Execution Copy
AGREEMENT AND PLAN OF MERGER
This
Agreement and Plan of Merger (this " Agreement ") is entered
into as of October 26, 2006 by and among Home Solutions of America,
Inc., a Delaware corporation (" Parent "), Home Solutions
Restoration of Louisiana, Inc., a Louisiana corporation and a
wholly-owned subsidiary of Parent (" Merger Sub "),
Associated Contractors II, LLC, a Louisiana limited liability
company (the " Company "), and Stephen Scott Sewell ("
Sewell "), William Aaron Bennett, William E. Edwards,
William J. Bennett and BNOB Construction Services, LLC ("
BNOB "), as the sole members of the Company (herein
collectively referred to as the " Company Members ").
RECITALS:
A. The Company is a
Louisiana general contractor currently engaged in the business of
providing construction and rebuilding services to commercial and
residential properties (the " Business ").
B. The parties
intend that, subject to the terms and conditions hereinafter set
forth, the Company will merge with and into Merger Sub (the "
Merger "), with Merger Sub to be the surviving corporation
of the Merger, all pursuant to the terms and conditions of this
Agreement, the Certificate of Merger in the form attached hereto as
Exhibit "A" , and the applicable provisions of the Louisiana
Business Corporation Law (the " Louisiana Business Laws
").
C. The Company's board of
directors have determined that the Merger is in the best interests
of the Company and its members, has approved and declared advisable
this Agreement and, accordingly, has agreed to effect the Merger
provided for herein upon the terms and conditions of this
Agreement.
D. The Company has
secured from each Company Member, a written consent (the "
Company Member Consent ") approving the Merger and adopting
this Agreement.
E. At the Effective
Time (as defined in Section 2.2 hereof), (i) all membership
interests in the Company (the " Company Interests ")
immediately prior to the Effective Time shall be automatically
converted into the right to receive the Merger Consideration (as
defined below), and (ii) the Company shall be merged with and into
Merger Sub, in each case, in the manner and on the basis provided
in this Agreement.
AGREEMENT:
NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby
agree as follows:
ARTICLE I
PLAN OF MERGER; MERGER CONSIDERATION
1.01 The Merger . Subject to
termination of this Agreement as provided in Article IX ,
the Company and Merger Sub will cause the Merger to be consummated
by filing the Certificate of Merger with the Louisiana Secretary of
State in accordance with the Louisiana Business Laws as soon as
practicable on or after the Closing Date (as defined in Section
2.01 hereof). Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company will be merged with
and into Merger Sub in a statutory merger, the separate existence
of the Company will cease and Merger Sub will be the surviving
corporation in the Merger (the " Surviving Corporation "),
all pursuant to the Certificate of Merger and in accordance with
the applicable provisions of the Louisiana Business Laws. The
parties to this Agreement intend for the Merger to qualify as a
"consolidation" that constitutes a tax-free reorganization for
purposes of Sections 368(a)(1)(A) and 368(a)(2)(d) of the Internal
Revenue Code of 1986, as amended (the " Code ") and shall
file all tax returns and reports consistent therewith. The parties
to this Agreement shall use their reasonable best efforts to cause
the Merger to be treated as a reorganization within the meaning of
Section 368 of the Code and shall not knowingly take or fail to
take any action which action or failure to act would jeopardize the
qualification of the Merger as a reorganization within Section 368
of the Code.
1.02 Conversion and Exchange of
Shares .
(a) Conversion of
Merger Sub Stock . At the Effective Time, each
certificate evidencing ownership of shares of Merger Sub common
stock will continue to evidence ownership of shares of common stock
of the Surviving Corporation.
