ASSET PURCHASE AGREEMENT

Exhibit 2.1

ASSET PURCHASE AGREEMENT

T HIS A SSET P URCHASE A GREEMENT (the “ Agreement ”) is dated as of September 30, 2006, by and among 1S HOPPING C ART . COM C ANADA C ORP . , an Ontario corporation (the “ Company ”), 1S HOPPING C ART . COM C ORP ., an Oregon corporation and wholly owned subsidiary of the Company (the “ Company Subsidiary ,” and together with the Company, the “ Seller ”), W EBSITE P ROS , I NC . , a Delaware corporation (“ Parent ”) and W EBSITE P ROS C ANADA I NC . , an Ontario corporation and a wholly owned subsidiary of Parent (“ Subsidiary ,” and together with Parent, “ Buyer ”).

RECITALS

W HEREAS , the Seller owns and operates an e-commerce shopping cart platform company that is in the business of providing web-based shopping cart and associated services for online retailers, including related implementation, consulting and technical support services business (the “ Business ”);

W HEREAS , the Board of Directors of the Company (the “ Company’s Board ”), the Board of Directors of the Company Subsidiary, the Board of Directors of Parent (the “ Parent’s Board ”) and the Board of Directors of Subsidiary have determined that it is in the best interests of the Company, the Company Subsidiary, Parent and Subsidiary, respectively, and their respective stockholders and shareholders to consummate the purchase of all of the assets of the Business by Buyer and the assumption of certain liabilities (the “ Acquisition ”); and

W HEREAS , the parties desire that the Acquisition be made on the terms and subject to the conditions set forth in this Agreement.

AGREEMENT

N OW , T HEREFORE , in consideration of the representations, warranties and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller and the Buyer hereby agree as follows:

ARTICLE 1

D EFINITIONS

As used herein, the following terms shall have the following meanings (such meaning to be equally applicable to both the singular and plural forms of the terms defined):

“ Acquired Assets ” means all of the assets, properties and rights of the Seller, relating to the Business, of every kind, nature and description, tangible or intangible, wherever located, other than the Excluded Assets, including but not limited to the assets reflected in the Balance Sheet and Closing Balance Sheet, and any prepayments or retainers relating to such assets, properties and rights.

“ Assumed Liabilities ” means, and is limited to:

(a) all of the Seller’s obligations arising after the date of Closing (as defined in Section 2.4) under the agreements listed on E XHIBIT A-1 attached hereto; provided such obligations: (i) do not arise from any breach of any provision under such agreements (with or without the passage of time) by the Seller, and (ii) are ascertainable by reference to the express terms of such agreements;

(b) all of the Seller’s obligations reflected in the Closing Balance Sheet (including liabilities that have accrued but may not be specified) other than Excluded Liabilities;

(c) accounts payable of the Seller related to the Business incurred in the ordinary course of business prior to the date of the Closing Balance Sheet but which the Seller was unable to specify due to the regular recurring nature of such obligations (e.g., liabilities for normal telecommunications charges that have not yet been billed), which individually or in the aggregate will not have a Material Adverse Effect on the Seller; and

(d) any other items set forth in E XHIBIT A-1 .

Notwithstanding the foregoing and anything to the contrary contained in this Agreement and except as set forth in E XHIBIT A-1 , “Assumed Liabilities” shall not include, and Buyer shall not assume any:

(1) employment obligations and wage, salary and benefit obligations, including without limitation those arising under any severance, pension, profit sharing, deferred compensation, welfare, sick leave, accrued or earned vacation, wage or other employee benefit plan, procedure, policy or practice of the Seller for employees connected with the Business or otherwise resulting from the Seller’s exit from the Business or any of the transactions contemplated under this Agreement that accrue or arise prior to, commensurate with or as a result of the Closing;

(2) corporate expenses and other Seller business expenses, ongoing or otherwise (other than expenses directly related to the Business and included in the Closing Balance Sheet), including without limitation, real property lease obligations other than as specified under subsection (a) of Assumed Liabilities; and

(3) Liabilities arising out of or related to any litigation involving the Seller and the fees and expenses incurred in connection therewith, whether or not related to the Business, other than expenses or Liabilities related to such litigation included in the accounts payable of the Seller and included on the Closing Balance Sheet.

“ Balance Sheet ” means the pro forma balance sheet of the Business dated as of the August 31, 2006.

