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EXHIBIT
10.29
ASSET PURCHASE AND REORGANIZATION AGREEEMENT
between
COGNIGEN NETWORKS, INC.
and
COMMISSION RIVER INC.
TABLE OF CONTENTS
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ii
iii
ASSET PURCHASE AND REORGANIZATION AGREEMENT
THIS
ASSET PURCHASE AND REORGANIZATION AGREEMENT (this “
Agreement ”)
is made as of the 30 th
day of November, 2007 by and among COGNIGEN NETWORKS, INC., a
Colorado corporation (the “ Purchaser
”), and COMMISSION RIVER INC., a Utah corporation (the
“Company”
).
WHEREAS,
the Company operates an online affiliate marketing business
that provides technology, tools, and products to affiliate
marketers and creates and manages affiliate programs for
select product vendors (the “Business”
); and
WHEREAS,
the Company and the Purchaser desire to effectuate a
“type C reorganization” under Section 368(a)(1) of
the Code, by selling substantially all of the Company’s
assets and property to Purchaser solely in exchange for
16,000,000 shares of voting common stock of the Purchaser (the
“Shares”
).
NOW
THEREFORE, for and in consideration of the mutual covenants
and agreements herein contained, and intending to be legally
bound, the parties hereto agree as follows:
1.1.
Sale of
Assets . On the terms and subject to the
conditions set forth in this Agreement, at the Closing and in
consideration of the contribution of the Shares to the Company, the
Company shall contribute, assign, transfer and convey to the
Purchaser, free and clear of all Liens, and the Purchaser shall
accept and acquire from the Company, all of the right, title and
interest of the Company in, to and under the assets, properties,
rights and privileges of every kind and nature of the Company used
in connection with the Business, as the same shall exist at the
Closing, including the inventory, tangible personal property,
personal property leases, real property leases, business contracts,
accounts receivable, intellectual property, permits, vehicles,
business record, rights under warranties, real property
improvements, goodwill and insurance proceeds of the Company, but
specifically excluding the Excluded Assets (such assets and
properties being contributed, assigned, transferred and conveyed
are referred to herein as the “Assets”
).
1.2.
Excluded
Assets . Notwithstanding anything in this
Agreement to the contrary, the Assets to be contributed and
transferred to the Purchaser by the Company hereunder shall not
include any of the following assets and properties of the Company
(collectively, the “ Excluded Assets
”):
(a)
Except
as otherwise subject to this Section 1.2, the rights of the Company
pertaining to any property or asset used in or necessary to the
Assets, which have accrued or will accrue to the Company, as the
case may be, where the consent of another Person would be invalid
or constitute a breach of any agreement or commitment to which the
Company is a party or by which the Company may be bound, if the
consent of such Person to such assignment or attempted assignment
shall not have been obtained; provided, however, that in such
event, such property or asset or the proceeds thereof shall be held
and/or received by the Company, for the benefit of the Purchaser
and the Purchaser may act as agent therefor in order
to
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obtain
for the Purchaser the benefits that would flow from ownership
of such property or asset; and provided further that for so
long as any Material Contract for which a consent to
assignment is legally required but such consent to assignment
or the like has not been obtained, the Purchaser shall be
obligated to promptly pay to the Company any payment, royalty,
fee, or other form of compensation which would be payable to a
third party under such Material Contract by the Company, as
the case may be, but for the fact that the Purchaser has
acquired the Assets as of the Closing (the “Third Party
Payments” ), and the Company agrees to defend,
indemnify, release and hold harmless the Purchaser for any
additional payment, royalty, fee or other form of compensation
which would be payable to a third party under such Material
Contract, except to the extent any such additional payment,
royalty, fee or other form of compensation relates to any
action or omission of the Purchaser occurring after the
Closing that would not be permitted under the applicable
Material Contract.
(b)
Books and Records . The Company’s
historical financial statements and tax records, minutes of the
meetings of the Company’s board of directors and
Shareholders, the minute book of the Company, records of the
Shareholders, and the share ledger; provided that
the Purchaser and its attorneys, accountants and other
representatives may, upon reasonable notice, inspect and copy all
of the Company’s financial statements, records, minutes and
ledgers not being turned over to the Purchaser which relate to the
Business prior to the Closing.
(c)
Other Excluded Assets . Those assets and
properties of the Company set forth on Schedule
1.2(c) ; and
(d)
Rights Under this Agreement . The Company’s
rights under or pursuant to this Agreement or the other Transaction
Agreements.
1.3.
Liabilities of the
Company to be Assumed by the Purchaser
. Subject to the terms and conditions set forth in this
Agreement, immediately prior to the contribution of the Shares from
the Purchaser to the Company as provided in Section 1.6 ,
the Purchaser shall assume and agree to pay, perform and discharge
only the Liabilities of the Company arising in connection with the
operation of the Business as the same shall exist at the Closing as
set forth on Schedule 1.3
attached hereto (the “ Assumed Liabilities
”).
1.4.
Retained
Liabilities . Except for the Assumed
Liabilities, the Purchaser shall not assume pursuant to this
Agreement or the transactions contemplated hereby, and shall have
no liability for, any Liabilities of the Company (including those
related to the Business) of any kind, character or description
whatsoever (collectively, the “ Retained Liabilities
”) or any other Liabilities relating to the Business of any
kind, character or description whatsoever. Without
limiting the foregoing, the Retained Liabilities shall be as set
forth on Schedule 1.4
attached hereto.
1.5.
Purchase Price
. The purchase price of the Assets shall be the Shares,
which are valued by the parties at $400,000 (the “Purchase
Price” ) and shall be deemed paid upon the issuance
and delivery of all of the Shares by the Purchaser to the Company
at the Closing as contemplated hereby. The Purchaser
agrees that the Company may assign, transfer or convey all or any
portion of the Shares to its Shareholders in complete liquidation
of the
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Company
in proportion to the number of common shares of the Company owned
by each Shareholder, all without the Purchaser’s written
consent; provided that a Shareholder will receive such Shares
subject to the restrictions described in Section 2.24
hereof.
1.6.