(b) Conversion of the
Company Membership Interests . Subject to the terms and
conditions of this Agreement, at the Effective Time, each of the
Company Interests by virtue of the Merger and without the need for
any further action on the part of Parent, Merger Sub, the Company
or the Company Members, shall be converted into and represent the
right of the Persons (as defined in Section 3.04 ) set forth
on Schedule 1.02(b) to receive such Person's share of the
following consideration, in the percentage set forth on Schedule
1.02(b) (as to each such Person, such " Share of
Consideration "):
(i) up to U.S. Nine
Million and No/100 Dollars ($9,000,000.00) in cash or otherwise in
immediately available funds (the " Cash Consideration "),
which shall be paid solely from the following: (a) an amount equal
to thirty-eight percent (38%) of all cash actually collected with
respect to those certain jobs (the " Selected Receivables ")
set forth on Schedule 1.02(b)(i)(a) ; and (b) the Net
Profits (as defined below) associated with accounts receivable of
the Company , other than the Selected Receivables and the
accounts receivable related to the contract between the Company and
MSS at Stennis dated July 18, 2006 (the " Stennis Receivable
") (such accounts receivable, excluding the Selected Receivables
and the Stennis Receivable, are hereinafter referred to as the "
Company Receivables ") actually earned and collected with
respect to completed jobs only during the twenty-four (24) month
period following the Closing Date (the " Collection Period
"). To the extent any Company Receivables are not actually
collected during the Collection Period, such Company Receivables
(and the Net Profits with respect thereto) shall be retained by the
Surviving Corporation. For purposes of this Agreement, "
Net Profits " with respect to collection of the Company
Receivables or the Stennis Receivables (for purposes of Section
1.02(b)(v) below), shall be determined on an individual basis
with respect to each Company Receivable that has been collected and
is related to a completed job, or the Stennis Receivable, as
applicable, and shall mean the amount by which revenues associated
with such Company Receivable or Stennis Receivable (as applicable)
exceeds all related direct costs and expenses, as finally
determined by the Chief Financial Officer of Parent in accordance
with generally accepted accounting principles consistently applied
(" GAAP "). Payment of any portion of the Cash
Consideration due to the Persons set forth on Schedule
1.02(b) for a subject Selected Receivable or Company Receivable
shall be made within thirty (30) days following the occurrence of
each of the following: (A) completion of the job associated with
such Selected Receivable or Company Receivable, (B) the collection
in full of such Selected Receivable or Company Receivable and (C)
with respect to Company Receivables only, the determination of the
Net Profits associated with such Company Receivable; provided,
however, that such determinations required to be made by the Chief
Financial Officer shall be made within sixty (60) days after
completion of the job associated with such Company Receivable;
(ii) 1,500,000 shares
(the " Shares ") of Parent's unregistered and restricted
common stock, par value $0.001 per share (" Parent Common
Stock "). Within twelve (12) months following the Closing
Date, Parent shall file a registration statement under the
Securities Act of 1933, as amended (the " Securities Act "),
covering the resale of the Shares, the Net Profit Shares (as
defined in Section 1.02(b)(iii) below) and the Parent Common
Stock issuable under the Warrants (as defined in Section
2.01(b)(iv) below) by the Persons set forth on Schedule
1.02(b) ;
(iii) up to (but not exceeding) an
additional 900,000 shares of Parent Common Stock (the " Net
Profit Shares ") as are necessary to cause (x) the aggregate
Fair Market Value (as defined below) of the Shares
plus the Net Profit Shares then to be issued, to
equal (y) the sum of One Dollar ($1.00) plus the
total Cash Consideration paid to the Persons set forth on
Schedule 1.02(b) (after taking into account any offset or
indemnity claim); provided, however, that the aggregate Fair Market
Value of the Shares plus the Net Profits Shares shall in no event
exceed $9,000,001. The Net Profit Shares shall become payable
if, as and when the Cash Consideration paid in accordance with
Section 1.02(b)(i) exceeds the Fair Market Value of the
Shares determined on the Closing Date; Thus, if the Shares have a
Fair Market Value of $5.37 per share, or an aggregate value of
$8,055,000 on the Closing Date , then if, as and when Cash
Consideration in excess of $8,055,000 , is paid in
accordance with Section 1.02(b)(i) , the Parent shall
also issue and deliver concurrently with the Net Profit payment
then due, that number of Net Profit Shares, calculated at Fair
Market Value, that is equal to One Dollar ($1.00) plus the Net
Profit payment then due. For purposes of this Agreement, "
Fair Market Value " of the Shares or the Net Profit Shares,
as the case may be, shall mean the aggregate price of such Shares
or Net Profit Shares calculated at the per-share closing price for
the Parent Common Stock quoted on Nasdaq (or any other securities
exchange or quotation system on which the Parent Common stock may
then be traded or listed) on the day immediately preceding the
issuance of such Shares or Net Profit Shares, as the case may
be;
(iv) Warrants exercisable for
an aggregate of up to 2,000,000 additional shares of Parent Common
Stock at an exercise price of $.01 per share (the " Warrants
"). A warrant agreement issued by the Parent (the "
Warrant Agreement ") shall be issued at the Closing (as
defined in Section 2.01 hereof) to the Persons set forth on
Schedule 1.02(b)(iii) and the Warrants subject thereto shall
vest (if at all) over a twenty-four (24) month period following the
Effective Time; provided, that the Surviving Corporation must meet
certain EBITDA targets within certain specified time periods in
order for the Warrants to vest and become exercisable and shall be
further subject to the terms and conditions set forth in the
Warrant Agreement, such terms and conditions being described in the
form of Warrant Agreement attached as Exhibit "B" to this
Agreement; and
(v) Cash equal to five
percent (5%) (the " Profit Percentage ") of the Net Profits
derived from each of the Stennis Receivables that are actually
collected by the Surviving Corporation. Payment of any Profit
Percentage due to the Company Members for each fiscal year in which
Net Profits derived from the Stennis Receivable are collected shall
be made within thirty (30) days following the completion of the job
associated with the Stennis Receivable, the collection in full of
the Stennis Receivable and the final determination of the Net
Profits associated with the Stennis Receivable by the Chief
Financial Officer of Parent.
