Exhibit
99.1
AGREEMENT AND PLAN OF
REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated
as of January 17, 2007 (this “ Agreement
”), is by and among HEALTH SCIENCES GROUP, INC., a Delaware
corporation (“ Parent ”), and KALAHARI,
INC., a Delaware corporation and wholly owned subsidiary of Parent
(“ Acquiring Corp. ”), on the one hand;
and KALAHARI LIMITED, a Georgia Sub-Chapter S corporation (“
Company ”), on the other hand. The foregoing
parties may be referred to herein individually as a “
Party ,” and collectively as the “
Parties .”
RECITALS
WHEREAS, Company is engaged in the business of
producing health and wellness specialty food and beverage products
(collectively, “ Health Food Products
”), including, without limitation, Kalahari® branded red
tea and dried fruit bars;
WHEREAS, Company desires to transfer and assign
to Acquiring Corp., and Acquiring Corp. desires to acquire and
assume from Company, certain of Company’s assets and
liabilities, as hereinafter described and on the terms and subject
to the conditions set forth below; and
WHEREAS, the Parties desire to set forth certain
representations, warranties and agreements, all as more fully
described below;
NOW, THEREFORE, in consideration of the premises
and the mutual representations, warranties and agreements of the
Parties set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the Parties each
agree as follows.
AGREEMENT
1. Sale and
Transfer of Assets at Closing . Subject to the terms and conditions set forth
in this Agreement, Company agrees to sell, convey, transfer,
assign, and deliver to Acquiring Corp. at the Closing, and
Acquiring Corp. agrees to purchase from Company at the Closing, the
assets, properties, and business of Company, whether tangible,
intangible, real, personal, or mixed, and wherever located, as
listed on Schedule 1.1 (all of which are collectively
referred to in this Agreement as the “ Assets
”). The Assets purchased by Acquiring Corp. shall exclude the
following: cash and cash equivalents; prepaid expenses
relating to liabilities not assumed and assets not purchased (such
as unused premiums on insurance policies not assigned to Acquiring
Corp.); security deposits on leases; corporate minute books
and stock books; any claims and rights against third parties
(including, without limitation, insurance carriers), to the extent
they relate to liabilities or obligations that are not assumed by
Acquiring Corp. hereunder (except to the extent Acquiring Corp.
shall have incurred costs and expenses with respect to such claims
and rights); claims for refunds of taxes and other governmental
charges to the extent such refunds relate to periods ending on or
prior to the Closing Date; any insurance policies maintained by
Company with respect to its business; and the consideration
paid to Company pursuant to and all rights
of Company under this Agreement (the “ Excluded
Assets ”). The Parties agree that their intention is
to treat this transaction as a tax free reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the “ Code ”), and the
transaction contemplated by this Agreement is sometimes referred to
herein as the “ Reorganization” .
2.
Consideration From Acquiring Corp. after Closing
. As full payment
for the transfer of the Assets to Acquiring Corp. at the Closing
(the “Purchase Price” ), Parent agrees
to issue to Company, after the Closing, shares of common stock of
Parent calculated in accordance with the formulas set forth below
and pursuant to the terms and conditions set forth on Schedule
2(a) attached to this Agreement (collectively, the “
Purchase Price Shares ”):
2.1 For the
twelve month period ending December 31, 2008, the number of
Purchase Price Shares equivalent to nine (9) times the audited
Earnings Before Interest, Taxes, Depreciation and Amortization
(“ EBITDA ”) or one (1) times the
audited gross revenues of Acquiring Corp., whichever is greater,
divided by the average Volume Weighted Average Price (“
VWAP ”) for the common stock of Parent during
the twenty (20) trading days preceding December 31,
2008,;
2.2 For the
twelve month period ending December 31, 2009, the number of
Purchase Price Shares equivalent to seven (7) times the audited
EBITDA or eight-tenths (0.8) times audited gross revenues of
Acquiring Corp., whichever is greater, divided by the average VWAP
for the common stock of Parent during the twenty (20) trading days
preceding December 31, 2009; and
2.3 For the
twelve month period ending December 31, 2010, the number of
Purchase Price Shares equivalent to five (5) times the audited
EBITDA or six-tenths (0.6) times audited gross revenues of
Acquiring Corp., whichever is greater, divided by the average VWAP
for the common stock of Parent during the twenty (20) trading days
preceding December 31, 2010,. The period commencing on January 1,
2008 and ending on December 31, 2010 shall be referred to herein as
the “ Earn-Out Period ”. The Purchase
Price Shares shall be issued within ten (10) calendar days of the
date on which the Parent’s independent auditor completes its
audit report on Acquiring Corp.’s financial statements for
the applicable period. Parent hereby grants to Company the common
stock registration rights with respect to the Purchase Price Shares
as set forth in Annex I attached hereto, which is
incorporated into this Agreement and made a part hereof.
2.4 In the event
that Parent enters into a transaction or series of transactions
during the Earnout Period that results in or would result in a
change of control for Parent through a merger, consolidation or a
sale or transfer of a majority of the assets of Parent to a third
party Parent’s obligations under this Agreement shall be
assumed by its successor in interest or the survivor in such change
of control transaction, as the case may be, and, the Parties agree
to equitably adjust the provisions of Section 2 or 18 of this
Agreement, if necessary as a result of the change of control
transaction, in order to ensure that Company receives consideration
that is as nearly equivalent as is practicable (in terms of value
and that is at least as marketable) to what would have been
received by Company under this Agreement had Parent not undertaken
the change of control transaction.
3.
Assumption of Liabilities . Acquiring Corp. agrees to assume only those
liabilities of Company listed on Schedules 3(a) and 3(b)
attached to this Agreement and made a part of it (the “
Assumed Liabilities ”). Schedule 3(a)
sets forth a list of certain liabilities, not to exceed a total of
$125,000 plus the legal and accounting fees set forth in Section 20
of this Agreement and the principal and interest on certain working
capital loans also set forth on Schedule 3(a) (the “
Liability Allowance ”), which shall be
satisfied at Closing using working capital provided by Parent to
Acquiring Corp. at the Closing. Schedule 3(b) sets forth a
list of certain operating liabilities of Company being assumed by
Acquiring Corp., including a credit line of Company having an
outstanding principal balance of $149,625 (the “
Credit Line ”). Parent shall replace Mr.
Fitch with itself as the guarantor of the Credit Line effective at
Closing or otherwise cause Acquiring Corp. to extinguish the
outstanding balance of the Credit Line within 180 days of the
Closing Date. If Parent is unable to replace Mr. Fitch with itself
as the guarantor of the Credit Line, then Parent shall pay: (i)
one-third (1/3) of the total outstanding balance of the Credit Line
at the Closing, (ii) one-half of the remaining outstanding balance
of the Credit Line ninety (90) days after the Closing Date, and
(iii) the total remaining outstanding balance of the Credit Line
one hundred and eighty (180) days after the Closing Date. It is
expressly understood and agreed that Acquiring Corp. shall not be
liable for any of the obligations or liabilities of Company of any
kind and nature other than those specifically assumed by Acquiring
Corp. pursuant to this Section 3 and listed on Schedule 3(a) and
3(b) , respectively.
4. Tax
Positions . The
Parties agree that their tax reporting position with respect to the
transactions contemplated by this Agreement shall be to treat this
transaction as a tax free reorganization under Section 368(a)(1)(C)
of the Code, and the Parties agree not to take any contrary
reporting positions to such position. Any
loans made by Parent to Company between the execution of this
Agreement and the Closing will be assigned to and assumed by
Acquiring Corp. upon the Closing, and will be required to be repaid
in full by Company, pursuant to their terms, upon the termination
of this Agreement for any reason.
5.