Closing;
Delivery .
(a)
Closing . The purchase and
sale of the Assets shall take place at the offices of Parr Waddoups
Brown Gee & Loveless, 185 South State Street, Suite 1300, Salt
Lake City, Utah, on or before November 30, 2007, or at such other
time and place as the Company and Purchaser mutually agree upon,
orally or in writing (which time and place are designated as the
“ Closing
”).
(b)
Company Deliverables . At Closing, the Company
shall deliver, or cause to be delivered, to the Purchaser: (i) a
Bill of Sale and Assignment Agreement, substantially in the form
attached hereto as Exhibit A ;
(ii) an Assignment and Assumption Agreement, substantially in the
form attached hereto as Exhibit B (the
“ Assignment
Agreement ”); (iii) an Intellectual Property
Assignment Agreement, substantially in the form attached hereto as
Exhibit
C (the “ IP Assignment Agreement
”); (iv) Employment Agreements with Edwards and Oborn
substantially in the form attached hereto as Exhibit D (the
“ Employment
Agreement ”); and (v) a Stock Restriction Agreement
substantially in the form attached hereto as Exhibit E (the
“ Stock
Restriction Agreement ”).
(c)
Purchaser Deliverables . At Closing, the
Purchaser shall deliver to the Company (i) one or more stock
certificates representing the Shares as payment in full of the
Purchase Price, (ii) the Employment Agreements, and (iii) the Stock
Restriction Agreement.
1.7.
Tax-Free
Reorganization . The transactions
contemplated by this Agreement are intended to be a
“reorganization” within the meaning of Section
368(a)(1)(C) of the Code, all of the Shares are intended to
constitute consideration issued in connection with the
reorganization, and this Agreement is intended to constitute a
“plan of reorganization” within the meaning of the
regulations promulgated under Section 368 of the
Code. The parties hereto agree to prepare and file tax
returns that are consistent with the intention of having the
transactions contemplated by this Agreement constitute a
reorganization within the meaning of Section 368 of the
Code.
1.8.
Defined
Terms Used in this Agreement . In addition to
the terms defined above, the following terms used in this Agreement
shall be construed to have the meanings set forth or referenced
below.
“
Affiliate ”
any Person which, directly or indirectly, controls, is
controlled by, or is under common control with such Person,
including, without limitation, any partner, officer, director,
shareholder or member of such Person.
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“Agent” means any consultant, advisor, marketing
representative, independent agent or other Person who is not an
employee of the Company but is engaged by or on behalf of the
Company for the purpose of marketing, distributing, promoting or
selling the Company’s products and services, whether or not
pursuant to a written agreement.
“
Code
” means the Internal Revenue Code of 1986, as
amended.
“
Contracts ”
means all written or oral contracts, agreements, leases,
license agreements, sublicenses, assignments, purchase
agreements, indentures, mortgages, deeds of trust, instruments
of Indebtedness, security agreements, guaranties, purchase
orders, sales orders, offers to sell, options, rights of first
refusal, distribution agreements, rights to discounts,
maintenance agreements and rights under any of the
foregoing.
“
Edwards ”
means Adam Edwards, an individual.
“
Exchange
Act ” means the Securities Exchange Act of 1934,
as amended.
“
Governmental
Authority ” means any court, tribunal,
arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any domestic state,
county, city or other political subdivision.
“
Key
Employee ” means any of Edwards or
Oborn.
“
Knowledge ”
or “ knowledge ”
means, with respect to any individual, the actual knowledge of
such individual, after reasonable investigation, of a
particular fact or other matter.
“
Laws
” means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law
of any Governmental Authority.
“
Liabilities
” means all
indebtedness, obligations (contractual, legal or otherwise)
and other liabilities of a Person, whether absolute, accrued,
unaccrued, contingent, fixed or otherwise, whether known or
unknown, and whether due or to become due.
“
Liens
” means any
mortgage, deed of trust, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge, community
or other marital property interest, governmental charge or
other encumbrance of any kind, or any conditional sale
contract, title retention contract, option to lease or
purchase, right of first refusal or other contract to give any
of the foregoing
“
Material
Adverse Effect ” means, with respect to any
Person, any event, change or effect that is materially adverse
to the financial condition, properties, assets, liabilities,
business, operations, results of operations or prospects of
such entity and its subsidiaries, taken as a
whole.
“
Oborn
” means Patrick Oborn, an individual.
“
Ordinary
Course of Business ” means the ordinary course
of business consistent with past custom and practice
(including with respect to quantity and
frequency).
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“ Permitted
Liens” means statutory Liens for the payment of
current taxes that are not yet delinquent and encumbrances
and Liens that arise in the Ordinary Course of Business and
do not materially impair the Company’s ownership
or use of such property or assets.
“Person”
means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability
company, joint venture, other business organization, trust,
union, association or Governmental Authority.
“SEC”
means the United States Securities and Exchange
Commission.
“ SEC Filings
” means each statement, report, registration statement,
definitive proxy statement and other filings required to be
filed with the SEC by Purchaser between June 30, 2006 and the
date hereof, including without limitation Purchaser’s
Annual Report on Form 10-KSB for the Fiscal Year Ended June
30, 2007, as filed with the SEC on October 15, 2007 and
amended on Forms 10-KSB/A filed on October 18, 2007 and
October 29, 2007; Purchaser’s Quarterly Report on Form
10-QSB for the Quarterly Period Ended September 30, 2007, as
filed with the SEC on November 19, 2007 and Form 12b-25
related thereto, as filed with the SEC on November 14, 2007;
Purchaser’s Definitive Proxy Statement on Form DEF 14A,
as filed with the SEC on November 19, 2007, and
Purchaser’s Current Reports on Form 8-K, as filed with
the SEC on October 23, 2007, November 1, 2007, and November
8, 2007.
“
Securities
Act ” means the Securities Act of 1933, as
amended.
“
Shareholder
” means Edwards, Oborn and Aaron J. Lieberman, who are
all of the shareholders of the Company.
