Exhibit 2.2
ASSET PURCHASE
AGREEMENT
T HIS A SSET P URCHASE A GREEMENT (the “ Agreement ”) is
dated as of September 30, 2006, by and between R
ENEX , I NC . , a
private Nova Scotia company (the “ Company
”), 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 Company owns and operates a network of
home improvement contractors, operating under the national brand
“RenovationExperts.com” and related financial services
and inbound call centers (the “ Business
”);
W HEREAS , the Boards of Directors of the Company (the
“ Company’s Board ”) and Buyer (the
“ Buyer’s Board ”) have determined
that it is in the best interests of the Company and Buyer,
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 Company 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 Company, 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 Company’s obligations arising
after the date of Closing (as defined in Section 2.5) 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 Company, and (ii) are ascertainable by reference to the
express terms of such agreements;
(b) all of the Company’s obligations reflected
in the Closing Balance Sheet (including liabilities that have
accrued but may not be specified) other than Excluded Liabilities;
and
(c) 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 Company for employees connected with the Business or otherwise
resulting from the Company’s exit from the Business or any of
the transactions contemplated under this Agreement;
(2) corporate expenses and other Company 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 Company, including the matters referenced
on Schedule 3.5 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 Company and included on the Closing Balance
Sheet.
“ Balance Sheet
” means the 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 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 Parent, 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 4 of this
Agreement.
2.
“ Cash Closing
Consideration ” shall mean U.S.
$7,000,000.00.
“ Closing Balance
Sheet ” means the pro forma balance sheet of the
Business dated as of the Closing Date.
“ Closing Date
” shall have the meaning set forth in Section 2.5
hereof.
“ 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 backend management
systems used to facilitate the matching of contractors with
homeowners and to manage the relationships among the
Company’s employees and the homeowners and contractors
related to the Business, including all telephony equipment and
software used to manage and route calls that are (a) offered
by the Company 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 Company and prepared in accordance with Article 3 of this
Agreement.
“ Consideration
” shall mean the Cash Closing Consideration, the Earnout
Consideration and the Stock Consideration.
“ 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.
“ Earnout
Consideration ” shall mean an aggregate of U.S.
$1,000,000.00.
“ 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.
“ Excluded
Assets ” means those assets used only in connection
with the businesses of the Company other than the Business and
listed on E XHIBIT B attached hereto.
“ Excluded
Liabilities ” means those Liabilities set forth on
E XHIBIT
A-2 .
3.
“ GAAP ”
shall mean accounting principles generally accepted in the United
States of America, 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).
“Key
Contract ”
shall mean that certain Renex partnership Agreement by and between
the Company and Cybertonic LLC, as the same has been amended to
date, or may be amended from time to time, dated as of
July 20, 2006.
“ Knowledge
” shall mean the actual knowledge of any of the
Company’s directors and 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 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.
4.
“ 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
Companies Act (Nova Scotia).
“ Securities Act
” shall mean the Securities Act of 1933, as
amended.
“ Specified
Employee ” shall refer to each of Craig Lucas and
Lorraine Kotyk.
“ Specified
Representations ” shall mean the representations and
warranties of the Company set forth in Sections 3.1, 3.5, 3.16 (as
it pertains to the Acquired Assets) and 3.20.
“ Stock
Consideration ” shall mean that number of shares of
Buyer Common Stock equal to U.S. $3,000,000.00 divided by the Stock
Price, rounded to the nearest whole share, with one-half being
rounded upwards.
“ Stock Price
” shall mean the volume weighted average per share closing
price of Buyer Common Stock, as quoted on the Nasdaq Global Market
for the twenty (20) trading days ending on the date
immediately prior to the date of this Agreement.
“ Tax ”
shall mean any federal, state, provincial, local or foreign income,
capital, gross receipts, license, 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.
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 Company, and the Company 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
Company 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 Assumed Liabilities that include real property leases.