Taxes . Company shall pay, pro-rated as of the Closing
Date, all taxes of any kind or character relating to the Assets and
the Company’s business, including but not limited to,
employee or employment taxes. Acquiring Corp. shall not be
responsible for any taxes of any kind or character related to any
period before the Closing Date. Acquiring Corp. shall be
responsible for the payment of any transfer taxes of any kind or
character arising from the sale and transfer of the Assets and
Company’s business pursuant to this Agreement. Furthermore,
the Company and Acquiring Corp. hereby waive compliance with any
applicable Bulk Sales Laws in connection with the transactions
contemplated by this Agreement.
6.
Representations and Warranties of Company .
The Company represents and warrants
that:
6.1 Debts,
Obligations and Liabilities . Schedule 6.1 to this
Agreement contains a true and complete schedule as of November 30,
2006 of all of Company’s liabilities and obligations, in all
material respects. Company does not have any material debts,
liabilities, or obligations of any nature, whether accrued,
absolute, contingent, or otherwise, whether due or to become due,
that are not set forth in Schedule 6.1 , other than those
which have arisen in the ordinary course of business since November
30, 2006.
6.2 Tax
Returns Filed . Within the times and in the manner prescribed
by law, Company has filed all tax returns required by law and has
paid all taxes, assessments and penalties due and payable. There
are no present disputes as to taxes of any nature payable by
Company. Company will provide Acquiring Corp. with copies of all
tax returns filed for the last three fiscal years.
6.3
Inventory . Schedule 6.3 to this Agreement contains a
true and complete list, as of November 30, 2006, in all material
respects, of all of Company’s inventory of products for sale
that are material to its business. All items included in the
inventory are Company’s property, except for sales made in
the ordinary course of business. For each of these sales either the
purchaser has made full payment or the purchaser’s liability
to make payment is reflected in Company’s financial records.
Except as set forth on Schedule 6.3 , no items included in
the inventory have been pledged as collateral or are held by
Company on consignment from others. The inventory shown in
Company’s financial information is based on quantities
determined by physical count.
6.4 Tangible
Personal Property . Schedule 6.4 to this Agreement is a
complete and accurate schedule describing and specifying the
location of all automobiles, machinery, equipment, furniture,
supplies, and all other material tangible personal property which
is material to Company’s business and is owned by, in the
possession of, or used by Company in connection with its business.
The property listed on Schedule 6.4 constitutes all such
tangible personal property necessary for the conduct of the
business by Company as now conducted.
6.5 Accounts
Receivable . Schedule 6.5 to this Agreement is a
complete and accurate schedule of Company’s accounts
receivable as of November 30, 2006, together with an accurate aging
of these accounts. These accounts receivable, and all accounts
receivable created after that date, arose from valid sales in the
ordinary course of business.
6.6 Trade
Names, Trademarks and Copyrights . Schedule 6.6 to this
Agreement is a schedule of all trade names, trademarks, service
marks and copyrights and their registrations, if any, owned by
Company or in which Company has any rights or licenses. Company has
no knowledge of any infringement or alleged infringement by others
of any such trade name, trademark, service mark or copyright, and
to the knowledge of Company, Company has not infringed, and is not
now infringing, on any trade name, trademark, service mark or
copyright belonging to any other person. Company has the right to
sell or assign to Acquiring Corp. all owned trademarks, trade
names, service marks and copyrights, and all such licenses or other
rights.
6.7 Trade
Secrets . Schedule 6.7 to this Agreement is a true and
complete list of Company’s trade secrets, including all
formulas, customer lists, processes, know-how, computer programs
and routines and other technical data. Company is the sole owner of
each of these trade secrets, free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others.
Company has taken all reasonable security measures to protect the
secrecy, confidentiality and value of these trade secrets. Any of
Company’s employees or consultants and any other persons who,
either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed these secrets, or who
have knowledge of or access to information relating to them, have
been put on notice and, if appropriate, have entered into
agreements that these secrets are proprietary to Company and are
not to be divulged or misused.
6.8 Other
Intangible Property . A true and complete list of all
intangible assets, other than those specifically referred to
elsewhere in this Agreement, is set forth in Schedule 6.8 to
this Agreement.
6.9 Title to
Assets . Company has good and marketable title to all the
Assets and interests in the Assets, whether real, personal, mixed,
tangible, or intangible, which constitute all the Assets and
interests in the Assets that Company is transferring to Acquiring
Corp. The Assets are free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of
mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, covenants, conditions or restrictions, except as set
forth on Schedule 6.9 , and except for the lien of current
taxes not yet due and payable and possible minor matters that, in
the aggregate, are not substantial in amount and do not materially
detract from or interfere with the present or intended use of the
Assets. Company is not in default or in arrears in any material
respect under any lease. All Assets are in good operating condition
and repair, ordinary wear and tear excepted. Company is in
possession of the premises leased to it.
6.10
Customers and Sales . Included as a part of Schedule
6.10 to this Agreement is a correct and current list of all of
Company’s customers who have done business with Company
during the most recent fiscal year together with summaries of the
sales made to each such customer during such fiscal year. Company
has no knowledge that any of these customers intend to cease doing
business with Company or materially alter the amount of business
they are presently doing with Company.
6.11 Employee
Contracts and Benefits . Schedule 6.11 is a list of all
employment contracts and all other agreements or arrangements
providing for employee remuneration or benefits to which Company is
a party or by which it is bound. These contracts and arrangements
are in full force and effect and Company is not in default under
any of them. Company has not entered into any severance or similar
arrangement in respect of any present or former employee that will
result in any obligation, absolute or contingent, of Acquiring
Corp. or Company to make any payment to any present or former
employee following termination of employment.
6.12
Organization . Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Georgia and true and correct copies of the bylaws and
Certificate of Incorporation of each are attached hereto as part of
Schedule 6.12 . Company is licensed, registered and
qualified to conduct business in each of the jurisdictions set
forth on Schedule 6.12 hereto (collectively, the “
Applicable Jurisdictions ”), which jurisdictions are
the only jurisdictions under the laws of which the character or the
location of the properties owned by Company or the nature of the
business conducted by it requires licensing, registration or
qualification unless any failure to be so licensed, registered or
qualified would not, individually or in the aggregate, cause a
Material Adverse Change.
6.13 Other
Contracts . With the exception of this Agreement, Company is
not a party to any agreement not entered into in the ordinary
course of business or that is unusual in nature, duration or amount
except the agreements listed in Schedule 6.13 , copies of
which have been furnished or made available to Acquiring Corp.
There is no default or event that, with notice or lapse of time or
both, would constitute a default by any party to any of these
agreements. Company has not received notice that any party to any
of these agreements intends to cancel or terminate any of these
agreements or to exercise or not exercise any options under any of
these agreements.
6.14
Compliance with Laws . Company has complied in all material
respects with, and is not in violation of, any statute, law or
regulation which materially affect Company’s properties or
the operation of its business. Company is currently in possession
of all permits and licenses necessary to conduct the business, the
absence of any of which would cause a Material Adverse Change to
Company, which permits and licenses are listed on Schedule
6.14 .
6.15
Litigation . Except as set forth in Schedule 6.15 ,
there is not pending or, to Company’s knowledge, threatened
any suit, action, arbitration or legal, administrative or other
proceeding, or governmental investigation, against or affecting
Company or its business, assets or financial condition or the
transaction contemplated by this Agreement. The matters set forth
in Schedule 6.15 , if decided adversely to Company, will not
result in a Material Adverse Change in its business, assets or
financial condition. Company has furnished or made available to
Acquiring Corp. copies of all relevant documents relating to the
matters set forth in Schedule 6.15 . Except as set forth in
Schedule 6.15 , Company is not presently engaged in any
legal action to recover money due to it or damages sustained by
it.