“
Transaction
Agreements ” means this Agreement, the Assignment
Agreement, the IP Assignment Agreement and the Stock
Restriction Agreement, and each of the documents, agreements,
instruments and transactions contemplated
thereby.
2.
Representations and
Warranties of the Company . The Company
hereby represents and warrants to Purchaser that, except as set
forth on the Disclosure Schedule delivered by the Company to
Purchaser at the Closing, the following representations are true
and complete as of the date of Closing. The Disclosure
Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 2. For
purposes of these representations and warranties, the phrase
“to the Company’s knowledge” shall mean the
Knowledge of Edwards or Oborn.
2.1.
Organization, Good
Standing, Corporate Power and Qualification
. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah
and has all requisite corporate power and authority to carry on its
business as presently conducted and as proposed to be
conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect on the
Company.
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2.2.
Sufficiency of Assets; T
itle .
(a)
Except for the Excluded Assets, the Assets constitute all of
the assets, properties, rights and interests, tangible and
intangible, of any nature whatsoever, necessary to conduct the
Business as conducted immediately prior to the Closing by the
Company. As of the date hereof, the Company has the right to
use all of the Assets in the manner that such Assets are
presently used in the Business. Assuming no limitations exist
to which the Purchaser is subject and for which the Company
has no knowledge and except as set forth on Schedule 2.2, upon
the consummation of the transactions contemplated by this
Agreement, the Purchaser will have the right to use all of the
Assets in the manner that such Assets are presently used in
the Business by the Company.
(b)
As of the date
hereof, except as set forth on Schedule
2.2 , the Company owns
good and valid title to all of the Assets, free and clear of
all Liens (other than Permitted Liens). Assuming no
limitations exist to which the Purchaser is subject and for
which the Company has no knowledge, upon the consummation of
the transaction contemplated by this Agreement or except as set forth on
Schedule 2.2 , the Purchaser will own good and valid
title to all of the Assets, free and clear of all
Liens. With respect to the 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 Liens, claims or encumbrances of the lessors of
such property or assets.
2.3.
Material
Contracts .
(a)
Description of
Material Contracts . Schedule 2.3(a
) contains a true and complete list of the following Contracts
(collectively, the “ Material Contracts
”), other than Excluded Contracts, to which the Company
is a party as of the date hereof or by which any of the Assets
is bound:
(i)
all Contracts (including Contracts with customers, suppliers,
distributors, dealers, manufacturer’s representatives,
or sales agencies) that involve the sale or lease of goods or
materials or the performance of services (in each case, to or
by the Company) of an amount of more than $5,000
annually;
(ii)
all Contracts that were not entered into in the Ordinary
Course of Business of the Company;
(iii)
all Contracts of the Company with officers, directors,
shareholders or Affiliates of the Company;
(iv)
all Contracts providing for a commitment of employment or
personal services to the Company, and all Contracts with any
labor union or other employee representative of a group of
employees relating to wages, hours or other conditions of
employment;
(v)
all Contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of the Company to
engage in any business
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activity or compete with any Person, or prohibiting or
limiting the ability of any Person to compete with the
Company;
(vi)
all partnership, joint venture, shareholders’ or other
similar Contracts, including those involving a sharing of
profits, losses, costs or liabilities by the Company with any
other Person;
(vii)
all Contracts relating to the ownership, the right to use, or
the disposition or acquisition of any of the Assets other than
dispositions or acquisitions of inventory in the Ordinary
Course of Business of the Company;
(viii) all
Contracts relating to an interest in the real property or
tangible personal property, including but not limited to lease
hold interests;
(ix)
all Contracts under which the Company has created, incurred,
assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness or under which the Company has granted
(or may grant) a Lien on any of the Assets;
(x)
all Contracts
providing for payments to or by the Company based on sales,
purchases or profits, other than direct payments for goods in
an aggregate amount not in excess of $5,000
annually;
(xi)
all Contracts under which the Company is a prime contractor or
a subcontractor under or with respect to any Contract with the
United States government or any state government or any body,
subdivision, department, bureau, agency, commission, board,
instrumentality or authority thereof;
(xii)
all Contracts (other than those identified above) that (A) are
material to the Business or (B) cannot be terminated by the
Company on sixty (60) days’ notice or less without
resulting in any cost or penalty to the Company in excess of
$5,000; and
(xiii)
each amendment, supplement and modification in respect of any
of the foregoing.
(b)
Status of
Material Contracts . As of the date hereof,
except as disclosed in Schedule 2.3(b
), the Company is not in violation or breach of or default
under any Material Contract. As of the date
hereof, except as disclosed in Schedule 2.3(b
), to the Company’s knowledge, no other party to any
Material Contract is in violation or breach of or default
under such Material Contract, except where such violation,
breach or default would not have a Material Adverse Effect on
the Company. As of the date hereof, to the
Company’s knowledge, no facts or circumstances exist
that with notice or lapse of time or both would constitute
any violation or breach of, or constitute any event of
default or permit termination, modification or acceleration
under, any such Material Contract. As of the date
hereof, each Material Contract is in full force and effect
and constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with
its terms, and, to the Company’s knowledge, enforceable
by the Company against the other party or parties to such
Material Contract in accordance with its terms, subject, as
to enforcement against or by the Company, to (i)
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bankruptcy,
insolvency, reorganization and other Laws of general applicability
now or hereafter in effect relating to rights of creditors and (ii)
rules of equity governing specific performance, injunctive relief
or other equitable remedies. Schedule 2.3(b)
lists all authorizations, consents and other approvals required
under any Material Contract to effect Purchaser’s assumption
of any Material Contract (the “ Consents
”). Except for the Consents and other approvals,
consents and authorizations disclosed on Schedule 2.3(b)
, the Company is not required to make any filing with or obtain any
permit, authorization, consents or other approvals of any Person,
including, but not limited to, any lender, customer, vendor,
service provider, or lessor under any Material Contract in order to
effect the transaction contemplated hereby.
2.4.