Subsidiary agrees to assume and
5.
become responsible for the Assumed Liabilities
that are real property leases. Buyer will not assume or have any
responsibility, however, with respect to any other Liability of 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), including chargebacks, ACH
returns, refunds or similar credits issued or received subsequent
to the Closing but relate to the operation of the Business prior to
the Closing. To the extent that Parent is forced to bear the cost
of any such chargebacks, ACH returns, refunds or similar credits,
Seller agrees to remit the amount of any such costs to Buyer within
ten (10) days after receipt of written notice of such
costs.
2.3 Purchase
Price.
(a) Cash Closing Consideration . Subject to
the terms of this Agreement, Buyer will deliver to the Company at
the Closing the Cash Closing Consideration.
(b) Stock Consideration . Subject to the
terms of this Agreement (including without limitation
Section 8.6 hereof), Buyer shall issue the Stock Consideration
as follows:
(i) On the first (1 st ) anniversary of the Closing
Date, Buyer shall issue that number of shares of Buyer Common Stock
as is equal to one-half (1/2) of the Stock Consideration
reduced by that number of shares of Buyer Common Stock as is equal
to the quotient obtained by dividing (x) the value of any
unresolved claims (pursuant to Article 8 hereof) by (y) the
Stock Price; and
(ii) On the second (2 nd ) anniversary of the Closing
Date, that number of shares of Buyer Common Stock as is equal to
one-half (1/2) of the Stock Consideration reduced by that
number of shares of Buyer Common Stock as is equal to the quotient
obtained by dividing (x) the value of any unresolved claims
(pursuant to Article 8 hereof) by (y) the Stock
Price.
(c) Earnout Consideration . In addition to
the right to receive the Cash Closing Consideration pursuant to
Section 2.3(a) and the Stock Consideration pursuant to
Section 2.3(b), the Company, or its assignees(s), shall have
the right to receive up to the total amount of the Earnout
Consideration, to the extent earned as calculated in accordance
with this Section 2.3(c). Subject to such adjustments as are
set forth below in this Section 2.3(c), one-fourth (1/4
th
) of the Earnout
Consideration (equal to U.S. $250,000.00) (such amount being an
“ Earnout Payment Amount ”) shall be
earned by the Company and payable by Buyer to the Company for each
fiscal quarter during which the Key Contract remains in effect and
the terms of such Key Contract continue to be satisfied, in the
reasonable determination of Parent. Parent shall make its
determination as to whether the terms of the Key Contract continue
to be satisfied within thirty (30) days after the end of each
of Parent’s fiscal quarters, commencing with the end of first
fiscal quarter ending December 31, 2006. To the extent that
Parent has determined that the terms of the Key Contract continue
to be satisfied, Parent shall pay the portion of the Earnout
Consideration then due within forty five (45) days of the end
of such fiscal quarter. To the extent that Parent, together with
any of Parent’s subsidiaries, expends funds to remedy any
failure of the Key Contract to continue to be satisfied, the amount
expended shall be deducted from the Earnout
6.
Payment Amount otherwise payable
with respect to such fiscal quarter; provided ,
however , that to the extent the amount expended by Parent,
together with any of its subsidiaries, exceeds the Earnout Payment
Amount for any quarter, such overage shall be deducted from each
successive Earnout Payment Amount otherwise payable until such
amount is either (x) recouped in full by Parent or (y) if
such amount exceeds the Earnout Consideration, the amount of the
Earnout Consideration has been reduced to zero dollars (U.S. $0.00)
such that notwithstanding the foregoing or anything herein to the
contrary, in no event shall the Company be responsible to pay to
Parent any amount in the event the amount expended by Parent,
together with any of its subsidiaries, exceeds the Earnout Payment
Amount or the Earnout Consideration in the aggregate. Within
forty-five (45) days after the Company’s receipt from
Parent of Parent’s determination that the terms of the Key
Contract are not being satisfied, the Company may give notice to
Parent that it disputes Parent’s determination. In such
event, the Company shall provide Parent with its analysis as to why
it disputes Parent’s determination and provides detailed
evidence of such continued satisfaction, and the parties shall
confer with regard to the matter. If the Company and Buyer are
unable to resolve the matter, the Company and Buyer shall each
select a representative to make such determination. If the
representatives do not agree as to whether the terms of the Key
Contract continue to be satisfied, then the Company and Buyer shall
mutually agree upon an independent third party to make such
determination, and such independent third party’s
determination shall be final and binding upon all parties hereto.