The Cash Consideration, the Shares, the Net Profit Shares, the
Warrants and the Profit Percentage payments are collectively
referred to herein as the " Merger Consideration ."
1.03 Adjustments . In the
event of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible
into capital stock), reorganization, reclassification, combination,
recapitalization or other like change with respect to the Company
Interests or Parent Common Stock occurring after the date hereof
and prior to the Effective Time or the payment of the Net Profit
Shares, all references in this Agreement to specified numbers of
shares of any class or series affected thereby, and all
calculations provided for that are based upon numbers of shares of
any class or series (or trading prices therefor) affected thereby,
shall be equitably adjusted to the extent necessary to provide the
parties the same economic effect as contemplated by this Agreement
prior to such stock split, reverse stock split, stock dividend,
reorganization, reclassification, combination, recapitalization or
other like change.
1.04 Effects of the Merger .
(a) General
. At the Effective Time, the effect of the Merger will be as
provided in this Agreement, the Certificate of Merger and the
applicable provisions of the Louisiana Business Laws. Without
limiting the generality of the foregoing, at the Effective Time,
all of the properties, rights, privileges, powers and franchises of
the Company and Merger Sub will vest in the Surviving Corporation,
and all liabilities and duties of the Company and Merger Sub will
become the liabilities and duties of the Surviving Corporation,
with the Business of the Company being segregated into and
accounted for as a division of the Surviving Corporation.
(b) Certificate of
Incorporation . The Certificate of Incorporation of
Merger Sub immediately prior to the Effective Time will be the
Certificate of Incorporation of the Surviving Corporation
immediately after the Effective Time until thereafter amended in
accordance with the provisions thereof or as provided by law.
(c) Bylaws .
At the Effective Time, the Bylaws of Merger Sub will be amended,
restated and superseded in their entirety by the Amended and
Restated Bylaws of the Surviving Corporation, in the form approved
by the board of directors of the Surviving Corporation, until
thereafter amended in accordance with the provisions thereof or as
provided by law.
(d) Directors and
Officers . At the Effective Time, (i) the initial
directors of the Surviving Corporation will be the directors of
Merger Sub immediately prior to the Effective Time, and the
Surviving Corporation shall expand the number of members on the
Board of Directors by one (1) member and appoint Sewell to the
Board of the Surviving Corporation, in each case to serve until
their respective successors are duly elected or appointed and
qualified, and (ii) the initial officers of the Surviving
Corporation will be the officers of Merger Sub immediately prior to
the Effective Time except that Sewell shall be appointed as
Chairman of the Surviving Corporation, in each case to serve until
their respective successors are duly appointed.
1.05 Further Assurances . The
Company Members agree that if, at any time after the Effective
Time, Parent believes or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to
vest, perfect, confirm or continue in the Surviving Corporation,
Merger Sub or Parent title to any property or any right of the
Company as provided herein, Parent and any of its officers are
hereby authorized by the Company and the Company Members to execute
and deliver all such deeds, assignments and assurances and do all
other things necessary or desirable to vest, perfect, confirm or
continue title to such property or rights in the Surviving
Corporation, Merger Sub or Parent and otherwise to carry out the
purposes of this Agreement, in the name of the Company, the Company
Members or otherwise.
1.06 Rights Not Transferable .
The rights of the Company Members as of immediately prior to the
Effective Time, are personal to each such member and will not be
transferable for any reason otherwise than by operation of law,
will or the laws of descent and distribution. Any attempted
transfer of such right by any holder thereof (otherwise than as
permitted by the immediately preceding sentence) will be null and
void.
1.07 Company
References . All references in this Agreement and the
other Closing Documents (as defined in Section 8.01 ) to the
Company shall refer to the Company and its
predecessors-in-interest, and shall include without limitation,
Associated Contractors LLC.
ARTICLE
II
CLOSING
2.01 Date, Time and Place of Closing
. The closing of the transactions contemplated by this Agreement
(the " Closing ") shall take place at the offices of the
Company, 1340 Poydras Street, Suite 1810, New Orleans, Louisiana
70112, at 10:00 a.m., local time, on the date in which the
conditions set forth in Article VIII are satisfied, or at
such other date, time or place fixed by mutual written consent of
Parent and the Company, but in no event later than October 31, 2006
(the " Termination Date "). All proceedings to take
place at the Closing shall take place simultaneously, and no
delivery shall be considered to have been made until all such
proceedings have been completed (the date of such Closing is
referred to herein as the " Closing Date ").
2.02 Effective Time . The
transactions contemplated by this Agreement shall be deemed
effective for all purposes as of 5:00 p.m., local New Orleans,
Louisiana time, on the day that the Certificate of Merger is filed
with the Louisiana Secretary of State (the " Effective Time
"), unless otherwise mutually agreed in writing by the
parties.
2.03 Conversion of Membership
Interests . At and after the Effective Time, each Company
Interest will represent the right to receive the Merger
Consideration as determined pursuant to Section 1.02(b) ,
into which such Company Interest shall have been converted.