Capitalization
. The authorized capital of the Company consists,
immediately prior to Closing, solely of:
(a)
2,000
common shares (the “ Common Stock ”),
220 shares of which are issued and outstanding immediately prior to
Closing. All of the outstanding shares of Common Stock
have been duly authorized, are fully paid and nonassessable and
were issued in compliance with all applicable federal and state
securities laws. The Company holds no treasury stock and
no shares of its capital stock in its treasury.
(b)
Schedule 2.4(b) sets forth the true and accurate
capitalization of the Company immediately prior to Closing
including the number of shares of the issued and outstanding shares
of capital stock. There are no outstanding options,
warrants, rights (including conversion or preemptive rights and
rights of first refusal or similar rights) or agreements, orally or
in writing, to purchase or acquire from the Company any shares of
capital stock, or any securities convertible into or exchangeable
for shares of capital stock.
(c)
None
of the outstanding shares of Common Stock are, or will, following
the consummations of the transactions contemplated hereby, be,
subject to (i) any right of first refusal in favor of the Company
upon any proposed transfer, (ii) any pre-emptive right, or (iii) to
the Company’s knowledge, any other right or limitation
affecting the transfer of such shares. None of the
Company’s stock purchase agreements contains a provision for
acceleration of vesting (or lapse of a repurchase right) upon the
occurrence of any event or combination of events.
2.5.
No
Subsidiaries . The Company does not have any
subsidiaries, and does not own, beneficially or otherwise, any
shares or other securities of, or any direct or indirect interest
of any nature in, any other Person.
2.6.
Authorization
. All corporate action required to be taken by the
Company’s Board of Directors and shareholders in order to
authorize the Company to enter into the Transaction Agreements, and
to sell the Assets at the Closing, and to consummate the
transactions contemplated by this Agreement and the other
Transaction Agreements, has been taken or will be taken prior to
the Closing. All action on the part of the officers of
the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the
Company under the Transaction Agreements to be performed as of the
Closing, and the delivery of the Assets has been taken or will be
taken prior to the Closing. The Transaction Agreements,
when executed and delivered by the Company, constitute valid
and
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legally
binding obligations of the Company, enforceable against the Company
in accordance with their respective terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or other laws of general
application relating to or affecting the enforcement of
creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or
other equitable remedies, or (iii) to the extent the
indemnification provisions contained in this Agreement may be
limited by applicable federal or state securities
laws.
2.7.
Governmental Consents
and Filings . No consent, approval, order or
authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local
governmental authority is required on the part of the Company in
connection with the consummation of the transactions contemplated
by this Agreement.
2.8.
Litigation
. There is no claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending or to the
Company’s knowledge, currently threatened (i) against the
Company or any officer, director or Key Employee of the Company;
(ii) that questions the validity of the Transaction Agreements or
the right of the Company to enter into them, or to consummate the
transactions contemplated by the Transaction Agreements; or (iii)
to the Company’s knowledge that would reasonably be expected
to have, either individually or in the aggregate, a Material
Adverse Effect on the Company. Neither the Company nor,
to the Company’s knowledge, any of its officers or directors,
is a party or is named as 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 pending or which the
Company intends to initiate. The foregoing includes,
without limitation, actions, suits, proceedings or investigations
pending or threatened in writing (or any basis therefor known to
the Company) involving the prior employment of any of the
Company’s employees, their services provided in connection
with the Company’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers.
2.9.
Intellectual
Property . Except as set forth in
Schedule
2.9 , the Company owns or possesses all legal rights to use
(i) all trademarks, service marks, tradenames, domain names,
copyrights, trade secrets, licenses, information and proprietary
rights and processes and (ii) to the Company’s knowledge, all
patents and patent rights, (such rights are collectively referred
to herein as the “ Company Intellectual
Property ”) as are necessary to the conduct of the
Business as now conducted and as presently proposed to be conducted
, without
any known conflict with, or infringement of, the rights of others.
To
the Company’s knowledge, no product or service marketed or
sold (or proposed to be marketed or sold) by the Company violates
or will violate any license or infringes any intellectual property
rights of any other party. Other than with respect to
commercially available software products under standard end-user
object code license agreements, there are no outstanding options,
licenses, agreements, claims, encumbrances or shared ownership
interests 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 or
entity. The Company has not received any communications
alleging that the Company has violated or, by conducting its
business, would violate any of the patents, trademarks, service
marks, tradenames, copyrights, trade
9
secrets
or other proprietary rights or processes of any other person or
entity. The Company has obtained and possesses valid
licenses to use all of the software programs present on the
computers and other software-enabled electronic devices that it
owns or leases or that it has otherwise provided to its employees
for their use in connection with the Company’s
business. It will not be necessary for the Company to
use any inventions of any of its employees (or persons it currently
intends to hire). Each Key Employee has assigned to the
Company all intellectual property rights he owns that are related
to the Business as now conducted. Schedule 2.9
lists all software, patents, patent applications, registered
trademarks, trademark applications, registered service marks,
service mark applications, registered copyrights and domain names
of the Company. The Company has not embedded any open
source, copyleft or community source code in any of its products
generally available or in development, including but not limited to
any libraries or code licensed under any General Public License,
Lesser General Public License or similar license
arrangement.
2.10.
Compliance with Other
Instruments . The Company is not in violation
or default (i) of any provisions of its Articles of Incorporation
or By-laws, (ii) of any instrument, judgment, order, writ or
decree, (iii) under any note, indenture or mortgage, or (iv) under
any lease, agreement, Contract or purchase order to which it is a
party or by which it is bound that is required to be listed on the
Disclosure Schedule, or to its knowledge, of any provision of
federal or state statute, rule or regulation applicable to the
Company, the violation of which would have a Material Adverse
Effect on the Company. The execution, delivery and
performance of the Transaction Agreements and the consummation of
the transactions contemplated by the Transaction Agreements 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 (i) a default under any such provision, instrument,
judgment, order, writ, decree, contract or agreement or (ii) an
event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension,
revocation, forfeiture, or nonrenewal of any material permit or
license applicable to the Company.
2.11.
Agreements;
Actions .