Each party hereto shall make available to the other party such work
papers and documentation as may be reasonably necessary to make the
determinations necessary.
2.4 Employee Stock
Options. As soon as
practicable following the Closing, Buyer will grant to those
employees of the Company who are offered and who accept employment
with Buyer, options to purchase up to that number of shares of
Buyer Common Stock as determined by the Buyer’s 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 Company 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
Company 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 Company an assumption agreement in a form reasonably
acceptable to the Company; and (v) Buyer will deliver to the
Company the Cash Closing Consideration via wire of immediately
available funds to the Company’s bank account.
7.
(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 forty-five (45) days
following 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 Company for all purposes,
and the Company 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 paid by the Buyer.
ARTICLE 3
T HE C OMPANY ’ S R EPRESENTATIONS A ND W ARRANTIES
Except as set forth on the Company
Disclosure Schedule specifying the relevant subsection hereof, the
Company hereby represents and warrants as follows, which
representations and warranties only speak to the Business of the
Company and not to any other business of the Company:
3.1
Capitalization.
(a) The authorized capital of the Company consists
of ninety-nine million eight hundred sixty thousand three hundred
eighty-one (99,860,381) shares of Common Stock, no par value
(“ Common Stock ”), of which eighteen
million three hundred fifty-four thousand three hundred eighty-one
(18,354,381) shares are issued and outstanding.
(b) The outstanding shares of capital stock of the
Company 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. The Company is not 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.
8.
3.2 Subsidiaries.
The Company does not presently own
or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The Company is
not a participant in any joint venture, partnership, or similar
arrangement.
3.3 Authorization.
All corporate action on the part of
the Company, its officers, directors and shareholders necessary for
the authorization, execution and delivery of this Agreement and the
performance of all obligations of the Company 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 Company, 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.
3.4 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 any other
Person on the part of the Company 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 that questions the
validity of this Agreement, or the right of the Company 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 any change in the current equity
ownership of the Company, nor is the Company 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 Company) involving the prior employment of
any of the Company’s employees, their use in connection with
the Company’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 Company
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 Company currently pending or that the Company
intends to initiate.
3.6 Proprietary Information
Agreements. Each current
and former employee, officer and consultant of the Company has
executed a proprietary information and inventions agreement in the
forms previously delivered to Buyer or its counsel. None of the
Company’s current or former employees, officers or
consultants are in violation thereof.
3.7 Patents and
Trademarks. The Company
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.
9.
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
Company. There are no outstanding options, licenses, or agreements
of any kind relating to the foregoing, nor is the Company 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 Company has not received
any communications alleging that the Company 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 Company 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 secrets or other proprietary rights of the Company. None of
the Company’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 Company
or that would conflict with the Company’s business as
presently conducted or as presently proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company’s business by the employees of the
Company, nor the conduct of the Company’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 Company 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 Company
other than such inventions as have been assigned to the Company 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. The Company
is not in violation or default of any provision of its charter
documents, 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 Company 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 Company or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, 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 and any of its officers,
directors, affiliates, or any affiliate thereof except as set forth
on the Balance Sheet.
10.
(b) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders,
writs or decrees to which the Company is a party or by which it is
bound that may involve (i) future obligations (contingent or
otherwise) of, or payments to the Company 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 Company (other than
the license of the Company’s software and products in the
ordinary course of business and other than licenses by the Company
of “off the shelf” or other standard products),
(iii) provisions restricting or affecting the development,
manufacture or distribution of the Company’s products or
services, or (iv) indemnification by the Company 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).
(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,
(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, 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 Company 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, the Company has not
engaged in the past three (3) months in any discussion
(i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (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 or a transaction
or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
3.10 Related-Party
Transactions. No
shareholder, employee, officer, or director of the Company 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 Company, nor is
the Company 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 Company, and
(c) other standard employee benefits made generally available
to all employees (including any other stock option plan approved by
the Company’s Board). To the best of the Company’s
Knowledge, none
11.
of such persons has any direct or indirect
ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business
relationship, or any Person that competes with the Company, except
that shareholders, employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly
traded companies that may compete with the Company. No member of
the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the
Company.