Immediately prior to the Effective Time, the Company will cause
each Company Member to deliver a copy of its irrevocable
instructions directing Parent's transfer agent to issue in the name
of such Company Member or such Company Member's assigns, one or
more certificate(s) representing such Company Member's share of the
Shares.
2.04 Employment Agreement . At the
Closing, Sewell shall enter into an Employment Agreement with the
Surviving Corporation in the form attached as Exhibit "C"
.
2.05 Non-Compete, Non-Hire and
Non-Solicitation Agreement . The Company shall cause all
employees designated by Parent to deliver to Parent at the Closing,
an execution counterpart to the Non-Compete, Non-Hire and
Non-Solicitation Agreement, the form of which is attached as
Exhibit "D" to this Agreement.
2.06 Covenants and Further Assurance
. Each party shall, at any time and from time to time after
the Closing Date, upon request of any other party and without
further cost or expense to such other party, execute and deliver
such instruments of conveyance and assignment and shall take such
actions as such other party may reasonably request to more
effectively carry out the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
MEMBERS
In order to induce
Parent and Merger Sub to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company and
each Company Member hereby jointly and severally represent and
warrant as of the date hereof and as of the Closing Date, unless
specifically stated otherwise below or as set forth in the Schedule
of Exceptions delivered herewith, as follows:
3.01 Organization and Good Standing;
Power and Authority . The Company is a limited liability
company duly organized, validly existing and in good standing under
the laws of the state of Louisiana. The Company has full
corporate power and authority to execute and deliver this
Agreement, perform the Company' obligations hereunder, consummate
the transactions contemplated hereby, and, except as set forth on
Schedule 3.01 , to operate the Business as it is now being
conducted and own or lease the Company Assets (as defined in
Section 3.05 ). The Company is qualified to do
business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect (as
defined below) upon the Business, the Company or the Company
Assets. except as set forth on Schedule 3.01 .
For the purposes of this Agreement, "
Material Adverse Effect " means an event, change or effect
(whether collectively or individually) that is material and adverse
to the Business, the Company Assets, or the condition (financial or
otherwise), results of operations, management, manner of conducting
business, contractual rights, properties, liabilities or prospects
of the Company or that would materially and adversely impact,
affect or impair the consummation of the transactions contemplated
by this Agreement.
3.02 Authorization . The
Company is managed by a board of directors. The execution,
delivery and performance of this Agreement and all other agreements
and instruments executed and delivered by the Company and the
Company Members in connection with this Agreement and the
consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by (i) all necessary
corporate and other action on the part of the Company and the board
of directors of the Company, and (ii) the written consent of the
Company Members. This Agreement has been, and the other
agreements and instruments to be executed and delivered by the
Company and the Company Members in connection herewith will be, on
or prior to the Closing Date, duly executed and delivered by the
Company, the requisite number of members of the board of directors
of the Company (acting in such capacity) and the Company Members,
and constitute, or, upon execution and delivery will constitute,
the valid, legal and binding obligations of the Company, the board
of directors of the Company and the Company Members, enforceable
against the Company, the board of directors of the Company and the
Company Members in accordance with their respective terms.
3.03 Capitalization . The
membership interests of the Company are set forth on Schedule
3.03 . The Company Interests (i) are owned of record and
beneficially by each Company Member in such percentages and in such
classes set forth opposite such Company Member's name on
Schedule 3.03 , (ii) constitute all of the outstanding
membership interests in the Company and (iii) are owned free and
clear of all liens, prior assignments, security interests, charges,
pledges, claims or encumbrances of any kind or character whatsoever
(collectively, " Liens "). All of the issued and
outstanding membership interests of the Company were offered,
issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of
securities. None of such Company membership interests were
issued in violation of any preemptive or subscription rights,
rights of first refusal or similar rights of any individual,
corporation, partnership, limited liability company or other legal
entity (collectively, " Person ") or any agreement or
instrument to which the Company or any Company Member is a party or
is bound. No option, warrant, call, conversion right or
commitment of any kind exists which obligates the Company to issue
any of its equity interests or obligates any Company Member to
transfer any equity interests of the Company to any Person except
pursuant to this Agreement, and no stock appreciation right or
other similar right or other right of any nature whatsoever exists
that entitles or could in the future entitle any Person to any
amount of cash or other property from the Company based on the
value of the Company's equity or the Merger. All voting
rights in the Company are vested exclusively in the Company's
membership interests. The unanimous vote of the Company
Members and directors are the only votes necessary (under
applicable law or otherwise) on the Company's behalf to approve
this Agreement and the transactions contemplated by this
Agreement. There is no liability for dividends accrued and
unpaid by the Company. There is no operating agreement,
limited liability company agreement, regulations or company
agreement among the Company Members or otherwise with respect to
the Company Interests, the Company or the Business.