(a)
Except
for the Transaction Agreements or as set forth on Schedule 2.11
, there are no agreements, understandings, instruments, Contracts
or proposed transactions to which the Company is a party or by
which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $5,000,
(ii) the license of any patent, copyright, trade secret or
other proprietary right to or from the Company, (iii) the
grant of rights to manufacture, produce, assemble, license, market,
or sell its products to any other person or affect the
Company’s exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, or (iv) indemnification by
the Company with respect to infringements of proprietary
rights.
(b)
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) except as disclosed
on Schedule 2.11
, incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $5,000 or in excess of
$25,000 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
10
than
the sale of its inventory in the ordinary course of business. For
the purposes of subsections (b) and (c) of this Section 2.11 ,
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 with each other) shall be
aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsection.
(c)
The
Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
2.12.
Conflicts
of Interest .
(a)
Except
as set forth on Schedule
2.12(a) and other than standard employee benefits generally
made available to all employees, there are no agreements,
understandings or proposed transactions between the Company and any
of its officers, directors, or Key Employees, or any Affiliate
thereof.
(b)
Except
as set forth in Schedule
2.12(b) , the Company is not indebted, directly or
indirectly, to any of its directors, officers or employees or to
their respective spouses or members of their immediate family or to
any Affiliate of any of the foregoing, other than in connection
with expenses or advances of expenses incurred in the Ordinary
Course of Business or employee relocation
expenses. Except as set forth in Schedule
2.12(b) , none of the Company’s directors, officers or
employees, or any members of their immediate families, or any
Affiliate of the foregoing (i) are, directly or indirectly,
indebted to the Company or, (ii) to the Company’s knowledge,
have 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 firm or corporation
which competes with the Company except that directors, officers or
employees or shareholders of the Company may own stock in (but not
exceeding two percent of the outstanding capital stock of) publicly
traded companies that may compete with the
Company. Except as set forth in Schedule
2.12(b) , to the Company’s knowledge: (x) none of the
Company’s directors, officers or employees or any members of
their immediate families or any Affiliate of any of the foregoing
are, directly or indirectly, interested in any material contract
with the Company; and (y) none of the directors or officers, or any
members of their immediate families, has any material commercial,
industrial, banking, consulting, legal, accounting, charitable or
familial relationship with any of the Company’s major
business relationship partners, service providers, joint venture
partners, licensees and competitors.
2.13.
Voting
Rights . To the Company’s knowledge, no
shareholder of the Company has entered into any agreements with
respect to the voting of capital shares of the
Company.
2.14.
Absence
of Liens . Except as set forth on
Schedule
2.14 , the Assets are free and clear of all Liens, except
for Permitted Liens. With respect to the 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 those of the lessors of such property or
assets.
11
2.15.
Financial
Statements . The Company has delivered to Purchaser its
un-audited financial statements (including balance sheets and
income statements) as of October 31, 2007 and for the ten-month
period then ended (collectively, the “ Financial Statements
”). Except as set forth in the Financial
Statements, the Company has no material Liabilities or obligations,
contingent or otherwise, other than (i) Liabilities incurred in the
Ordinary Course of Business subsequent to October 31, 2007 and
(ii) obligations under contracts and commitments incurred in
the Ordinary Course of Business, which, in both cases, individually
and in the aggregate would not have a Material Adverse Effect on
the Company.
2.16.
Changes
. Except as set forth on Schedule 2.16
, since December 31, 2006 there has not been:
(a)
any
change in the Assets, Liabilities, financial condition or operating
results of the Company from that reflected in the Financial
Statements, except changes in the Ordinary Course of Business that
have not caused, and are not reasonably likely to result in, a
Material Adverse Effect on the Company;
(b)
any
damage, destruction or loss, whether or not covered by insurance,
that would have a Material Adverse Effect on the
Company;
(c)
any
waiver or compromise by the Company of a valuable right or of a
material debt owed to it involving more than $5,000;
(d)
any
satisfaction or discharge of any Lien, claim, or encumbrance or
payment of any obligation by the Company with respect to any
Person, except in the Ordinary Course of Business of the Company
and the satisfaction or discharge of which would not have a
Material Adverse Effect on the Company;
(e)
any
change to a material contract or agreement by which the Company or
any of its assets is bound or subject, except for a change that
would not have a Material Adverse Effect on the
Company;
(f)
any
material change in any compensation arrangement or agreement with
any employee, officer, director or shareholder;
(g)
any
resignation or termination of employment of any officer or Key
Employee of the Company;
(h)
any
mortgage, pledge, transfer of a security interest in, or Lien,
created by the Company, with respect to any of the Assets, except
for Permitted Liens;
(i)
any
loans or guarantees made by the Company to or for the benefit of
its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances
made in the Ordinary Course of Business of the
Company;
(j)
any
declaration, setting aside or payment or other distribution in
respect of any of the Company’s shares of capital stock, or
any direct or indirect redemption, purchase, or other acquisition
of any of such stock by the Company;
12
(k)
any
sale, assignment or transfer of any Company Intellectual Property
that could reasonably be expected to result in a Material Adverse
Effect on the Company;
(l)
receipt
of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
(m)
to
the Company’s knowledge, any other event or condition of any
character, other than events affecting the economy or the
Company’s industry generally,
that could reasonably be expected to result in a Material Adverse
Effect on the Company; or
(n)
any
arrangement or commitment by the Company to do any of the things
described in this Section 2.16
.
2.17.
Employee
Matters .
(a)
As
of the date hereof, the Company employs two (2) full-time
employees. Schedule 2.17
sets forth a description of all compensation, including salary,
bonus, and deferred compensation paid or payable for each officer
or employee of the Company who is anticipated to receive
compensation in excess of $25,000 for the fiscal year ending
December 31, 2007, or is anticipated to receive compensation in
excess of $25,000 for the fiscal year ending December 31,
2008.
(b)
To
the Company’s knowledge, none of its employees is 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
materially interfere with such employee’s ability to promote
the interest of the Company or that would conflict with the
Business, except as set forth in the Employment Agreements or on
Schedule
2.17 . Except as set forth on Schedule 2.17
, neither the execution or delivery of the Transaction Agreements,
nor the carrying on of the Business by the employees of the
Company, nor the conduct of the Business as now conducted will, to
the Company’s knowledge, 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 such
employee is now obligated.
