promised or
contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or
other employee welfare benefits upon their retirement or
termination of employment.
(g)
The
execution of this Agreement and the consummation of the
Transaction will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under
any Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits, or obligation to fund
benefits with respect to any Employee.
(h)
Operating
Company (i) is in compliance in all respects with all
applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each
case, with respect to Employees except as would not have an
Operating Company Material Adverse Effect; (ii) is not liable
for any arrears of wages of any taxes or any penalty for
failure to comply with any of the foregoing; and (iii) is not
liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other
benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and
consistent with past practice).
(i)
No
work stoppage or labor strike against Operating Company is
pending or, to the knowledge of Operating Company or the
Members, threatened. Operating Company is not involved in or,
to the knowledge of the Operating Company or the Members,
threatened with, any labor dispute, grievance, administrative
proceeding or litigation relating to labor, safety, employment
practices or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, have an
Operating Company Material Adverse Effect. Operating Company
has not engaged in any unfair labor practices within the
meaning of the National Labor Relations Act that would,
individually or in the aggregate, directly or indirectly have
an Operating Company Material Adverse Effect. Neither
Operating Company nor any of its Affiliates has ever been a
party to any agreement with any labor organization or union,
and none of the Operating Company Employees are represented by
any labor organization or union, nor, to the best knowledge of
the Operating Company and the Members, have any Operating
Company Employees threatened to organize or join a union or
filed a petition for representation with the National Labor
Relations Board.
(j)
Section
3.21(j) of Operating Company/Members Disclosure Letter sets
forth (i) the aggregate amounts of bonus and severance
payments that could be payable to Employees of Operating
Company under existing Employee Agreements or Employee Plans
on account of the Transaction (without regard to termination
of employment), and (ii) the aggregate amounts of
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