“ Breach ” there shall be deemed to be a “Breach” of a representation, warranty, covenant, obligation or other provision if there is or has been (a) any inaccuracy (including any inadvertent or innocent inaccuracy) in, or any failure (including any inadvertent failure) to comply with or perform, such representation, warranty, covenant, obligation or other provision, or (b) any other

 

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circumstance that is inconsistent with such representation, warranty, covenant, obligation or other provision; and the term “Breach” shall be deemed to refer to any such inaccuracy, failure, or circumstance.

“ Buyer Common Stock ” shall mean the Common Stock of Buyer, par value U.S. $0.001 per share.

“ Buyer Disclosure Schedule ” shall mean the disclosure schedule (dated as of the date of this Agreement) delivered to the Company on behalf of Buyer and prepared in accordance with Article 3 of this Agreement.

“ Cash Target ” shall mean U.S. $0.00.

“ Closing Balance Sheet ” means the pro forma balance sheet of the Business (including, without limitation, the Company and the Company Subsidiary) dated as of the Closing Date.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended, or any successor legislation.

“ Company Common Stock ” means the Common Stock of the Company, no par value per share.

“ Company Technology ” shall mean all technology and proprietary knowledge relating to eCommerce Systems, including without limitation the eCommerce shopping cart, that are (a) offered by the Seller as of the Effective Time and acquired by Buyer pursuant to this Agreement or (b) currently being developed, or developed after the Effective Time, and marketed by Buyer either on a stand-alone basis or together with other services offered by Buyer.

“ Company Disclosure Schedule ” shall mean the disclosure schedule (dated as of the date of this Agreement) delivered to Buyer on behalf of the Seller and prepared in accordance with Article 4 of this Agreement.

“ Closing Date ” shall have the meaning as set forth in Section 2.4 hereof.

“ Damages ” shall include any loss, damage, injury, decline in value, Liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including reasonable attorneys’ fees), charge, cost (including costs of investigation) or expense.

“ Effective Time ” shall be the time of the Closing.

“ Entity ” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

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“ Excluded Assets ” means those assets used only in connection with the businesses of the Seller other than the Business and listed on E XHIBIT B attached hereto.

“ Excluded Liabilities ” means those Liabilities set forth on E XHIBIT A-2 .

“ GAAP ” shall mean accounting principles generally accepted in the United States, as in effect from time to time.

“ General Corporation Law ” shall mean the Delaware General Corporation Law, as amended.

“ Governmental Body ” shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, provincial, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity and any court or other tribunal).

“ Knowledge ” shall mean the actual knowledge of any of the Company’s or the Company Subsidiary’s directors or officers, and that such person has no reason to believe that such fact or other matter is other than what is represented after such investigation that such director or officer, as the case may be, should reasonably be expected to conduct through the exercise of reasonable care in the conduct of the business of the Company and/or the Company Subsidiary and in preparation of this Agreement and the disclosure schedules contemplated hereby.

“ Legal Proceeding ” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

“ Liabilities ” shall mean any and all debts, liabilities, accounts payable, Taxes, claims and other obligations, absolute or contingent, mature or not mature, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement), including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, or any actual or threatened action, suit, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal, any order or consent decrees of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking.

“ Material Adverse Effect ” shall, with respect to an entity, mean any condition, event, change or occurrence, individually or collectively, that has had or may reasonably be expected to have a material adverse effect on the business, operations, results of operations or financial condition of such entity on a consolidated basis.

“ Person ” shall mean any individual, Entity or Governmental Body.

 

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“ Proceeding ” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding and any informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or any arbitrator or arbitration panel.

“ Requisite Company Shareholder Vote ” shall mean the affirmative vote, or written consent, as required pursuant to the provisions of the Business Corporations Act (Ontario) or applicable Oregon law of the Company’s shareholders and the Company Subsidiary’s shareholders, respectively.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Specified Representations ” shall mean the representations and warranties of the Seller set forth in Sections 3.1, 3.5, 3.16 (as it pertains to the Acquired Assets) and 3.20.

“ Tax ” shall mean any federal, state, provincial, local or foreign income, gross receipts, license, capital, payroll, employment, excise, goods and services, severance, stamp, occupation, premium, property or windfall profits taxes, environmental taxes, customs duties, capital stock, franchise, employees’ income (or other) withholding, employer health tax, foreign or domestic withholding, social security, unemployment, disability, workers’ compensation, employment-related insurance, real property, personal property, sales, use, transfer, value added, alternative or add-on minimum or other governmental tax, fee, assessment or charge of any kind whatsoever including any interest, penalties or additions to any Tax or additional interest, fines, additions or other amounts thereto or penalties thereon in respect of the foregoing.