(c)
Except
as set forth on Schedule 2.17
, the Company is not delinquent in payments to any of its
employees, consultants or independent contractors for any wages,
salaries, commissions, bonuses, or other direct compensation for
any service performed for it to the date hereof or amounts required
to be reimbursed to such employees, consultants, or independent
contractors. To the Company’s knowledge, the Company has
complied with all applicable state and federal equal employment
opportunity Laws and with other Laws related to employment,
including those related to wages, hours, worker classification,
collective bargaining, and the payment and withholding of taxes and
other sums as required by law except where noncompliance with any
applicable law would not result in a Material Adverse
Effect. The Company has withheld and paid to the
appropriate governmental entity or is holding for payment not yet
due to such Governmental Authority all amounts required to be
withheld from
13
employees
of the Company and, to the Company’s knowledge, is not liable
for any arrears of wages, taxes, penalties, or other sums for
failure to comply with any of the foregoing.
(d)
To
the Company’s knowledge, no Key Employee intends to terminate
employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing;
provided, however, that the Company has informed Purchaser of its
intention to liquidate and dissolve the Company subsequent to the
Closing Date, and the Company makes no representation or warranty
regarding the effect of such liquidation and dissolution on the
continued employment of any Key Employee of the
Company. The employment of each employee of the Company
is terminable at the will of the Company. Except as set
forth in Schedule 2.17
or as required by law, upon termination of the employment of any
such employees, no severance or other payments will become
due. Except as set forth in Schedule 2.17
, the Company has no policy, practice, plan, or program of paying
severance pay or any form of severance compensation in connection
with the termination of employment services.
(e)
The
Company has not made any representations regarding equity
incentives to any officer, employees, director or consultant that
are inconsistent with the share amounts and terms set forth in the
minutes of the meetings of the Company’s board of
directors.
(f)
The
Company has not terminated any Key Employee’s employment with
the Company.
(g)
Schedule 2.17 sets forth each employee benefit plan
maintained, established or sponsored by the Company, or which the
Company participates in or contributes to, which is subject to the
Employee Retirement Income Security Act of 1974, as amended
(“ ERISA
”). The Company has made all required
contributions and has no liability to any such employee benefit
plan, other than liability for health plan continuation coverage
described in Part 6 of Title I(B) of ERISA, and has complied in all
material respects with all applicable laws for any such employee
benefit plan.
(h)
To the Company’s knowledge, none of the officers or
directors of the Company during the previous five (5) years
has been (a) subject to voluntary or involuntary petition
under the federal bankruptcy laws or any state insolvency law
or the appointment of a receiver, fiscal agent or similar
officer by a court for his business or property; (b) convicted
in a criminal proceeding or named as a subject of a pending
criminal proceeding (excluding traffic violations and other
minor offenses); (c) subject to any order, judgment, or
decree (not subsequently reversed, suspended, or vacated) of
any court of competent jurisdiction permanently or temporarily
enjoining him from engaging, or otherwise imposing limits or
conditions on his engagement in any securities, investment
advisory, banking, insurance, or other type of business or
acting as an officer or director of a public company; or
(d) found by a court of competent jurisdiction in a civil
action or by the SEC or the Commodity Futures Trading
Commission to have violated any federal or state securities,
commodities, or unfair trade practices law, which such
judgment or finding has not been subsequently reversed,
suspended, or vacated.
2.18.
Tax
Returns and Payments . There are no
federal, state, county, local or foreign taxes dues and payable by
the Company which have not been timely paid, except
where
14
the
failure to pay could not be reasonably expected to result in a
Material Adverse Effect on the Company. To the
Company’s knowledge, there are no accrued and unpaid federal,
state, country, local or foreign taxes of the Company which are
due, whether or not assessed or disputed. There have
been no examinations or audits of any tax returns or reports by any
applicable federal, state, local or foreign governmental
agency.
2.19.
Insurance
. Schedule 2.19
provides a complete list of the Company’s fire and casualty
insurance policies currently in effect.
2.20.
Confidential
Information and Invention Assignment Agreements
. Each current and former Key Employee and officer of
the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the
form or forms delivered to the counsel for the Purchaser (the
“ Confidential Information
Agreements ”). No current or former Key
Employee or officer of the Company has excluded works or inventions
from his or her assignment of inventions pursuant to such Key
Employee’s or officer’s Confidential Information
Agreements. The Company is not aware that any of its Key
Employees or officers is in violation thereof.
2.21.
Permits
. The Company and each of its subsidiaries has all
permits, licenses and any similar authority necessary for the
conduct of the Business, the lack of which could reasonably be
expected to have a Material Adverse Effect on the
Company. To the Company’s knowledge, the Company
is not in default in any material respect under any of such
permits, licenses or other similar authority.
2.22.
Corporate
Documents . The Articles of Incorporation and
Bylaws of the Company are in the form provided to the
Purchaser.
2.23.
Environmental and
Safety Laws . Except as could not reasonably be expected
to have a Material Adverse Effect on the Company (a) the
Company is and has been in compliance with all Environmental Laws;
(b) there has been no release or, to the Company’s
knowledge, threatened release of any pollutant, contaminant or
toxic or hazardous material, substance or waste, or petroleum or
any fraction thereof, (each a “ Hazardous Substance
”) on, upon, into or from any site currently or heretofore
owned, leased or otherwise used by the Company; (c) there have
been no Hazardous Substances generated by the Company that have
been disposed of or come to rest at any site that has been included
in any published U.S. federal, state or local
“superfund” site list or any other similar list of
hazardous or toxic waste sites published by any governmental
authority in the United States; and (d) there are no
underground storage tanks located on, no polychlorinated biphenyls
(“ PCBs ”) or
PCB-containing equipment used or stored on, and no hazardous waste
as defined by the Resource Conservation and Recovery Act, as
amended, stored on, any site owned or operated by the Company,
except for the storage of hazardous waste in compliance with
Environmental Laws. The Company has made available to
the Purchaser true and complete copies of all material
environmental records, reports, notifications, certificates of
need, permits, pending permit applications, correspondence,
engineering studies, and environmental studies or
assessments.