3.11 Permits.
The Company has all franchises,
permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it, and the
Company believes it can obtain, without undue burden or expense,
any similar authority for the conduct of its business as planned to
be conducted. The Company 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 Company 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 Company 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
Company’s exclusive right to develop, manufacture, produce,
assemble, distribute, license, market or sell its
products.
3.14 Disclosure.
The Company 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 charter documents of the Company
are in the form previously provided to Buyer.
3.16 Title to Property and
Assets. The Company 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
Company’s ownership or use of such property or assets. With
respect to the property and assets it leases, the Company 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 Company nor any affiliate of the Company has,
nor did the Company or any affiliate of the Company 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 Company. All of the Acquired Assets
are located in Nova Scotia, and no aspect of the Business is
conducted other than in Nova Scotia. Section 3.16 of the
Company
12.
Disclosure Schedule sets forth each municipality
within Nova Scotia in which any of the Acquired Assets are
located.
3.17 Company Financial
Statements. The Company
has made available to Buyer its audited 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, 2005 and for the fiscal year
then ended, its unaudited financial statements (balance sheet and
statement of operations) as at and for the eight-month period ended
on the August 31, 2006 (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 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 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,
the Company is not 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 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 (as such business is presently conducted
and as it is presently proposed to be conducted);
(c) any waiver by the Company 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, 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 (as such business is presently conducted
and as it is presently proposed to be conducted);
13.
(e) any change or amendment to a material contract
or material arrangement by which the Company or any of its assets
or properties is bound or subject;
(f) any material change in any compensation
arrangement or agreement with any employee;
(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;
(i) receipt of notice that there has been a loss of,
or material order cancellation by, any major customer of the
Company;
(j) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, 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 capital
stock, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company;
(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 (as such business is
presently conducted and as it is presently proposed to be
conducted); or
(m) any agreement or commitment by the Company 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 Company
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 Company 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 Company as shown in the Company Financial Statements
is adequate for Taxes due or accrued as of the date thereof. The
Company is and always has been a Subchapter C corporation. The
Company 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 Company’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 Company has not incurred any Taxes, assessments or governmental
charges other than in the ordinary course of business and the
Company has made adequate provisions on its books of account for
all Taxes, assessments and governmental charges
14.
with respect to its business, properties and
operations for such period. The Company 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).
3.21 Insurance.
The Company 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 Company 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 Company made
available to Buyer or its counsel contain a complete summary 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 Company 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
Company. There is no strike or other labor dispute involving the
Company 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 Company (as such business is
presently conducted and as it is presently proposed to be
conducted), nor is the Company aware of any labor organization
activity involving its employees. The Company is not aware that any
officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does
the Company have a present intention to terminate the employment of
any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. The
Company has complied in all material respects with all applicable
state and federal equal employment opportunity and other laws
related to employment. The Company 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
Company 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 Company or that would conflict with the
Company’s business as presently conducted. No officer or
employee of the Company has entered into an employment agreement
with the Company or is entitled to any compensation following
termination of employment with the Company. Section 3.23 of
the Company Disclosure Schedule contains a complete and accurate
list of all employees of the Company who are involved, directly or
indirectly, in connection with the Business and the date of hire of
each such employee by the Company or its predecessors (the “
Business Employees ”). All Liabilities 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,
15.
workplace safety and insurance, and any other
employment related legislation, accrued wages, Taxes, salaries,
commissions and employee benefit plan payments, and the Company has
no arrears owing pursuant to the Nova Scotia Workers’
Compensation Act. All vacation pay, bonuses, commissions and other
emoluments relating to the Business Employees are accurately
reflected in all respects and have been accrued in the financial
records of the Company. No notice has been received by the Company
of any complaint filed by any employees against the Company that
the Company has violated the Labour Standards Code (Nova Scotia),
Human Rights Act (Nova Scotia), The Nova Scotia Workplace Safety
and Insurance System, Occupational Health and Safety Act (Nova
Scotia), and