6.16
Agreement Will Not Cause Breach or Violation . The
consummation of the transaction contemplated by this Agreement will
not result in or constitute any of the following: (1) a default or
an event that, with notice or lapse of time or both, would be a
default, breach or violation of any lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to
which Company is a party or by which Company or its property is
bound; (2) an event that would permit any party to terminate any
agreement or to accelerate the maturity of any indebtedness or
other obligation of Company; or (3) the creation or imposition of
any lien, charge or encumbrance on any of Company’s
properties, that, in any case, would cause a Material Adverse
Change in Company’s business or operations.
6.17
Authority and Consents . Except as set forth on Schedule
6.17 , Company has all requisite corporate right, power, and
authority to enter into and perform its obligations under this
Agreement, and no approvals or consents of any governmental
authorities or persons other than Company are necessary in
connection with it. The execution and delivery of this Agreement by
Company has been duly authorized by all necessary corporate action
on the part of Company. This Agreement constitutes a valid and
binding obligation of Company, enforceable against Company in
accordance with its terms.
6.18
Personnel and Compensation . Schedule 6.18 is a list
of the names of all officers, directors, employees, and
manufacturer’s representatives of Company, and the rate of
compensation payable to each.
6.19 Full
Disclosure . None of the representations and warranties made by
Company in this Agreement contains any untrue statement of a
material fact, or omits to state a material fact, necessary to make
the statements made not misleading.
6.20
Representations Required for SEC Compliance .
(a) Company is
acquiring, when they are issued, the Purchase Price Shares for its
own account for investment only and not with a view toward the
public sale or distribution thereof, other than pursuant to Section
6.20(c).
(b) The Company
is able, by reason of its business and financial experience and the
business and financial experience of its professional advisors (if
any) to protect its own interests in connection with the
transactions described in this Agreement and the related documents
and (ii) able to afford the entire loss of its investment in the
Purchase Price Shares.
(c) All
subsequent offers, sales and other transfers of the Purchase Price
Shares by the Company shall be made pursuant to an effective
registration statement with respect to the resale of the Purchase
Price Shares under the Securities Act of 1933, as amended, and
applicable state laws or pursuant to an exemption from
registration.
(d) Company
acknowledges that the Purchase Price Shares are being offered and
sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and
that Parent is relying upon the truth and accuracy of, and
Company’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Company set forth
herein in order to determine the availability of such exemptions
and the eligibility of Company to acquire the Purchase Price
Shares.
(e) Company and
its advisors, if any, have been furnished with materials relating
to the business, finances and operations of Purchaser and materials
relating to the offer and sale of the Purchase Price Shares which
have been requested by Company. The Company and its advisors, if
any, have been afforded the opportunity to ask questions of
Purchaser and have received complete and satisfactory answers to
any such inquiries.
(f) Company
understands that its investment in the Purchase Price Shares
involves a high degree of risk.
(g) Company
understands that no United States federal or state agency or any
other government or governmental agency has passed on or made any
recommendation or endorsement of the Purchase Price
Shares.
6.21
Representations regarding the Reorganization .
(a) Fair
Market Value . The fair market value of the Purchase Price
Shares and other consideration received by Company will be
approximately equal to the fair market value of the assets
surrendered in the exchange.
(b)
Expenses . Except as set forth in Section 20 of this
Agreement, Company will pay its own expenses incurred in connection
with the transaction.
(c) Assets
Exceed Liabilities . The fair market value of the assets of the
Company transferred to Acquisition Corp. will equal or exceed the
sum of the liabilities assumed by Acquisition Corp. plus the amount
of liabilities, if any, to which the assets are subject.
(d) No Plan
or Intention . To the knowledge of the Company, there is no
plan or intention by the Company to sell, exchange, or otherwise
dispose of a number of Purchase Price Shares received in the
transaction to any person related to Parent that would reduce the
Company’s ownership of Parent to a number of shares having a
value, as of the date of the transaction, of less than 50 percent
of the value of the assets transferred to Acquiring
Corp.
(e)
Intercorporate Debt . There is no intercorporate
indebtedness existing between the Company and Parent that was
issued, acquired, or will be settled at a discount.
(f)
Liabilities . The liabilities of Company and the liabilities
to which the Assets of Company are subject were incurred by Company
in the ordinary course of its business.
(g) Bankruptcy
Proceedings . The Company is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of I.R.C.
§368(a)(3)(A).
(h) Assets
Transferred . Following the transaction, Acquiring Corp. will
hold at least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Company immediately prior to the
Reorganization. For purposes of this representation, amounts paid
by the Company or Acquiring Corp. to dissenters, amounts paid by
the Company to shareholders who receive cash or other property,
amounts paid by the Company to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding the transfer,
will be included as assets of the Company immediately prior to the
Reorganization.
(i) Voting
Stock . In the Reorganization, assets of the Company will be
exchanged solely for voting stock of Parent.
(j) No Prior
Stock Holdings . Neither Parent or Acquiring Corp. owns, nor
have they owned during the past five (5) years any shares of stock
of the Company.
(k)
Investment Company . The Company is not an investment
Company as defined in I.R.C. §§ 368(a)(2)(F)(iii)
and 368(a)(2)(F)(iv).
(l) No
Boot . There will be no “boot” transferred to
Company or any Company shareholder other than the liabilities of
Company assumed by Acquiring Corp.
(m) Distribution of
Purchase Price Shares . Company will distribute the Purchase
Price Shares to its shareholders pursuant to its plan of
reorganization.
6.22 No
Additional Representations . Company has not made nor has any
other person acting on behalf of the Company made, any
representation or warranty, express or implied, oral or written, as
to the accuracy or completeness of any information regarding the
Company or the business of Company except as expressly set forth in
this Agreement, including any schedules and/or exhibits to this
Agreement.
7.
Parent and Acquiring Corp. Representations and
Warranties. As a
material inducement to Company entering into this Agreement and
completing the transactions contemplated by this Agreement, the
Parent and Acquiring Corp. jointly and severally represent and
warrant to the Company as follows:
7.1
Organization. Each of Parent and Acquiring Corp. is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and true and
correct copies of the bylaws and Certificate of Incorporate of each
are attached hereto as part of Schedule 7.1 . Parent is
licensed, registered and qualified to conduct business in each of
the jurisdictions set forth on Schedule 7.1 hereto
(collectively, the “ Applicable Jurisdictions
”), which jurisdictions are the only jurisdictions under the
laws of which the character or the location of the properties owned
by Parent or any subsidiary of Parent or the nature of the business
conducted by it requires licensing, registration or qualification
unless any failure to be so licensed, registered or qualified would
not, individually or in the aggregate, cause a Material Adverse
Change.
7.2
Authority; Enforceability. Each of Parent and Acquiring
Corp. has the full corporate power, authority and capacity to enter
into this Agreement and all other agreements and instruments to be
executed by it as contemplated by this Agreement and to carry out
its obligations under the Agreement and such other agreements and
instruments. The execution and delivery of this Agreement and such
other agreements and instruments and the completion of the
transactions contemplated by this Agreement and such other
agreements and instruments have been duly authorized by all
necessary corporate action on the part of Parent and Acquiring
Corp. This Agreement constitutes a valid and binding obligation of
each of Parent and Acquiring Corp., enforceable against Parent and
Acquiring Corp. in accordance with their respective
terms.
7.3
Capitalization . The authorized capital stock of Parent as
of the date hereof is set forth on Schedule 7.3 hereto. All
of the outstanding shares of the capital stock and any other
outstanding securities of Parent have been duly and validly
authorized and validly issued, are fully paid and nonassessable and
were issued in accordance with the registration or qualification
provisions of the Securities Act and applicable state securities
laws, or pursuant to valid exemptions therefrom. Except as set
forth in this Agreement and as set forth on Schedule 7.3
hereto, no shares of capital stock or any other security of Parent
are entitled to preemptive rights, registration rights, rights of
first refusal or similar rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of Parent.