“ Working Capital ” shall mean the difference between (a) Current Assets (excluding both cash and prepaid commissions), minus (b) Current Liabilities (excluding 90% of any deferred revenue).

“ Working Capital Target ” shall mean USD $-342,224.00.

ARTICLE 2

A CQUISITION

2.1 Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, Parent agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to Parent good and valid title to, or valid licenses or leasehold interests in, all of the Acquired Assets, free and clear of any liens or encumbrances (other than those specified in the Company Disclosure Schedule) at the Closing for the consideration specified below in this Article 2. The Seller shall retain the Excluded Assets.

2.2 Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, Parent agrees to assume and become responsible for the Assumed Liabilities other than any Assumed Liabilities that are real property leases, which shall be assumed by Subsidiary. Buyer will not assume or have any responsibility, however, with respect to any other Liability of

 

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the Company not an Assumed Liability. Without limiting the generality of the foregoing, the Company will bear and discharge all liabilities accrued up to and including the date of this Agreement relating to Taxes, the operation of the Business and the Business Employees (as hereinafter defined).

2.3 Purchase Price.

(a) Consideration and Escrow . Subject to the terms of this Agreement, Buyer will deliver to the Company at the Closing U.S. $12,452,888 (the “ Consideration ”), subject to adjustment pursuant to Section 2.3(b) below. Notwithstanding anything to the contrary contained in this Section 2.3 or elsewhere in this Agreement to the contrary, at the Closing, a portion of the aggregate Consideration otherwise payable to the Company pursuant to this Agreement equal to one million two hundred fifty thousand United States Dollars (U.S. $1,250,000) (the “ Escrow Amount ”) shall be withheld from the payment of the Consideration and shall be deposited in an escrow account (the “ Escrow Account ”) to be held and distributed in accordance with the terms of that certain Escrow Agreement entered into as of the date hereof in the form mutually agreed between the parties (the “ Escrow Agreement ”).

(b) Adjustments to Consideration . The amount of Consideration payable by Buyer shall be increased or decreased as follows:

(i) If the Seller’s Working Capital (calculated based on the Closing Balance Sheet) exceeds the Working Capital Target, the Consideration shall be increased by an amount equal to the difference between (x) the amount of Working Capital of the Company as set forth on the Closing Balance Sheet, minus (y) the Working Capital Target;

(ii) If the Seller’s cash (as set forth on the Closing Balance Sheet) exceeds the Cash Target, the Consideration shall be increased by an amount equal to the difference between (x) the amount of cash of the Seller calculated based on the Closing Balance Sheet, minus (y) the Cash Target;

(iii) If the Seller’s Working Capital (calculated based on the Closing Balance Sheet) is less than the Working Capital Target, the Consideration shall be decreased by an amount equal to the difference between (x) the Working Capital Target, minus (y) the amount of Working Capital of the Seller (calculated based on the Closing Balance Sheet); and

(iv) If the Seller’s cash (as set forth on the Closing Balance Sheet) is less than the Cash Target, the Consideration shall be decreased in an amount equal to the difference between (x) the Cash Target, minus (y) the amount of cash of the Seller as set forth on the Closing Balance Sheet.

(v) The full amount of the Consideration shall be paid to Seller on the Closing Date. Seller and Buyer agree to make any required payments to the other (as applicable) to reflect any adjustments required within five (5) business days following delivery and acceptance of the Closing Balance Sheet. In the event any such adjustments are required, any

 

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required conversion of Canadian Dollars into U.S. Dollars shall be made using the conversion rate in effect as of the Closing Date.

2.4 Employee Stock Options. As soon as practicable following the Closing, Buyer will grant to those employees of the Seller who are offered and who accept employment with the Company, options to purchase up to that number of shares of Buyer Common Stock as determined by the Parent Board using its reasonable business judgment.

2.5 Closing.

(a) Subject to the provisions of Articles 6 and 7 hereof, the closing (the “ Closing ”) of the transactions contemplated hereby shall take place at such location, on such date (the “ Closing Date ”) and at such time as the Company and Buyer mutually agree at the earliest practicable time after the satisfaction or waiver of the conditions in Article 6, but in no event later than ten (10) business days after all such conditions have been satisfied or waived, or on such other date as may be mutually agreed by the parties hereto.