3.04 Subsidiaries . The
Company has no subsidiaries. The Company has no equity
interest, direct or indirect, in, or loans to, any Person.
The Company is not obligated to make, nor bound by any agreement or
obligation to make, any investment in or capital contribution in or
on behalf of any other Person. The Company is not a
shareholder in any corporation, a general or limited partner of any
partnership or a member of any limited liability company.
3.05 Company Assets .
Schedule 3.05 sets forth a complete list, as of the
Effective Time and as of the Closing Date, of the following assets,
properties, rights and interests used by the Company in connection
with the operation of the Business (all of which assets, rights and
interests are hereinafter collectively referred to as the "
Company Assets "):
(a) all tangible business
and personal property with a fair market value in excess of
$10,000.00, including, without limitation, equipment, vehicles,
furniture, furnishings, machinery, computers and other tangible
personal property of every description and kind, all of which are
listed on Schedule 3.05(a) (collectively, the "
Equipment ");
(b) all cash on hand and
in bank accounts, notes, accounts receivable and other short and
long-term receivables of the Business, all of which are listed on
Schedule 3.05(b) (the " Accounts Receivable ");
(c) all supplies, goods,
and inventory used, useable or useful in respect of the Business
with a fair market value in excess of $10,000.00, all of which are
described on Schedule 3.05(c) (the " Inventory
");
(d) all deposits, prepaid
taxes and expenses, escrows and other advance payments relating to
any expenses of the Business, all of which are listed on
Schedule 3.05(d) (the " Prepaid Expenses ");
(e) all computer software
programs and licenses for the use thereof, all of which are listed
on Schedule 3.05(e) (the " Computer Software ");
(f) all personal
property leases under which Company is the lessee of personal
property, all of which are listed on Schedule 3.05(f)
(collectively, the " Personal Property Leases "). The
Company Assets subject to the Personal Property Leases are referred
to in this Agreement as the " Leased Personal Property
";
(g) all owned real
property, all of which is described on Schedule 3.05(g)(i)
(collectively, " Real Property ") and all real property
leases under which Company is the lessee of real property, all of
which are listed on Schedule 3.05(g)(ii) (collectively, the
" Real Property Leases "). The Company Assets subject
to the Real Property Leases are referred to in this Agreement as
the " Leased Real Property ";
(h) a schedule of the
work in progress (the " WIP ") pursuant to all customer
agreements and contracts, government contracts, sales commitments,
purchase orders, and customer commitments entered into in the
ordinary course of the Business, which is attached hereto as
Schedule 3.05(h)(i) , and a list of all contractors and
subcontractors having worked for or provided services to Company or
the Business in the twelve months preceding the Effective Time and
the Closing Date, which is attached hereto as Schedule
3.05(h)(ii) ;
(i) the standard
terms of all third‑party warranties, guaranties and service
or replacement programs, all of which are described on Schedule
3.05(i) (collectively, the " Warranties ");
(j) all licenses,
contractor's licenses, business licenses, permits, approvals,
variances, rights, certificates of occupancy, waivers and consents
(collectively, the " Licenses ") issued to the Company or
any employee of the Company by any federal, state, county or local
governmental entity or subdivision thereof or any authority,
arbitrator, department, commission, board, bureau, body, agency,
court or instrumentality thereof (each, a " Governmental
Authority " and collectively, " Governmental Authorities
") and used by the Company in connection with the operation of the
Business, all of which are listed on Schedule 3.05(j) ;
(k) all names, trade
names, trademarks and service marks (or variations thereof) and
websites and webpage addresses associated with the Business,
including the name "Associated Contractors" and all intellectual
property used in or associated with the Business listed on
Schedule 3.05(k) (collectively, the " Intellectual
Property ");
(l) all telephone,
telephone systems, pager and facsimile numbers utilized by the
Company in connection with the operation of the Business listed on
Schedule 3.05(l) ;
(m) all goodwill associated
with the Business and the Company Assets in the amount set forth on
Schedule 3.05(m) ;
(n) all claims, actions,
demands, and causes of action that relate to the Business described
on Schedule 3.05(n) ; and
(o) all other material
assets and property of every kind, character or description owned
by the Company and used or held for use in the Business, wherever
located and whether or not similar to the items specifically set
forth above, all of which are described on Schedule 3.05(o)
.