Furthermore, except as set forth in this Agreement and as set forth
on Schedule 7.3 hereto, there are no contracts, commitments,
understandings, or arrangements by which Parent is or may become
bound to issue additional shares of the capital stock of Parent or
options, securities or rights convertible into shares of capital
stock of Parent. Except for customary transfer restrictions
contained in agreements entered into by Parent in order to sell
restricted securities or as provided on Schedule 7.3 hereto,
Parent is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. Except as set
forth on Schedule 7.3 , Parent is not a party to, and it has
no knowledge of, any agreement or understanding restricting the
voting or transfer of any shares of the capital stock of Parent.
Except as disclosed on Schedule 7.3 , (i) there are no
outstanding debt securities, or other form of material debt of
Parent or any of its Subsidiaries, (ii) there are no contracts,
commitments, understandings, agreements or arrangements under which
Parent or any of its Subsidiaries is required to register the sale
of any of their securities under the Securities Act, (iii) there
are no outstanding securities of Parent or any of its Subsidiaries
which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings, agreements or
arrangements by which Parent or any of its Subsidiaries is or may
become bound to redeem a security of Parent or any of its
Subsidiaries, (iv) there are no securities or instruments
containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities, (v) Parent does not
have any stock appreciation rights or “phantom stock”
plans or agreements, or any similar plan or agreements and (vi) as
of the date of this Agreement, except as disclosed on Schedule
7.3 , to Parent’s and each of its Subsidiaries’
knowledge, no Person (as defined below) or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the “
Exchange Act ”)) or has the right to acquire by
agreement with or by obligation binding upon Parent, beneficial
ownership of in excess of 5% of the Common Stock. Any Person with
any right to purchase securities of Parent that would be triggered
as a result of the transactions contemplated hereby has waived such
rights or the time for the exercise of such rights has
passed.
7.4 Consents
and Approvals. All consents and approvals required to be
obtained by each of Parent and Acquiring Corp. in connection with
the execution and delivery of this Agreement and the completion of
the transactions contemplated by this Agreement have been
obtained.
7.5
Litigation. Except as set forth on Schedule 7.5, there is no
action, suit, proceeding, claim, application, complaint or
investigation in any court or before any arbitrator or any
regulatory body or governmental or non-governmental body pending
or, to Parent’s knowledge, threatened by or against Parent or
Acquiring Corp. related to their respective business, operations or
capital or the transactions contemplated by this Agreement, and to
the knowledge of Parent, there is no factual or legal basis which
could give rise to any such action, suit, proceeding, claim,
application, complaint or investigation.
7.6
Agreement will not Cause Breach or Violation. The execution,
delivery and performance of this Agreement by each of Parent and
Acquiring Corp. and the completion (with any required consents and
approvals and notices) of the transactions contemplated by this
Agreement do not and will not result in or constitute any of the
following: (1) a default or an event that, with notice or lapse of
time or both, would be a default, breach or violation of any lease,
license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, or other agreement, instrument
or arrangement to which Parent or Acquiring Corp. is a party or by
which Parent or Acquiring Corp. or their property is bound; (2) an
event that would permit any party to terminate any agreement or to
accelerate the maturity of any indebtedness or other obligation of
Parent or Acquiring Corp.; or (3) the creation or imposition of any
lien, charge or encumbrance on any of Parent’s or Acquiring
Corp.’s properties, that, in any case, would cause a Material
Adverse Change in Parent’s or Acquiring Corp.’s
business or operations.
7.7 Common
Stock. The shares of common stock of Parent to be issued as the
Purchase Price Shares will, when issued, be validly issued, in
compliance with applicable securities and other laws and
regulations, outstanding, fully paid and non-assessable shares of
Common Stock of Parent, free and clear of all liens, encumbrances
and rights of refusal or offer of any kind and the holders thereof
shall be entitled to all rights accorded to a holder of Common
Stock of Parent.
7.8
Registration Status; Parent Reports. Parent is a registrant
and reporting company in good standing under the Securities
Exchange Act of 1934, as amended, and is current with all of its
periodic reports. Parent has previously made available to Company,
by reference to the website of the U.S. Securities and Exchange
Commission (“ SEC ”) at www.sec.gov ,
complete and accurate copies of its annual report on Form 10-KSB
for the year ended December 31, 2005 and its quarterly reports on
Form 10-QSB for the Parent’s fiscal quarters ended March 31,
2006, June 30, 2006 and September 30, 2006, and any amendments to
all such reports, as well as any reports on Form 8-K since January
1, 2005 (collectively, the “ Parent Reports ”),
as filed with the SEC. As of their respective dates, the Parent
Reports did not, at the time that they were filed (or if amended or
superseded by a filing before the date of this Agreement, then on
the date of such filing) and do not now as of the date hereof
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances under
which they were made not misleading. The financial statements of
the Parent contained in the Parent Reports fairly present, in
conformity with generally accepted accounting principles in the
United States applied on a consistent basis throughout the periods
covered thereby, the financial condition of Parent on a
consolidated basis at the dates of such statements and the results
of its operations and its cash flows for the periods covered
thereby. Such financial statements consisting in each case of a
balance sheet and the accompanying statements of income, retained
earnings and changes in financial position for the period then
ended and notes to such financial statements, together with the
report of the auditors thereon are complete and accurate in all
material respects. All material facts and material changes
regarding Parent or its securities that have occurred since January
1, 2006 have been publicly disclosed in accordance with all
applicable laws and there have been no material changes with
respect to Parent or its securities that have not been disclosed
since that date.
7.9 No
Cease Trade Order. No securities commission or other regulatory
authority has issued any order preventing or suspending the trading
of the Parent’s Common Stock or prohibiting the sale of the
Purchase Price Shares to be delivered hereunder, and, to
Parent’s knowledge, no proceedings for such purpose are
pending or threatened.
7.10 No
Material Adverse Change. There has been no Material Adverse
Change in the business or operations with respect to the Parent
since September 30, 2006 except as set forth on Schedule
7.10.
7.11
Undisclosed Liabilities. Except as disclosed in Schedule
7.11 hereto, Parent does not have any liabilities, obligations,
indebtedness or commitments, whether accrued, absolute, contingent
or otherwise, which are not disclosed in the most recent balance
sheet contained in a Parent Report filed with the SEC, other than
liabilities, obligations and indebtedness incurred in the normal
course of business which do not exceed in the aggregate twenty-five
thousand United States dollars (US$ 25,000).
7.12
Compliance with Laws. Each of Parent and Acquiring Corp. has
complied in all material respects with, and is not in violation of,
any statute, law or regulation which materially affect Parent or
Acquiring Corp.’s properties or the operation of its
business. Each of Parent and Acquiring Corp. is currently in
possession of all material permits and licenses necessary to
conduct the business, which permits and licenses are listed on
Schedule 7.12 .
7.13
Taxes. Within the times and in the manner prescribed
by law, each of Parent and Acquiring Corp. has filed all tax
returns required by law and has paid all taxes, assessments and
penalties due and payable. There are no present disputes as to
taxes of any nature payable by Parent or Acquiring Corp. Each of
Parent and Acquiring Corp. will provide Company with copies of all
tax returns filed for the last three fiscal years. Parent has paid
in full all taxes required to be paid on or prior to the date
hereof and has made adequate provision in the financial statements
contained in the Parent Reports for the payment of all taxes in
respect of all fiscal periods on or before the Closing.