(b) At the Closing, (i) the Seller will deliver to Buyer the various certificates, instruments, and documents referred to in Section 6.2 below; (ii) Buyer will deliver to the Company the various certificates, instruments, and documents referred to in Section 6.3 below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to Buyer a general assignment and warranty bill of sale (including intellectual property transfer documents) and such other instruments of sale, transfer, conveyance, and assignment in such form as Buyer and its counsel reasonably may request; (iv) Buyer will execute, acknowledge (if appropriate), and deliver to the Seller an assumption agreement in a form reasonably acceptable to the Seller; and (v) Buyer will deliver to the Company the Closing Consideration.

(c) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by shareholders who have not voted such shares in favor of the Acquisition, who shall have delivered, prior to any vote on the Acquisition, a written demand for the fair value of such shares in the manner provided by the General Corporation Law and who, as of the Effective Time, shall not have effectively withdrawn or lost such right to dissenters’ rights (“ Dissenting Shares ”) shall be entitled to such rights as are granted by the General Corporation Law.

2.6 Allocation. Within 45 days of the Closing, Buyer shall deliver to the Company a statement setting forth the Buyer’s good faith determination of the manner in which the Purchase Price and Assumed Liabilities (to the extent required under the Code) is to be allocated among the Acquired Assets. The allocation prescribed by such statement shall be conclusive and binding upon the Seller for all purposes, and the Seller shall not file any Tax return or other document with, or make any statement or declaration to, any governmental body that is inconsistent with such allocation. To the extent that a portion of the Purchase Price is allocated to tangible personal property, any sales tax due as a result of the sale of such property shall be split evenly by Buyer and the Seller.

 

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ARTICLE 3

T HE S ELLER ’ S R EPRESENTATIONS A ND W ARRANTIES

Except as set forth on the Company Disclosure Schedule specifying the relevant subsection hereof, the Company and the Company Subsidiary hereby represent and warrant, jointly and severally, as follows, which representations and warranties only speak to the Business of the Seller and not to any other business of the Seller:

3.1 Capitalization.

(a) The authorized capital of the Company consists of an unlimited number of shares of Common Stock, no par value, of which one hundred (100) shares are issued and outstanding. The authorized capital of the Company Subsidiary consists of one thousand (1,000) shares of Common Stock, no par value, of which one hundred (100) shares are issued and outstanding, all of which are owned by the Company.

(b) The outstanding shares of capital stock of the Company and the Company Subsidiary have been duly and validly authorized and issued, are fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws, or pursuant to valid exemptions therefrom.

(c) Except as set forth in Section 3.1(c) of the Company Disclosure Schedule, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. There are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company Subsidiary of any shares of its capital stock. Neither the Company nor the Company Subsidiary is a party or subject to any agreement or understanding, and, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company or the Company Subsidiary.

3.2 Subsidiaries. Other than the Company Subsidiary, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. Neither the Company nor the Company Subsidiary is a participant in any joint venture, partnership, or similar arrangement.

3.3 Authorization. All corporate action on the part of the Company and the Company Subsidiary, and their respective officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Seller hereunder has been taken or will be taken prior to the Closing, and this Agreement, when executed and delivered, will constitute a valid and legally binding obligation of the Seller, enforceable against it in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting the enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

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3.4 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, or notice to, any federal, provincial, state or local governmental authority or from or to an other Person on the part of the Seller is required in connection with the consummation of the transactions contemplated by this Agreement, except filings required pursuant to federal and state securities laws, which filings will be effected no later than the time such filings are required to be filed, or such other post-closing filings as may be required.

3.5 Litigation. There is no action, suit proceeding or investigation pending or, to the Company’s Knowledge, currently threatened against the Company or the Company Subsidiary that questions the validity of this Agreement, or the right of the Company or the Company Subsidiary to enter into this Agreement, or to consummate the transactions contemplated hereby, or that could reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect in the business, properties, affairs, assets, operations or financial condition of the Company or the Company Subsidiary, or any change in the current equity ownership of the Company, nor is the Company or the Company Subsidiary aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the Company’s Knowledge, threatened (or any basis therefor known to the Seller) involving the prior employment of any of the Seller’s employees, their use in connection with the Seller’s business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Seller is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Seller currently pending or that the Seller intends to initiate.