3.06 Conflicts: Defaults .
(a) The execution and
delivery of this Agreement and the other agreements and instruments
executed or to be executed in connection herewith by the Company
and/or the Company Members do not, and the performance by the
Company and/or the Company Members of their respective obligations
hereunder and thereunder and the consummation by the Company and/or
the Company Members of the transactions contemplated hereby or
thereby, will not (i) violate, conflict with, or constitute a
breach or default under any of the terms of the Company's
organizational documents, all written agreements, contracts,
government contracts, sales commitments, purchase orders, customer
commitments, security agreements or instruments and undertakings
entered into in the ordinary course of Business (collectively, the
" Acquired Contracts "), or any License, patent, trademark,
copyright or other Intellectual Property right of the Company, any
Warranty, Computer Software, Personal Property Lease, Real Property
Lease or any other obligation under or with respect to the Company
Assets, (ii) result in the creation or imposition of any Liens in
favor of any third party upon any of the Company Assets or the
Business, (iii) except as set forth on Schedule 3.06(b) ,
violate or require any authorization, approval, consent or other
action by, or registration, declaration or filing with or notice to
any Governmental Authority pursuant to any law, statute, judgment,
decree, injunction, order, writ, rule or regulation of any
Governmental Authority affecting the Business or the Company
Assets, or (iv) conflict with or result in a breach of, create an
event of default (or event that, with the giving of notice or lapse
of time or both, would constitute an event of default) under, any
contract, agreement, note, deed of trust, indenture, order,
judgment or decree to which the Company is a party or by which the
Company or any Company Asset is bound or affected, or give any
third party (A) the right to terminate, cancel, modify or
accelerate any obligation under, any contract, agreement, note,
deed of trust, indenture, order, judgment or decree to which the
Company is a party or by which the Company or any Company Asset is
bound or affected, or (B) the right to a rebate, chargeback,
refund, credit, penalty or change in delivery schedule under any
contract, agreement, note, deed of trust, indenture, order,
judgment or decree to which the Company is a party or by which the
Company or any Company Asset is bound or affected. There is
no pending or, to the best knowledge of the Company and the Company
Members, threatened action, suit, claim, proceeding, inquiry or
investigation before or by any Governmental Authority, involving
the consummation of the transactions contemplated by this Agreement
or that might reasonably be expected to affect the Merger, the
right of the Surviving Corporation to own the Company Assets on or
after the Effective Time or the right of the Surviving Corporation
to operate the Business in substantially the manner in which it
currently is operated. Neither the Company nor any Company
Member has received any notice or other communication regarding any
actual or possible violation or breach of, default under, or
intention to cancel or modify any contract, agreement, note, deed
of trust, indenture, order, judgment or decree to which the Company
is a party or by which the Company or any Company Asset is
bound or affected.
(b) Except as set forth
on Schedule 3.06(b) , the Company is not required to prepare
or submit any application, notice, report or other filing with, or
obtain any consent, authorization, approval, registration or
confirmation from, any Governmental Authority or third party in
connection with the Merger, the execution, delivery or performance
of this Agreement by the Company and the consummation of the
transactions contemplated hereby.
3.07 Absence of Undisclosed
Information . Other than liabilities or obligations described
in Schedule 3.07 and the other Schedules hereto, to the
knowledge of the Company and the Company Members, the
Business and the Company Assets are not subject to (i) any
liabilities or obligations of any nature, fixed or contingent, or
any facts that might give rise to any such liabilities or
obligations, which would cause a Material Adverse Effect, or (ii)
any liabilities or adverse claims against or relating to the
Company Assets or the Business.
3.08 Financial Statements
. The Company has heretofore delivered to Parent true and
correct copies of (i) the Company's internal profit and loss
statements dated as of September 30, 2006, which have not been
either audited or reviewed, and (ii) a list of all checks of the
Company written since inception of the Business (collectively, the
" Financial Information "). The Financial Information:
(a) has been consistently prepared in accordance with the books and
records of the Company and under accepted accounting principles;
(b) reflect and provide adequate reserves and disclosures in
respect of all liabilities of the Business, including without
limitation, all contingent liabilities at such date; and (c)
present fairly the financial condition of the Business at such date
and the results of operations and cash flows of the Business for
the period then ended.
3.09 Adequacy of the Company Assets
. The Company has good and marketable title to all of the
Company Assets, and the Company Assets are, or will be, upon
consummation of the transactions contemplated by this Agreement,
free and clear of all Liens, other than as set forth on Schedule
3.09 . The Company Assets include all Company Assets of
every kind and description, personal or mixed, tangible or
intangible, the use of which is reasonably necessary to enable the
Surviving Corporation to conduct the Business as it has been
conducted by the Company prior to the date hereof and prior to the
Closing Date. All of the Company Assets are in good operating
condition and in a state of reasonable maintenance and
repair. There are no unpaid liabilities, claims or
obligations arising from the ownership, use or operation of the
Company Assets or the Business which could give rise to any
mechanic's, materialman's or other statutory Lien against any of
the Company Assets for which Parent or the Surviving Corporation
could be held responsible, other than as set forth on Schedule
3.09 .
3.10 Personal Property Leases
. Schedule 3.05(f) sets forth a list and brief
description of each Personal Property Lease or other agreement or
right, whether written or oral (including in each case the rental
rate, the expiration date thereof and a brief description of the
property covered thereby) under which the Company is lessee of, or
holds or operates any machinery, equipment, vehicle or other
tangible personal property owned by a third party and used in
connection with the Business. All of such Personal Property
Leases are valid and enforceable in accordance with their
respective terms, and there is not under any of such Personal
Property Leases, any material breach or default on the part of the
Company or, to the best knowledge of the Company and the Company
Members, any other party or any event that, with the giving of
notice or lapse of time or both, would constitute such a material
breach or default on the part of the Company or, to the best
knowledge of the Company and the Company Members, on the part of
any other party.