7.14 Material
Contracts. Schedule 7.14 hereto lists all the
contracts to which Parent is a party which are material to the
operation of its business (“Parent Material
Contracts”). Parent is not in default under any Parent
Material Contract and there has not occurred any event, which, with
the lapse of time or giving of notice or both, would constitute a
default under any Parent Material Contract by Parent or, to the
knowledge of the Parent, any other party to such a Parent Material
Contract, other than any default which would not be likely to
result in a Material Adverse Change. Each Parent Material Contract
is in full force and effect, unamended by written or oral
agreement, and Parent has not received any notice of a default by
any party under any Parent Material Contract or notice of any
dispute between Parent and any other party in respect of any Parent
Material Contract.
7.15 Full
Disclosure . None of the representations and warranties made by
Parent and Acquiring Corp. in this Agreement contains any untrue
statement of a material fact, or omits to state a material fact,
necessary to make the statements made not misleading.
7.16
Representations regarding the Reorganization .
(a)
Reacquisition of Stock . Neither Parent nor any person
related to Parent as defined under Treas.
Reg. § 1.368-1(e)(2) plans or intends to reacquire
any of the Purchase Price Shares issued in the
Reorganization.
(b) No Plan
or Intention . Parent has no plan or intention to liquidate the
Acquiring Corp.; to merge the Acquiring Corp. with and into another
corporation; to sell or otherwise dispose of the stock of the
Acquiring Corp.; or to sell or otherwise dispose of any of the
assets of the Company acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers
described in I.R.C. § 368(a)(2)(C); or to cause the
Acquiring Corp. to sell or otherwise dispose of any of its assets
or any of the assets acquired from the Company, except for
dispositions made in the ordinary course of business or transfers
of assets to a corporation controlled by the Acquiring
Corp.
(c) Historic
Business . Following the transaction, Parent shall cause the
Acquiring Corp. to continue the historic business of the Company or
use a significant portion of the Company's historic business assets
in a business.
(d)
Incorporate Debt . There is no intercorporate indebtedness
existing between the Company and Parent or Acquiring Corp. that was
issued, acquired, or will be settled at a discount.
(e)
Investment Company . Neither Parent nor Acquiring Corp. is
an investment Company as defined in I.R.C.
§§ 368(a)(2)(F)(iii) and
368(a)(2)(F)(iv).
(f)
Control . Prior to the Reorganization, Parent will be in
control of Acquiring Corp. within the meaning of I.R.C.
§ 368(c)(1).
(g) Fair
Market Value . The fair market value of the Purchase Price
Shares and other consideration received by each Company shareholder
will be approximately equal to the fair market value of the assets
surrendered in the exchange.
(h)
Expenses . Parent and Acquiring Corp. will pay their own
expenses, if any, incurred in connection with the
transaction.
(i) Assets
Transferred . Following the transaction, Acquiring Corp. will
hold at least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Company immediately prior to the
Reorganization. For purposes of this representation, amounts paid
by the Company or Acquiring Corp. to dissenters, amounts paid by
the Company to shareholders who receive cash or other property,
amounts paid by the Company to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding the transfer,
will be included as assets of the Company immediately prior to the
Reorganization.
(j) Voting
Stock . In the Reorganization, assets of the Company will be
exchanged solely for voting stock of Parent.
(k) No Prior Stock
Holdings . Neither Parent nor Acquiring Corp. owns, nor has
either of them owned during the past five (5) years any shares of
stock of the Company.
(l) No
Boot . There will be no “boot” transferred to
Company or any Company Shareholder other than the liabilities of
Company assumed by Acquiring Corp.
7.17 No
Additional Representations . Each of Parent and Acquiring Corp.
have not made nor has any other person acting on behalf of Parent
or Acquiring Corp. made, any representation or warranty, express or
implied, oral or written, as to the accuracy or completeness of any
information regarding the Purchase Price Shares, Parent or
Acquiring Corp. or the business of Parent or Acquiring Corp. except
as expressly set forth in this Agreement, any schedules and/or
exhibits to this Agreement.
8.
Indemnification and Survival of Representations and
Warranties .
8.1 Survival
of Representations and Warranties . The representations and
warranties of Company shall survive the Closing for a period of one
year. The representations and warranties of Parent and Acquiring
Corp. set forth in Sections 7.7, 7.8 and 7.9 shall survive the
Closing until six months after the conclusion of the Earn-out
Period . All other representations and warranties
of Parent and Acquiring Corp. shall survive the Closing for a
period of one year. Notwithstanding the foregoing, any
representation or warranty the violation of which is made the basis
of a claim for indemnification pursuant to Section 8.2 or Section
8.3 will survive, but only for purposes of and until such pending
claim is finally resolved by a non-appealable determination if the
Indemnified Party notifies the Indemnifying Party of such claim in
reasonable detail prior to the date on which such representation or
warranty and respective indemnification obligation would otherwise
expire under this Agreement.
8.2
Indemnification by Company . Company shall indemnify, defend
and hold harmless Acquiring Corp., Parent and their respective past
and present officers, directors, affiliates, agents and
representatives against and in respect of any and all claims,
demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including interest, penalties
and reasonable attorney’s fees, that Acquiring Corp. or
Parent shall incur or suffer that arise, result from or relate to
any breach or inaccuracy of, or failure by Company to perform, any
of the representations, warranties, covenants or agreements made by
Company in this Agreement or in any schedule, certificate, exhibit
or other instrument furnished or to be furnished by Company under
this Agreement. Specifically, without limiting the foregoing,
Company shall be solely responsible for the payment of any sums
incurred as a result of (i) an audit of Company by any government
agency so long as all or any part of the period to which the audit
relates pre-dates the Closing Date, or (ii) any claim of
intellectual property infringement by a third party with respect to
the Assets, the basis of which pre-dates the Closing
Date.
8.3
Indemnification by Parent and Acquiring Corp. Each of Parent
and Acquiring Corp. shall jointly and severally indemnify, defend
and hold harmless Company and its respective officers, directors,
affiliates, agents and representatives against and in respect of
any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorney’s fees, that
Company shall incur or suffer that arise, result from or relate to
any breach or inaccuracy of, or failure by Parent or Acquiring
Corp. to perform, any of their representations, warranties,
covenants or agreements in this Agreement or in any schedule,
certificate, exhibit or other instrument furnished or to be
furnished by the Parent or Acquiring Corp. under this
Agreement.
8.4
Notice . Any party entitled to receive indemnification under
this Article 8 (the “Indemnified Party”) agrees to give
prompt written notice to the party or parties required to provide
such indemnification (the “Indemnifying Parties”) upon
the occurrence of any indemnifiable Loss or the assertion of any
claim or the commencement of any action or proceeding in respect of
which such a Loss may reasonably be expected to occur (a
“Claim”), but the Indemnified Party’s failure to
give such notice will not affect the obligations of the
Indemnifying Party under this Article 8 except to the extent that
the Indemnifying Party is prejudiced thereby. Such written notice
will include a reference to the event or events forming the basis
of such Loss or Claim and the amount involved, unless such amount
is uncertain or contingent, in which event the Indemnified Party
will give a later written notice when the amount becomes
fixed.