3.6 Proprietary Information Agreements. Each current and former employee, officer and consultant of the Seller has executed a proprietary information and inventions agreement in the forms previously delivered to Buyer or its counsel. None of the Seller’s current or former employees, officers or consultants are in violation thereof.

3.7 Patents and Trademarks. The Seller has sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted without any known conflict with or known infringement of the rights of others. Section 3.7 of the Company Disclosure Schedule contains a complete list of patents and pending patent applications, trademarks, copyrights and domain names of the Seller. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Seller bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person, except, in either case, for standard end-user, object code, internal-use software license and support/maintenance agreements. The Seller has not received any communications alleging that the Seller has violated or, by conducting its business as presently proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other Person, nor is the Seller aware that any Person has violated or, by conducting its business as presently proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade

 

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secrets or other proprietary rights of the Seller. None of the Seller’s employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Seller or that would conflict with the Seller’s business as presently conducted or as presently proposed to be conducted. To the Seller’s Knowledge, neither the execution nor delivery of this Agreement, nor the carrying on of the Seller’s business by the employees of the Seller, nor the conduct of the Seller’s business as presently proposed, will, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Seller is not utilizing, or believe that it will be necessary to utilize, any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by the Seller other than such inventions as have been assigned to the Seller and in respect of which all non-assignable rights (including without limitation, moral rights) have been waived by such employees.

3.8 Compliance with Other Instruments. Neither the Company nor the Company Subsidiary is in violation or default of any provision of its respective Articles of Incorporation or Bylaws, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, of any provision of any federal, provincial or state statute, rule or regulation or of any Governmental Body applicable to the Seller or the Business. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Seller or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Seller, its business or operations or any of its assets or properties.

3.9 Agreements; Action.

(a) Except for agreements explicitly contemplated hereby, there are no agreements, understandings or proposed transactions between the Company or the Company Subsidiary and any of their respective officers, directors, affiliates, or any affiliate thereof except as set forth on the Balance Sheet.

(b) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Seller is a party or by which it is bound that may involve (i) future obligations (contingent or otherwise) of, or payments to the Seller in excess of U.S. $50,000 (other than obligations arising from purchase or sale agreements entered into in the ordinary course of business), (ii) the license of any patent, copyright, trade secret or other proprietary or intellectual property right to or from the Seller (other than the license of the Seller’s software and products in the ordinary course of business and other than licenses by the Seller of “off the shelf” or other standard products), (iii) provisions restricting or affecting the development, manufacture or distribution of the Seller’s products or services, or (iv) indemnification by the Seller with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase, sale or license agreements entered into in the ordinary course of business).

 

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(c) The Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock (except as disclosed in the Company Financial Statements), (ii) incurred any indebtedness for money borrowed or any other liabilities (other than with respect to dividend obligations, distributions, indebtedness and other obligations incurred in the ordinary course of business or as disclosed in the Company Financial Statements (as defined below)) individually in excess of U.S. $50,000 or, in the case of indebtedness and/or liabilities individually less than U.S. $50,000, in excess of U.S. $100,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses (except as specifically disclosed in the Company Financial Statements), or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

(d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Seller has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

(e) Other than with Buyer, neither the Company nor the Company Subsidiary has engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations (or other Person) regarding the consolidation or merger of the Company or the Company Subsidiary with or into any such corporation or corporations (or other Person), (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company and/or the Company Subsidiary or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company and/or the Company Subsidiary is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up of the Company and/or the Company Subsidiary.

3.10 Related-Party Transactions. Except as specifically disclosed in the Financial Statements (including the nature of the obligation and the name of the Person to whom or from whom such obligation is owed, and such Person’s relationship to the Company and/or the Company Subsidiary) no shareholder, employee, officer, or director of the Seller or member of his or her immediate family or any Person not dealing at arm’s length with any such Person (within the meaning of the Income Tax Act (Canada) is indebted to the Seller, nor is the Seller indebted (or committed to make loans or extend or guarantee credit) to any of them, other than for (a) payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Seller, and (c) other standard employee benefits made generally available to all employees. To the best of the Seller’s Knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Seller is affiliated or with which the Seller has a business relationship, or any Person that competes with the Seller, except that shareholders, employees, officers, or directors of the Seller and members of their immediate families may own stock in publicly traded companies that may compete with the Seller. No member of the immediate family of any officer or director of the Seller is directly or indirectly interested in any material contract with the Company except as specifically disclosed (including the nature of the direct or indirect interest) in the Company Financial Statements.