3.11 Real Property Leases .
Schedule 3.05(g)(ii) sets forth a list and brief description
of each Real Property Lease or other agreement or right, whether
written or oral (including in each case the lease rate, the
expiration date thereof and a brief description of the property
covered thereby) under which the Company is lessee of, or holds or
operates any real property owned by a third party and used in
connection with the Business. All of such Real Property
Leases are valid and enforceable in accordance with their
respective terms, and there is not under any of such Real Property
Leases, any material breach or default on the part of the Company
or, to the best knowledge of the Company and the Company Members,
any other party or any event that, with the giving of notice or
lapse of time or both, would constitute such a material breach or
default on the part of the Company or, to the best knowledge of the
Company and the Company Members, on the part of any other
party.
3.12 Contracts and Commitments
. Except as set forth in Schedule 3.12 to this
Agreement, the Company is not, with respect to the Business or the
Company Assets, a party to any written or oral (a) contract not
made in the ordinary course of business, other than this Agreement;
(b) consulting agreement or contract for the employment of any
employee, consultant or other person on a full‑time,
part‑time or consulting basis; (c) except for the Personal
Property Leases set forth on Schedule 3.05(f) and the Real
Property Leases set forth on Schedule 3.05(g)(ii) , any
contract or agreement relating to the lease of any property, real
or personal, whether as lessor or lessee; (d) contract for the
purchase or sale of real or personal property, goods or services,
or capital or fixed assets, other than this Agreement; or (e)
contracts or other agreements containing covenants under which the
Business may not compete in any line of business or with any person
or entity in any geographic area. All Personal Property
Leases, Real Property Leases and all Acquired Contracts are valid
and enforceable in accordance with their respective terms.
Except as set forth in Schedule 3.12 hereto, the Company is
not in breach of or in default under and, to the Company's and the
Company Members' knowledge, no other party thereto is in breach of
or default under, any of the Acquired Contracts, Personal Property
Leases or Real Property Leases, and no event has occurred that,
with the giving of notice or lapse of time or both, would
constitute such a breach or default. True, correct and
complete copies of all the Acquired Contracts, the Personal
Property Leases, the Real Property Leases and all contracts listed
on Schedule 3.12 have been delivered to Parent.
Schedule 3.12 contains a complete and accurate list of all
Acquired Contracts, and includes as to each Acquired Contract the
percentage of total revenue billed and the percentage of total
costs expended for each such Acquired Contract.
3.13 Accounts Receivable . On
the Closing Date, the level of outstanding accounts receivable
(including the Selected Receivables and the Company Receivables)
for the Company (collectively, the " Accounts Receivable ")
shall be as is normal and customary in the ordinary course of
business, consistent with past practices. All collection
efforts regarding the Accounts Receivable shall likewise be
consistent with past practices. All Accounts Receivable are
payable in no less than 30 days after the date services were
rendered or goods were delivered. All Accounts Receivable of
the Company are valid receivables subject to no setoffs or
counterclaims and are current and will be collected within 365 days
after the Closing Date (the " Collection Date "). To
the extent any Accounts Receivable are not collected on or
before the Collection Date, Parent shall be entitled to offset such
Accounts Receivable (the " Uncollected Receivables ")
against any Cash Consideration or Profit Percentage payments or
against the Parent Shares issuable under the Warrant as set forth
in the Warrant Agreement.
3.14 Intellectual Property .
Schedule 3.05(k) sets forth a complete and accurate list of
all Intellectual Property owned, used, or licensed by the Company
and a description of whether such Intellectual Property is owned or
licensed by the Company. Except as set forth on Schedule
3.14 , the Company has the right to use such Intellectual
Property and the current use by the Company of such Intellectual
Property does not infringe upon the rights of any other
Person. To the best knowledge of the Company and the Company
Members, no other Person is materially infringing upon the rights
of the Company in any such Intellectual Property and no proceedings
have been instituted, are pending or have been threatened by the
Company, or except as set forth on Schedule 3.14 , to the
best knowledge of the Company and the Company Members, by a Person
adverse to the Company, which challenge the validity,
enforceability, use or ownership thereof.
3.15 Powers of Attorney . There are no
outstanding powers of attorney executed on behalf of the Company or
any member or director thereof.
3.16 No Warranties . The Company has
never received a claim, and, to the Company's and the Company
Members' knowledge, no claim is pending or has been threatened,
under any guaranty, warranty, or other indemnity for any product
sold or service provided by the Company.