8.5 Defense
of Claims . The Indemnifying Party may elect to assume and
control the defense of any Claim, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of expenses related to such Claim, if (a) the Indemnifying
Party acknowledges its obligation to indemnify the Indemnified
Party for any Losses resulting from such Claim and provides
reasonable evidence to the Indemnified Party of its financial
ability to satisfy such obligation; (b) the Claim does not seek to
impose any liability or obligation on the Indemnified Party other
than for money damages; and (c) the Claim is not of a nature or
amount that in the good faith opinion of the Indemnified Party, its
prosecution could reasonably be expected to have a material and
adverse effect on the Indemnified Party’s relationship with
any significant customer. If such conditions are satisfied and the
Indemnifying Party elects to assume and control the defense of a
Claim, then (i) the Indemnifying Party will not be liable for any
settlement of such Claim effected without its consent, which
consent will not be unreasonably withheld; (ii) the Indemnifying
Party may settle such Claim without the consent of the Indemnified
Party; and (iii) the Indemnified Party may employ separate counsel
and participate in the defense of such Claim, but the Indemnified
Party will be responsible for the fees and expenses of such counsel
unless (A) the Indemnifying Party has failed to adequately assume
the defense of such Claim or to employ counsel with respect thereto
or (B) in the reasonable opinion of the Indemnified Party a
conflict of interest exists between the interests of the
Indemnified Party and the Indemnifying Party that requires
representation by separate counsel, in which case the fees and
expenses of such separate counsel will be paid by the Indemnifying
Party. If such conditions are not satisfied, the Indemnified Party
may assume and control the defense of the Claim; provided however,
that the Indemnifying Party will not be liable for any settlement
of such Claim effected without its consent, which consent will not
be unreasonably withheld or delayed, unless the Indemnifying Party
has not established to the reasonable satisfaction of the
Indemnified Party that it is financially capable of paying the
entire Claim.
8.6 Payment
of Indemnity . Company shall pay any obligation to any
Indemnified Party hereunder by set off by Acquiring Corp. and
Parent against payment of the Purchase Price Shares not yet issued
and delivered to Company upon a final non-appealable determination
of the Claim. Parent and Acquiring Corp. may pay any obligation to
any Indemnified Party hereunder by, at the discretion of Parent or
Acquiring Corp. as the case may be, (a) the issuance of additional
shares of Parent Common Stock valued at the average VWAP for the 20
trading days preceding the date of a final non-appealable
determination of the Claim or (b) the payment of cash by Parent or
Acquiring Corp. within thirty (30) days following the date of a
final non-appealable determination of the Claim.
8.7 Losses
Net of Insurance and Tax Benefits . The amount of any Losses
for which indemnification is provided under this Article 8 will be
net of (i) any amounts recovered or recoverable by the
Indemnified Party under insurance policies with respect to such
Losses and (ii) any tax benefits to it arising from or
relating to such Losses. Each Indemnified Party will use
commercially reasonable efforts to pursue all potential claims
under applicable insurance policies with respect to any Losses;
provided, however, any Losses incurred by an Indemnified Party will
include any economic effect incurred by such party as a result of
such pursuit, including, without limitation, any increases in
premium amounts.
8.8
Cooperation . Each Party shall cooperate with the other and
provide whatever information may be in its possession which may
reasonably be requested by the other with respect to the defense of
any Claim referred to in this Article 8, as appropriate.
8.9 Certain
Qualifications and Limits on Indemnity . Notwithstanding
anything to the contrary contained in this Agreement:
(a) In no event
shall the aggregate liability of Company for any breach of any
representations or warranties made by Company exceed 15% of the
value of the Purchase Price Shares determined as of the date of the
final non-appealable determination of the Claim, and in no event
shall the aggregate liability of the Parent or Acquiring Corp. for
any breach of any representations or warranties made by them exceed
15% of the value of the Purchase Price Shares determined as of the
date of the final non-appealable determination of the
Claim.
(b) No party
shall have any liability with respect to any breach of
representation or warranty for which such party is liable under
this Agreement unless and until the aggregate amount of the Losses
relating thereto with respect to exceed 1.5% of the value of the
Purchase Price Shares determined as of the date of the final
non-appealable determination of the Claim for any such party (the
“Threshold”), and the liability of each such party
shall only be for the amount of the Losses exceeding the
Threshold.
(c) The
indemnification obligations of the parties under this Article 8
hereof shall constitute the sole and exclusive remedy of the
parties to this Agreement for any breach or default of any
representation or covenant or any other breach or default by any
parties under this Agreement (whether any such suit, claim, action,
proceeding or demand with respect to any such breach or default may
be made in contract, breach of warranty, tort or
otherwise).
9.
Company’s Obligations Before Closing .
Company covenants that from the date
of this Agreement until the Closing:
9.1
Acquiring Corp.’s Access to Premises and Information .
Acquiring Corp. and its counsel, accountants and other
representatives shall have full access during normal business hours
to all properties, books, accounts, records, contracts and
documents of or relating to Company. Company shall furnish or cause
to be furnished to Acquiring Corp. and its representatives all data
and information concerning Company’s business, finances and
properties that may be reasonably requested.
9.2 Conduct
of Business in Normal Course . Company will carry on its
business and activities diligently and in substantially the same
manner as it previously has been carried out and shall not make or
institute any unusual or novel methods of manufacture, purchase,
sale, management, accounting or operation that vary materially from
those methods used by Company as of the date of this
Agreement.
9.3
Preservation of Business and Relationships . Company will
use its best efforts to preserve Company’s business
organization intact and to preserve its present relationships with
suppliers, customers and others having business relationships with
it.
9.4
Employees and Compensation . Company will not do, or agree
to do, any of the following acts: (i) make any change in
compensation payable or to become payable to any officer, employee,
sales agent or representative or (ii) make any change in benefits
payable to any officer, employee, sales agent or
representative.
9.5 New
Transactions . Company will not, without Acquiring
Corp.’s written consent, do or agree to do any of the
following acts: (i) enter into any contract, commitment or
transaction not in the usual and ordinary course of business; (ii)
enter into any contract, commitment or transaction in the usual and
ordinary course of business involving an amount exceeding $10,000;
(iii) make any capital expenditures in excess of $10,000 for any
single item or $10,000 in the aggregate, or enter into any leases
of capital equipment or property; or (iv) sell or dispose of any
capital assets.
9.6 Payment
of Liabilities and Waiver of Claims . Prior to the Closing,
Company will not do, or agree to do, any of the following acts
without Parent’s prior written consent: (i) pay any
obligation or liability, fixed or contingent, other than current
liabilities; (ii) waive or compromise any right or claim; or (iii)
cancel, without full payment, any note, loan or other obligation
owed to it.
9.7 Existing
Agreements . Company will not modify, amend, cancel or
terminate any existing contracts or agreements without the written
consent of Acquiring Corp.
9.8
Assistance with Audit . Company shall use its commercially
reasonable best efforts to assist Parent and Parent’s
independent certified public accountants in completing the audit
and review of financial statements referred to in Section 12.5
hereof as expeditiously as possible.
10.
Parent’s and Acquiring Corp.’s
Obligations Before Closing . Acquiring Corp. and Parent covenant that from
the date of this Agreement until the Closing:
10.1 Hold in Strict
Confidence Parent and Acquiring Corp. agree that, unless and
until the Closing has been consummated, Parent and Acquiring Corp.
will hold in strict confidence, and will not use to the detriment
of Company, all data and information with respect to the business
or Assets obtained in connection with this transaction. If the
transaction contemplated by this Agreement is not consummated,
Parent and Acquiring Corp. will promptly return to Company all the
data and information that they have received from
Company.
10.2
Company’s Access to Premises and Information . Company
and its counsel, accountants and other representatives shall have
full access during normal business hours to all properties, books,
accounts, records, contracts and documents of or relating to Parent
and Acquiring Corp. Parent and Acquiring Corp. shall furnish or
cause to be furnished to Company and its representatives all data
and information concerning Parent and Acquiring Corp.’s
business, finances and properties that may be reasonably
requested.
10.3 Conduct
of Business in Normal Course . Each of Parent and Acquiring
Corp. will carry on its business and activities diligently and in
substantially the same manner as it previously has been carried out
and shall not make or institute any unusual or novel methods of
manufacture, purchase, sale, management, accounting or operation
that vary materially from those methods used by Parent or Acquiring
Corp. as of the date of this Agreement.