 

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3.11 Permits. The Seller has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, and the Seller believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Seller is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority.

3.12 Environmental and Safety Laws. The Seller is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

3.13 Manufacturing and Marketing Rights. The Seller has not granted rights to develop, manufacture, produce, assemble, distribute, license, market, or sell its products to any other person and is not bound by any agreement that affects the Seller’s exclusive right to develop, manufacture, produce, assemble, distribute, license, market or sell its products.

3.14 Disclosure. The Seller has fully provided Buyer with all the information (to the extent such information exists) that Buyer has requested for deciding whether to consummate the Acquisition.

3.15 Corporate Documents. Except for amendments necessary to satisfy representations and warranties or conditions contained herein, the Articles of Incorporation and Bylaws of the Company are in the form previously provided to Buyer. The Articles of Incorporation and Bylaws of the Company Subsidiary are in the form previously provided to Buyer.

3.16 Title to Property and Assets. The Seller owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens (a) that arise in the ordinary course of business, (b) that result from taxes which have not yet become delinquent, and (c) that do not materially impair the Seller’s ownership or use of such property or assets. With respect to the property and assets it leases, the Seller is in compliance with such leases and, holds a valid leasehold interest free of any liens, claims or encumbrances. Other than the Excluded Assets, neither the Seller nor any affiliate of the Seller has, nor did the Seller or any affiliate of the Seller have as of August 31, 2006, any assets that were used in connection with the Business that are not Acquired Assets. The Acquired Assets in the aggregate include all rights, interests, leases, governmental authorizations, contracts and intangible assets of any nature whatsoever that are necessary and sufficient to operate or otherwise carry on the Business in the manner in which the Business is presently conducted by the Seller. All of the Acquired Assets are located in Ontario or Oregon, and no aspect of the Business is conducted other than in Ontario or Oregon. Section 3.16 of the Company Disclosure Schedule sets forth each municipality within Ontario and Oregon in which any of the Acquired Assets are located.

3.17 Company Financial Statements. The Company has made available to Buyer its audited consolidated financial statements (balance sheet and statement of operations, statement of changes in shareholders’ equity and statement of cash flows, including notes thereto) at December 31, 2004 and December 31, 2005 and for the fiscal years then ended, its unaudited financial statements (balance sheet and statement of operations) as at and for the eight (8) month

 

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period ended on the Statement Date (collectively, the “ Company Financial Statements ”). The Company Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and with each other, except that the unaudited Company Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Company Financial Statements, together with the notes thereto, fairly present the financial condition and operating results of the Company (including the Company Subsidiary) as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Company Financial Statements to normal year-end audit adjustments. Except as set forth in the Company Financial Statements, the Company (including the Company Subsidiary) has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the Statement Date and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Company Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Company Financial Statements, neither the Company nor the Company Subsidiary is a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

3.18 Changes. Since the Statement Date there has not been:

(a) any change in the assets, liabilities, financial condition or operating results of the Company or the Company Subsidiary from that reflected in the Company Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse;

(b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results or business of the Company or the Company Subsidiary (as such business is presently conducted and as it is presently proposed to be conducted);

(c) any waiver by the Company or the Company Subsidiary of a valuable right or of a material debt owed to it;

(d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company or the Company Subsidiary, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company or the Company Subsidiary (as such business is presently conducted and as it is presently proposed to be conducted);

(e) any change or amendment to a material contract or material arrangement by which the Company or the Company Subsidiary or any of its assets or properties is bound or subject;

(f) any material change in any compensation arrangement or agreement with any employee;

 

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(g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets;

(h) any resignation or termination of employment of any key officer of the Company or the Company Subsidiary;

(i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company or the Company Subsidiary;

(j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company or the Company Subsidiary, with respect to any of its material properties or assets, except liens for taxes not yet due or payable;

(k) any declaration, setting aside or payment or other distribution in respect of any of the Company’s or the Company Subsidiary’s capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company or the Company Subsidiary;

(l) to the best of the Company’s Knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company or the Company Subsidiary (as such business is presently conducted and as it is presently proposed to be conducted); or

(m) any agreement or commitment by the Company or the Company Subsidiary to do any of the things described in this Section 3.18.

3.19 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.