3.17 Government Contracts .
The Company has never been, nor as a result of the consummation of
the transactions contemplated by this Agreement is it reasonable to
expect that the Company will be, suspended, prevented or debarred
from bidding on contracts or subcontracts for any agency of the
United States government or any state, county, city or other
governmental entity, nor has such suspension, prevention or
debarment been threatened or action for such suspension, prevention
or debarment been commenced. Except for customary billing
audits conducted by the Federal Emergency Management Agency,
neither the Company has ever been nor is the Company now being
audited or investigated by the Federal Emergency Management Agency,
United States Government Accounting Office, the United States
Department of Justice, the United States Department of Defense or
any of its agencies, the Defense Contract Audit Agency or the
inspector general of any agency of the United States government or
any state, county, city or other governmental entity, nor has such
audit or investigation been threatened. To the best knowledge
of the Company and the Company Members, there is no valid basis for
the Company's or any Company Member's suspension, prevention or
debarment from bidding on contracts or subcontracts for any agency
of the United States government and there is no valid basis for a
claim pursuant to an audit or investigation by the United States
Government Accounting Office, the United States Department of
Justice, the United States Department of Defense or any of its
agencies, the Defense Contract Audit Agency or the inspector
general of any agency of the United States government or any state,
county, city or other governmental entity, or any prime
contractor. The Company has no obligation to renegotiate any
United States government contracts or subcontracts or contracts
with any state, county, city or other governmental entity.
3.18 Certain Payments .
Neither Company nor any of its directors, officers, affiliates or
employees has given, offered, paid, promised to pay or authorized
payment of any money, any gift or anything of value, in each case
with the purpose of influencing any act or decision of the
recipient in his or her official capacity or inducing the recipient
to use his or her influence to affect an act or decision of a
government official or employee, to any (a) governmental official
or employee, (b) political party or candidate thereof, or (c)
Person while knowing that all or a portion of such money or thing
of value would be given or offered to a governmental official or
employee or political party or candidate thereof. As used
herein, the term " Affiliate " shall mean with respect to
any Person, any other Person that directly or indirectly controls,
is controlled by, or under common control with such party.
3.19 Corporate Documents . The
Company has provided to Parent complete and correct copies of each
of the following: (a) copies of the Certificate of
Organization of the Company; (b) copies of the minute books
containing records of all proceedings, consents, actions and
meetings of the Members and Managers of the Company and its
predecessor limited liability company, committees of the directors
of the Company and members of the Company and its predecessor
limited liability company; (c) copies of the ledger, journal and
other records reflecting all stock, equity and securities issuances
and transfers thereof, all warrants, options, convertible
securities and other rights to acquire securities of the Company,
and all equity plans, equity-based compensation plans, stock,
option and equity grants and agreements of the Company related
thereto; and (d) all permits, orders and consents issued by any
regulatory agency with respect to any securities of the Company,
and all applications for such permits, orders and consents.
3.20 Inventory . The Company
has no Inventory included in the Company Assets.
3.21 Customers and Suppliers . The
Company is not involved in any controversy with any of the
customers or suppliers of the Business. Schedule 3.21 lists
all current customers and suppliers of the Business (collectively,
the " Customers ").
3.22 Licenses . The Company
has all Licenses which are needed or required by law or any
Governmental Authority to operate the Business or any ancillary
services related thereto. Schedule 3.22 lists all such
Licenses owned or held by the Company or any employee, officer,
director or member of the Company, relating to the ownership or
operation of the Business or the Company Assets, all of which are
now and as of Closing shall be valid, in full force and
effect. All applications required to have been filed for the
renewal of the Licenses have been duly filed on a timely basis, or
with appropriate extensions, each with the appropriate Governmental
Authority, and all other filings required to have been made with
respect to such Licenses have been duly made on a timely basis,
each with the appropriate Governmental Authority.
3.23 Regulatory Compliance .
The Company and the Business are in compliance with all applicable
statutes, rules, regulations, and requirements of all Governmental
Authorities having jurisdiction over the Business and the Company
Assets and the operations of the Business, except where the failure
to be in compliance will not result in a Material Adverse
Effect. The Company has timely filed all reports, data, and
other information required to be filed with such Governmental
Authorities.
3.24 Compliance with Law . The
Company is in compliance with all federal, state, local or foreign
laws, statutes, ordinances, regulations, orders and other
requirements of Governmental Authorities having jurisdiction over
the Company Assets or the conduct of the Business, except where the
failure to be in compliance will not result in a Material Adverse
Effect.
3.25 Litigation . Except as set
forth on Schedule 3.25 , there is no pending or, to the best
knowledge of the Company and the Company Members, threatened
litigation, action, suit, proceeding, claim, investigation, or
administrative proceeding by or before any Governmental Authority,
against, affecting, involving or relating to the Company, the
Business or the Company Assets.
3.26 Taxes .
(a)
The Company is taxed as an "S" corporation for federal income tax
purposes. The Company has, or by the Closing Date will have,
(i) timely filed all returns, schedules and declarations (including
an