For
purposes of this Section
2.23 , “Environmental Laws” means any law,
regulation, or other applicable requirement relating to (a)
releases or threatened release of
15
Hazardous
Substance; (b) pollution or protection of employee health or
safety, public health or the environment; or (c) the
manufacture, handling, transport, use, treatment, storage, or
disposal of Hazardous Substances.
2.24.
Restricted
Securities . The Company understands that the
Shares have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon,
among other things, the bona fide nature of the investment intent
and the accuracy of the Company’s representations as
expressed herein. The Company understands that the
Shares are “restricted securities” under applicable
U.S. federal and state securities laws and that, pursuant to these
laws, the Company must hold the Shares
indefinitely unless they are registered with the SEC and qualified
by state authorities, or an exemption from such registration and
qualification requirements is available. The Company
acknowledges that the Purchaser has no obligation to register or
qualify the Shares for resale. The Company further acknowledges
that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including,
but not limited to, the time and manner of sale, the holding period
for the Shares, and on requirements relating to the Purchaser which
are outside of the Company’s control, and which the Purchaser
is under no obligation and may not be
able to satisfy.
2.25.
Limited
Market . The Company understands that the
Shares are quoted on the Over-the-Counter Bulletin Board and that a
limited public market exists for the Shares. The
Purchaser has made no assurances that an active public market will
ever exist for the Shares.
2.26.
Legends
. The Company understands that the Shares and any
securities issued in respect of or exchange for the Shares, may
bear one or all of the following legends:
(a)
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.”
(b)
Any legend set forth in, or required by, the other Transaction
Agreements.
(c)
Any legend required by the securities laws of any state to the
extent such laws are applicable to the Shares represented by
the certificate with such legend.
(a)
The Company acknowledges and confirms that it has been given a
reasonable
16
opportunity
to review all documents, books, records and materials of the
Purchaser pertaining to contribution of the Shares, has been
supplied with all additional information concerning the Purchaser
and the Shares that has been requested, has had a reasonable
opportunity to ask questions of and receive answers from the
Purchaser or its authorized representatives concerning the Shares
and that all questions have been answered to the full satisfaction
of the undersigned.
(b)
The Company has received no representations, written or oral,
from the Purchaser or its officers, directors, employees,
attorneys or agents other than those contained in this
Agreement. In making the decision to sell the Assets in
exchange for the Shares, the Company has relied solely upon
its review of the Purchaser’s books and records, the SEC
Filings and this Agreement and independent investigations made
by it
2.28.
Agent
Relations .
(a)
As of the date hereof, the Company maintains a network of not
less than 200 Persons registered as independent agents selling
products and services through the Company’s affiliated
self-replicating websites. Schedule
2.28 sets forth a detailed description of all
compensation, including bonus, and deferred compensation paid
or payable for each Agent, including independent agents, who
received remuneration (in any for whatsoever) in excess of
$5,000 for the fiscal year ended December 31, 2006 or is
anticipated to receive remuneration (in any form whatsoever)
in excess of $10,000 for the fiscal year ending December 31,
2007.
(b)
To the Company’s knowledge, none of the Agents is
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 materially interfere with such
Agent’s ability to promote the interests of the Company
or that would conflict with the Company’s
business. Neither the execution or delivery of the
Transaction Agreements, nor the conduct of the Company’s
business as now conducted, will, to the Company’s
knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under,
any contract, covenant, arrangement (whether or not in
writing) or instrument under which any Agent is now
engaged.
(c)
Except as described in Schedule
2.28(c) , the Company is not delinquent in payments to
any of the Agents for any commissions, bonuses, or other
compensation or remuneration for any service performed for it
to the date hereof or amounts required to be reimbursed to
such Agent. The Company has complied with all
applicable state and federal laws and regulations related to
the Agents, including the development and operation of the
Company’s self-replicating websites, except limited
individual circumstances in which noncompliance with a
particular law or regulation (individually or in the
aggregate) would not result in a Material Adverse Effect on
the Company. The Company has withheld and paid to
the appropriate governmental entity or is holding for payment
not yet due to such governmental entity all amounts required
to be withheld from any Agents, and is not liable for any
arrears of taxes, penalties, or other sums for failure to
comply with any of the foregoing.
(d)
To the Company’s knowledge, no Agent intends to
terminate his, her or its engagement with the Company or is
otherwise likely to become unavailable to continue to provide
services to or for the benefit of the Company, nor does the
Company have a present intention to terminate the engagement
of any Agent. The employment of each employee of
the Company is terminable at the will of the
Company. Except as set forth in Schedule
2.28 , the
17
Company
has no policy, practice, plan, or program of paying any form of
compensation in connection with the termination of any
Agent.
3.
Representations and
Warranties of the Purchaser . As of the
Closing Date, the Purchaser hereby represents and warrants to the
Company that except as set forth on the Purchaser Disclosure
Schedule delivered by Purchaser to the Company at the Closing, the
following representations and warranties are true and
complete. For purposes of these representations and
warranties, the phrase “to the Purchaser’s
Knowledge” shall mean the Knowledge of Robert K. Bench,
Purchaser’s Chief Executive Officer, or Gary L. Cook,
Purchaser’s Chief Financial Officer.
3.1.
Organization, Good
Standing, Corporate Power and Qualification
. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado and has all requisite corporate power and authority to
carry on its business as presently conducted and as proposed to be
conducted. Purchaser is duly qualified to transact
business and is in good standing in each jurisdiction in which the
failure to so qualify would have a Material Adverse Effect on the
Purchaser.
3.2.
Authorization
. The Purchaser has full power and authority to enter
into the Transaction Agreements. The Transaction
Agreements to which the Purchaser is a party, when executed and
delivered by the Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance
with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting
enforcement of creditors’ rights generally, and as limited by
laws relating to the availability of a specific performance,
injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in this Agreement
may be limited by applicable federal or state securities
laws.
3.3.