3.20 Tax Returns, Payments and Elections. The Seller has filed all tax returns and reports (including information returns and reports) as required by federal, provincial, state or other law. These returns and reports are true and correct in all material respects. The Seller has paid all Taxes and other assessments due, except those contested by it in good faith that are listed in the Company Disclosure Schedule. The provision for Taxes of the Seller as shown in the Company Financial Statements is adequate for Taxes due or accrued as of the date thereof. The Seller has never had any Tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any Tax or governmental charge. None of the Seller’s federal income tax returns and none of its state or provincial income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. Since the date of the Company Financial Statements, the Seller has not incurred any Taxes, assessments or governmental charges other than in the ordinary course of business and the Seller has made adequate provisions on its books of account for all Taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Seller has withheld or collected from each payment made to each of its employees, the amount of all Taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. The Company is not a non-resident of Canada (within the meaning of the Income Tax Act (Canada).

 

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The Company Subsidiary is a non-resident of Canada (within the meaning of the Income Tax Act (Canada)).

3.21 Insurance. The Seller has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its material properties that might be damaged or destroyed. The Seller has in full force and effect general liability and errors and omissions insurance in amounts customary for similarly situated companies.

3.22 Minute Books. The minute books of the Seller made available to Buyer or its counsel contain a complete summary of both the Company and the Company Subsidiary of all meetings, and copies of all actions by written consent, of directors and shareholders since the time of incorporation.

3.23 Labor Agreements and Actions; Employee Compensation. The Seller is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company’s Knowledge, has sought to represent any of the employees, representatives or agents of the Seller. There is no strike or other labor dispute involving the Seller pending, or to the best of the Company’s Knowledge, threatened, that could have a Material Adverse Effect on the properties, assets, affairs, operations, financial condition, operating results, or business of the Seller (as such business is presently conducted and as it is presently proposed to be conducted), nor is the Seller aware of any labor organization activity involving its employees. The Seller is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Seller, nor does the Seller have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Seller is terminable at the will of the Seller. The Seller has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. The Seller is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. The Seller is not aware that any of its employees is obligated under any contract or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use of his or her efforts to promote the interests of the Seller or that would conflict with the Seller’s business as presently conducted. No officer or employee of the Seller has entered into an employment agreement with the Seller or is entitled to any compensation following termination of employment with the Seller. Section 3.23 of the Company Disclosure Schedule contains a complete and accurate list of all employees of the Seller who are involved, directly or indirectly, in connection with the Business and sets forth the dates of hire of each such employee with the Seller or any predecessors thereof (the “ Business Employees ”). All Liabilities due and payable as at the Closing Date or accruing as a result of the transactions contemplated hereby in respect of Business Employees have been paid in full to the date hereof and will have been paid in full to the Closing Date, including premium contributions, remittance and assessments for employment insurance, employer health tax, Canada Pension Plan, income tax, workplace safety and insurance, and any other employment related legislation, accrued wages, Taxes, salaries, commissions and employee benefit plan payments. All vacation pay, bonuses, commissions and other emoluments relating to the Business Employees are

 

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accurately reflected in all respects and have been accrued in the financial records of the Seller. No notice has been received by the Seller of any complaint filed by any employees against the Seller that the Seller has violated the Employment Standards Act, 2000 (Ontario), the Human Rights Code (Ontario) the Workplace Safety & Insurance Act (Ontario), the Occupational Health and Safety Act (Ontario) or the Pay Equity Act (Ontario) or other applicable labor laws.

3.24 Brokers. The Seller has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement.

3.25 Significant Customers and Suppliers. No customer or supplier that was significant to the Seller during the period covered by the Company Financial Statements or that has been significant to the Seller thereafter, has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Seller, as the case may be.

3.26 Bulk Sales Legislation. The Company has never acquired any assets (including the Assets) from any Person in circumstances where such acquisition was subject to the provisions of the Bulk Sales Act (Ontario) or any other similar legislation.

3.27 Solvency. Neither the Company is nor the Company Subsidiary, will as of or immediately following the Closing be, Insolvent. For purposes of this Section 3.27, “ Insolvent ” means that the present fair saleable value of the Company’s or the Company Subsidiary’s assets, as applicable, do not and will not exceed its debts and other probable Liabilities, or is otherwise considered “insolvent” within the meaning of any applicable law.

ARTICLE 4

B UYER ’ S R EPRESENTATIONS A ND W ARRANTIES

Except as set forth on the Buyer Disclosure Schedule specifying the relevant subsection hereof, Buyer hereby represents and warrants to the Seller as follows:

4.1 Authorization. All corporate acti