10.4
Preservation of Business and Relationships . Each of Parent
and Acquiring Corp. will use its best efforts to preserve
Parent’s and Acquiring Corp.’s business organizations
intact and to preserve its present relationships with suppliers,
customers and others having business relationships with
it.
10.5 Best
Efforts to Obtain Financing . From the date hereof until the
Closing or the termination of this Agreement, Parent and Acquiring
Corp. shall work diligently towards and use their best efforts to
close on the financing required under Section 14.2(c) of this
Agreement.
10.6 New
Transactions . Each of Parent and Acquiring Corp. will not,
without Company’s written consent, do or agree to do any of
the following acts: (i) enter into any contract, commitment or
transaction not in the usual and ordinary course of business; (ii)
enter into any contract, commitment or transaction in the usual and
ordinary course of business involving an amount exceeding $10,000;
(iii) make any capital expenditures in excess of $10,000 for any
single item or $10,000 in the aggregate, or enter into any leases
of capital equipment or property; or (iv) sell or dispose of any
capital assets.
10.7 Existing
Agreements . Each of Parent and Acquiring Corp. will not
modify, amend, cancel or terminate any existing material contracts
or agreements without the written consent of Acquiring
Corp.
10.8
Assistance with Audit . Parent shall use its commercially
reasonable best efforts to assist Company and Parent’s
independent certified public accountants in completing the audit
and review of financial statements referred to in Section 12.5
hereof as expeditiously as possible.
11.
Cooperation in Securing Consents of Third Parties
. Acquiring Corp.
and Parent will use their best efforts to assist Company in
obtaining the consent of all necessary persons and agencies to the
assignment and transfer to Acquiring Corp. of the Assets to be
assigned and transferred under the terms of this
Agreement.
12.
Conditions Precedent to Acquiring Corp.’s Performance
. The obligations of
Acquiring Corp. to purchase the Assets under this Agreement are
subject to the satisfaction, at or before the Closing, of all the
conditions set out below. Acquiring Corp. may waive any or all of
these conditions in whole or in part, provided, however, that no
such waiver of a condition shall constitute a waiver by Acquiring
Corp. of any of its other rights or remedies, at law or in equity,
if any of the Company Parties shall be in default of any
representation, warranty or covenant under this
Agreement.
12.1 Accuracy
of Company’s Representations and Warranties . Except as
otherwise permitted by this Agreement, all representations and
warranties of the Company Parties included in this Agreement or in
any written statement that shall be delivered to Acquiring Corp.
under this Agreement shall be true in all material respects on and
as of the Closing Date as though made at that time.
12.2
Performance by Company . The Company shall have performed,
satisfied and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied
with by each of them, on or before the Closing Date.
12.3 No
Material Adverse Change . During the period from November 30,
2006 to the Closing Date, there shall not have been any Material
Adverse Change in Company’s financial condition or the
results of operations, and Company shall not have sustained any
material loss or damage to the Assets.
12.4 Due
Approval . The execution and delivery of this Agreement by
Company and the performance of its covenants and obligations under
it will be duly authorized by all necessary action by Company and
Acquiring Corp. shall receive copies of all materials pertaining to
that authorization, certified by an executive officer of Company as
true and correct.
12.5 Audited
Financial Statements . Company shall have provided Parent with
audited financial statements relating to the Assets and Assumed
Liabilities for the fiscal years ended December 31, 2006 and 2005
and any unaudited reviewed interim financial statements as Parent
may be required to include in a Form 8-K to be filed by Parent
following the Closing pursuant to the Exchange Act (the “
8-K ”). The Parties agree that time is of the
essence with respect to Closing and that it is therefore the
intention of the Parties to have such audit completed within thirty
(30) days after the execution of this Agreement if at all possible.
The Parties agree to employ Corbin & Company, LLP,
Parent’s independent certified public accountants, at
Parent’s expense, to perform the aforementioned two-year
audit and review of any interim financial statements required to be
included in the 8-K; provided, however, that if Corbin &
Company is not available to commence the audit promptly after the
execution of this Agreement, then the Parties shall agree on a
qualified replacement auditor within fifteen (15) days after the
execution of this Agreement.
12.6 Updated
Disclosure Schedules . Company shall have provided Parent with
the Schedules required by Section 6 updated as of a date not more
than five business days prior to the Closing Date, which updated
Schedules shall automatically amend, supersede and replace the
Schedules provided by Company on the date of this
Agreement.
13.
Conditions Precedent to Company’s Performance
. The obligations of
Company to sell and transfer the Assets under this Agreement are
subject to the satisfaction, at or before the Closing, of all of
the following conditions. Company may waive any or all of these
conditions in whole or in part, however, no such waiver of a
condition shall constitute a waiver by Company of any of its rights
or remedies, at law or in equity, if Acquiring Corp. should be in
default of any of its representations, warranties or covenants
under this Agreement.
13.1 Accuracy
of Acquiring Corp.’s Representations and Warranties . All
representations and warranties by Acquiring Corp. contained in this
Agreement or in any written statement delivered by Acquiring Corp.
under this Agreement shall be true in all material respects on and
as of the Closing Date as though such representations and
warranties were made on and as of that date.
13.2
Acquiring Corp. and Parent’s Performance . Acquiring
Corp. and Parent shall have performed and complied with all
covenants and agreements and satisfied all conditions that they are
required by this Agreement to perform, comply with or satisfy,
before or at the Closing.
13.3
Acquiring Corp. and Parent’s Corporate Approval . The
board of directors of each of Acquiring Corp. and Parent shall have
duly authorized and approved the execution and delivery of this
Agreement and all corporate action necessary or proper to fulfill
Acquiring Corp.’s and Parent’s obligations to be
performed under this Agreement on or before the Closing
Date.
13.4 No
Material Adverse Change . During the period from November 30,
2006 to the Closing Date, there shall not have been any Material
Adverse Change in Parent’s financial condition or the results
of operations, and Parent shall not have sustained any material
loss or damage to its business or assets.
14. The
Closing . The
transfer of the Assets by Company to Acquiring Corp. (the “
Closing ”) shall take place as soon as
practicable after the date of this Agreement but no later than
March 31, 2007 at the offices of Richardson & Patel, LLP, 10900
Wilshire Blvd, Suite 500, Los Angeles, CA 90024 at 10:00 a.m.
Pacific Time or at such other time and place as the parties may
agree to in writing (the “ Closing Date
”); provided, however, that if the Closing does not occur by
March 31, 2007, a Party who is not in breach of this Agreement,
including a breach based on a failure to close without a valid
condition to its obligation to closing remaining unsatisfied, may
terminate this Agreement upon written notice to the other
Party.
14.1
Company’s Obligations at Closing . At the Closing,
Company shall deliver or cause to be delivered to Acquiring
Corp.:
(a) assignments
of all leaseholds, properly executed and acknowledged by Company,
and accompanied by all consents of lessors required by this
Agreement and the leases being assigned;
(b) an
Assignment and Assumption Agreement, in the form attached hereto as
Schedule 14.1(b)(1) and a Bill of Sale, in the form attached
as Schedule 14.1(b)(2) pertaining to all the Assets being
transferred and liabilities being assumed pursuant to the terms of
this Agreement;
(c) a
certificate executed by an executive officer of Company certifying
that all of the Company’s representations and warranties
under this Agreement are true as of the Closing Date in all
material respects, as though each of those representations and
warranties had been made on that date; and
(d) tax
clearances issued by all taxing authorities set forth on
Schedule 14.1(d) .
Simultaneously, with the consummation of the
transfer, Company will put Acquiring Corp. into full possession and
enjoyment of the Assets to be conveyed and transferred pursuant to
this Agreement.