SEC
Filings . Purchaser has filed with the SEC
each SEC Filing. Each SEC Filing, when filed, complied
with all applicable requirements of the Securities Act, the
Exchange Act and other requirements of law. Prior to the
Closing, Purchaser will file any additional documents required to
be filed with the SEC by Purchaser prior to the Closing
(collectively with the SEC Filings, the “Purchaser SEC
Documents”). None of the SEC Filings, at the time
of filing, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading in
light of the circumstances under which they were
made. The Company has taken all necessary actions to
ensure its continued inclusion in, and the continued eligibility of
the Common Stock for trading on the over-the-counter market (the
“OTC” )
under all currently effective and currently proposed inclusion
requirements. Purchaser has made available to the
Company all exhibits to the SEC Filings filed prior to the date
hereof that are (a) requested by the Company, and (b) not available
in complete form through EDGAR (“ Requested Confidential
Exhibits ”) and will promptly make available to the
Company all Requested Confidential Exhibits to any additional
Purchaser SEC Documents filed prior to the Closing.
3.4.
Governmental Consents
and Filings . Assuming the accuracy of the
representations made by the Company in Section 2 of
this Agreement, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing
with,
18
any
federal, state or local governmental authority is required on the
part of the Purchaser in connection with the consummation of the
transactions contemplated by this Agreement.
3.5.
Litigation
. There is no claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending or to the
Purchaser’s Knowledge, currently threatened (i) against the
Purchaser or any officer, director or Key Employee of the
Purchaser; (ii) that questions the validity of the Transaction
Agreements or the right of the Purchaser to enter into them, or to
consummate the transactions contemplated by the Transaction
Agreements; or (iii) to the Purchaser’s Knowledge that would
reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on the
Purchaser. Neither the Purchaser nor, to the
Purchaser’s Knowledge, any of its officers or directors, is a
party or is named as 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 Purchaser pending or which the Purchaser
intends to initiate. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending
or threatened in writing (or any basis therefor known to the
Purchaser) involving the prior employment of any of the
Purchaser’s employees, their services provided in connection
with the Purchaser’s business, or any information or
techniques allegedly proprietary to any of their former employers,
or their obligations under any agreements with prior
employers.
3.6.
Capitalization
. The authorized capital of the Purchaser consists,
immediately prior to Closing, solely of:
(a)
(i)
300,000,000 shares of common stock, par value $0.001 ( “Purchaser Common
Stock” ), 22,265,726 shares of which are issued and
outstanding immediately prior to Closing, and (ii) 20,000,000
shares of preferred stock, no par value (“ Purchaser Preferred
Stock, ” and together with Purchaser Common Stock, the
“ Purchaser
Stock ”), of which no shares are issued and
outstanding immediately prior to Closing. There are no
other shares of capital stock or voting securities of Purchaser
other than shares of Purchaser Common Stock issued after that same
date upon the exercise of options issued under the 2001 Incentive
and Nonstatutory Stock Option Plan (“ Purchaser Option Plan
”). All of the outstanding shares of Purchaser
Stock have been duly authorized, are fully paid and nonassessable
and, except as set forth on Schedule 3.6 of the Purchaser
Disclosure Schedule, to the Purchaser’s knowledge all such
shares of Purchaser Stock issued by the Company since July 1, 2003
were issued in compliance with all applicable federal and state
securities laws. The Company holds no treasury stock and
no shares of its capital stock in its treasury.
(b)
As
of immediately prior to Closing, there were outstanding options to
purchase 902,000 shares of Purchaser Common Stock at prices ranging
from $0.09 to $0.71 per share and warrants to purchase 275,000
shares of Purchaser Common Stock at prices ranging from $0.12 to
$0.3015 per share, all with terms that expire no later than June
27, 2013.
(c)
As
of immediately prior to Closing, Purchaser has reserved 625,000
shares of Purchaser Common Stock for issuance to employees,
directors and independent contractors pursuant to the Purchaser
Option Plan, of which 467,000 shares are subject to outstanding,
unexercised options. Other than as described in this
Agreement (including this Section 3.6) and the Purchaser Option
Plan, there are there are no outstanding
19
options,
warrants, rights (including conversion or preemptive rights and
rights of first refusal or similar rights) or agreements, orally or
in writing, to purchase or acquire from the Company any shares of
capital stock, or any securities convertible into or exchangeable
for shares of capital stock.
3.7.
Issuance
of Shares . The issuance and delivery of the
Shares, as the Purchaser Price in accordance with this Agreement,
shall be, at or prior to the Closing, duly authorized by all
necessary corporate action on the part of Purchaser, and, when
issued at the Closing as contemplated by this Agreement, such
Shares will be duly and validly issued, fully paid and
nonassessable. Such Shares, when so issued and delivered
in accordance with the provisions of this Agreement, shall be free
and clear of all Liens (other than restrictions created by the
Stock Restriction Agreement or by applicable securities laws) and
will not have been issued in violation of any preemptive rights or
rights of first refusal or similar rights. The Shares
shall be issued in compliance with all applicable state and federal
securities laws.
3.8.
Changes
. Except as disclosed on Schedule 3.8 ,
since September 30, 2007, there has not been:
(a)
any
change in the assets, liabilities, financial condition or operating
results of the Purchaser from that reflected in the SEC Filings,
except changes in the Ordinary Course of Business that have not
caused, and are not reasonably likely to result in, a Material
Adverse Effect on the Purchaser;
(b)
any
damage, destruction or loss, whether or not covered by insurance,
that would have a Material Adverse Effect on the
Purchaser;
(c)
any
change to a material contract or agreement (or amendments) by which
the Purchaser or any of its assets is bound or subject, except for
a change that would not have a Material Adverse Effect on the
Purchaser;
(d)
any
material change in any compensation arrangement or agreement with
any employee, officer, director or shareholder, other than in the
Ordinary Course of Business consistent with past
practice;
(d)
any
amendment or change to the Articles of Incorporation or the Bylaws
of the Purchaser; or
(e)
to
the Purchaser’s Knowledge, any other event or condition of
any charact
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