Company, at any time before the Closing Date,
will execute, acknowledge and deliver any further deeds,
assignments, conveyances, and other assurances, documents and
instruments of transfer, reasonably requested by Acquiring Corp.,
and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Acquiring Corp. for
the purpose of assigning, transferring, granting, conveying and
confirming to Acquiring Corp., or reducing to possession, any or
all Assets to be conveyed and transferred under this
Agreement.
14.2
Acquiring Corp.’s and Parent’s Obligations at
Closing . At the Closing, Acquiring Corp. and Parent shall
deliver or cause to be delivered to Company: (a) certified
resolutions of their respective boards of directors authorizing the
execution and performance of this Agreement and all actions to be
taken by Acquiring Corp. and Parent under this Agreement; (b)
certificates executed by an executive officer of each of Parent and
Acquiring Corp. certifying that all of the Parent and Acquiring
Corp. representations and warranties under this Agreement are true
in all material respects as of the Closing Date, as though each of
those representation and warranties had been made on that date; and
(c) $1,000,000 in cash (less the total amount lent by Parent to
Company prior to the Closing in one or more bridge financing
transactions) for working capital of Acquiring Corp., of which up
to $125,000 may be used to pay the liabilities of Company listed on
Schedule 3(a) and additional amounts shall be used to pay
Company’s legal and accounting fees for this transaction as
set forth in Section 20 of this Agreement and to repay the
principal and interest on certain working capital loans also set
forth on Schedule 3(a) ; and (d) the Registration Rights
Agreement, in substantially the form attached as Annex I
hereto.
15. Parent
and Acquiring Corp. Obligations Following Closing
.
15.1 Board Seat of
Parent . Parent shall take all necessary action so that Company
is represented by one seat on the Parent’s Board of Directors
from Closing through the conclusion of the Earn-Out Period until at
least the date that all Purchase Price Shares have been issued and
registered with the SEC, and Company shall be so represented
throughout such period. Immediately following the Closing, Parent
shall cause to nominate Edward Fitch as Company’s initial
representative on the Board of Directors of Parent.
15.2 Reserved
Shares . Parent shall at all times
following the Closing have authorized and reserved for the purpose
of issuance, a sufficient number of shares of its Common Stock to
provide for the full issuance of the Purchase Price
Shares.
15.3
Listings . Parent shall at all times
following the Closing, maintain the listing and trading of its
Common Stock on the OTC Bulletin Board (or on NASDAQ or a national
securities exchange such as the New York Stock Exchange, if Parent
becomes eligible). Parent will comply in all respects with its
reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers, Inc. and such
exchanges, as applicable.
15.4
Maintenance of Reporting Status; Supplemental Information .
So long as any of the shares of Parent’s Common Stock
constituting Purchase Price Shares are held by Company or any of
its shareholders, Parent shall timely file all reports required to
be filed with the SEC pursuant to the Exchange Act. Parent shall
not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination.
15.5
Reporting Entity for the Parent Common Stock . The reporting
entity relied upon for the determination of the trading price or
trading volume of the Parent Common Stock on any given trading day
for the purposes of this Agreement shall be Bloomberg, L.P. or any
successor thereto.
15.6 Conduct
of Business . The business of Company conducted immediately
prior to the date of this Agreement shall be conducted by and
through the legal entity of Acquiring Corp. following the Closing
and shall be maintained separate and apart from other businesses of
Parent from and after the Closing until the conclusion of the
Earn-out Period in order to clearly track the revenues, expenses,
profits and losses of the business of Company as conducted through
Acquiring Corp. for purposes of accurately calculating the number
of Purchase Price Shares to be issued to Company. Acquiring Corp.
shall not be sold or liquidated or dissolved (including a sale of a
material amount of its assets) or merged with or combined with any
other entity, or its assets transferred to any other entity, nor
shall any other businesses be acquired and merged with or into or
contributed to Acquiring Corp. from and after the Closing until the
conclusion of the Earn-Out Period. Following the Closing and
throughout the Earn-out Period, Acquiring Corp.’s
headquarters shall be located in Atlanta, GA.
15.7
Acquiring Corp. Board and Officers . Each of Parent and
Acquiring Corp. agree that from and after the Closing until the
conclusion of the Earn-Out Period, the board of directors of
Acquiring Corp. shall have four members of which two shall be
designees of Parent and two shall be designees of Company. Parent
and Acquiring Corp. further agree that the executive officers of
Acquiring Corp. shall initially be the individuals set forth on
Schedule 15.7 .
15.8 Article
and Bylaws . Parent and Acquiring Corp. agree that the Articles
of Incorporation and Bylaws of Acquiring Corp. attached as
Schedule 7.1 , shall not be amended from and after the
Closing until the conclusion of the Earn-Out Period without the
prior written consent of Company.
16.
Employment and Consulting Agreements; No Competition
. Mr. David Abrahams
and Ms. Susan Abrahams shall each enter into an Employment
Agreement with Acquiring Corp. at the Closing, in the forms
attached hereto as Schedule 16.1 and 16.2 , respectively.
Mr. Edward Fitch shall enter into a Consulting Agreement with
Acquiring Corp. at the Closing in the form attached as Schedule
16.2 . Such Employment and Consulting Agreements shall contain
provision relating to non-competition by the employees and
consultant. Furthermore, Company shall not divulge, communicate,
use to the detriment of Acquiring Corp. or for the benefit of any
other person or persons, or misuse in any way any confidential
information or trade secrets, including personnel information,
secret processes, know-how, customer lists, formulas or other
technical data transferred by Company to Acquiring Corp.
17. Employee
Agreements Not Assumed by Acquiring Corp.
Company shall pay all costs related
to the termination of those employees not employed by Acquiring
Corp.
18 .
Working Capital; Adjustment of Purchase Price
Shares. Parent agrees to provide during the one year
period immediately following the Closing Date an additional
$1,000,000 of working capital to Acquiring Corp., pursuant to a
disbursement schedule that shall be mutually agreed upon between
Parent and the Company, and the planned uses of which shall be
mutually agreed upon by management of Parent and Acquiring Corp.
prior to its disbursement. Parent shall satisfy fully its funding
obligation under this section prior to using any capital for any
purpose other than general working capital required to continue its
operations, such restriction to include without limitation use of
capital for acquisitions of any other companies, assets or product
lines, for the introduction of any new products or for any product
advertising or marketing campaigns. Notwithstanding anything in
this Agreement to the contrary, including without limitation the
provisions of Section 8 of this Agreement, in the event Parent
breaches this covenant, then the calculation of the number of
Purchase Price Shares provided in Section 2 of this Agreement shall
be automatically modified as follows:
(a) For the
twelve month period ending December 31, 2008, the number of
Purchase Price Shares equivalent to eleven (11) times the EBITDA or
one and two-tenths (1.2) times the audited gross revenues of
Acquiring Corp., whichever is greater, divided by the average VWAP
for the common stock of Parent during the twenty (20) trading days
preceding December 31, 2008;
(b) For the
twelve month period ending December 31, 2009, the number of
Purchase Price Shares equivalent to nine (9) times the audited
EBITDA or one (1.0) times the audited gross revenues of Acquiring
Corp., whichever is greater, divided by the average VWAP for the
common stock of Parent during the twenty (20) trading days
preceding December 31, 2009; and
(c) For the
twelve month period ending December 31, 2010, the number of
Purchase Price Shares equivalent to seven (7) times the audited
EBITDA or eight-tenths (0.8) times audited gross revenues of
Acquiring Corp., whichever is greater, divided by the average VWAP
for the common stock of Parent during the twenty (20) trading days
preceding December 31, 2010.
Implementation of the foregoing modified
formulas shall be the sole remedy of Company for any breach by
Parent of this Section 18.
19.
Publicity . All notices to third partie
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