Exhibit 10.1
ACQUISITION AGREEMENT AND OPTION
AGREEMENT
ACQUISITION AGREEMENT AND OPTION
AGREEMENT ("Agreement") dated as of ______________, 2006 by and
among US Wireless Online, Inc., a Nevada corporation ("Company) and
Sutioc Enterprises, Inc., a Nevada corporation
("SUTIOC").
RECITALS
A.
The Boards of Directors of the Company
and SUTIOC have each determined that the acquisition of a majority
interest in the Company by SUTIOC is advisable, fair and in the
best interests of their respective corporations and
stockholders;
B.
SUTIOC shall acquire 50.1% (fifty point
one percent) equity interest in the Company;
C.
IElement Corporation
(“IElement”) is the 98% stockholder of
SUTIOC;
D.
SUTIOC owns and controls 30 Million
shares of IElement Corporation;
E.
The acquisition shall be accomplished by
the Company issuing to SUTIOC, in exchange for 30 Million shares of
IElement Corporation restricted common stock, $0.001 par value (the
“IElement Shares”), 5,010,000 shares of its newly
issued restricted Series B preferred stock (the “Company
Shares”), with such rights and preferences as designated on
Exhibit A attached hereto and made a part hereof, representing
50.1% of the Company’s then issued and outstanding capital
stock (the “Stock Purchase”);
F.
The Boards of Directors of the Company
and SUTIOC have each determined that it would be advisable, fair
and in the best interests of their respective corporations and
stockholders to grant to SUTIOC the right, for a period of two
years, to purchase up to 95% interest in the Company, in accordance
with the terms and conditions specified in Section 1.2, (the
“Top-Up Option”); and
G.
The Boards of Directors of the Company
and SUTIOC have each adopted this Agreement and approved the
Acquisition and Option upon the terms and subject to the conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the
foregoing premises and the representations, warranties, covenants
and agreements herein contained, and intending to be legally bound
hereby, the Company, SUTIOC hereby agree as follows:
ARTICLE I
THE STOCK PURCHASE AND OPTION
AGREEMENT
Section 1.1
Sale and Purchase of Company
Shares.
(a)
Sale of Shares. On the Closing Date
(as defined below), the Company shall sell to SUTIOC the Company
Shares and SUTIOC shall purchase the Company Shares for the
purchase price described in (b), below.
Purchase Price. The aggregate
purchase price for the Company Shares is 30 million restricted
IElement Common Shares. Certificates evidencing IElement
Shares delivered hereunder shall bear a legend in substantially the
following form:
THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.
(b)
The Purchase Price shall be paid by
SUTIOC as follows:
(i)
on the Closing Date, SUTIOC shall
transfer to the Company 28,991,810 IElement Shares. All of
such shares shall be held by the Company, as an asset of the
Company, for the sole purpose of payment of debt to third party
creditors which debt payments shall be made in accordance with
Exhibit B attached hereto and made a part hereof; and
(ii)
on the Closing Date, the IEW shall pay
the balance of the Purchase Price by delivering to the Escrow
Agent, on behalf of the Company, stock certificates representing
1,008,190 IElement Shares (the “Escrow Shares”).
The Escrow Agent shall administer the Escrow Shares pursuant
to the terms of the Escrow Agreement, which Agreement shall be in
the form attached hereto as Exhibit 1.1(b)(ii) . The Escrow
Shares shall be used as a source of funding to satisfy certain
liabilities of the Company as set forth in the Escrow
Agreement.
(c)
Closing; Closing Date. The closing
of the sale and purchase of the Shares contemplated hereby (the
"Closing") shall take place upon satisfaction of the conditions
precedent in Sections 6.1 and __ on _________, 2006, or such other
time or date as the parties agree in writing. The date upon
which the Closing occurs is herein called the "Closing
Date."
(d)
Authorizations. The Company and
SUTIOC hereby represent and warrant that each of their respective
Boards of Directors has (i) adopted this Agreement and approved the
Stock Purchase and the Option, and (ii) determined that this
Agreement and the transactions contemplated hereby, are at a price
and on terms that are advisable and fair to and in their best
interests and their respective stockholders.
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Section 1.2
Top-Up Option.
(a)
The Company grants to SUTIOC an
assignable and irrevocable option (the “Top-Up Option”)
to purchase from the Company the number of newly-issued shares of
Company common stock and preferred stock equal to the lesser of:
(i) the number of shares of Company common stock and preferred
stock that, when added to the number of shares of Company common
stock and preferred stock owned by SUTIOC at the time of exercise
of the Top-Up Option, constitutes 95% of the number of shares of
Company common stock and preferred stock that would be outstanding
immediately after the issuance of all shares of Company common
stock and preferred stock subject to the Top-Up Option or (ii) the
aggregate number of shares of Company common stock and preferred
stock that the Company is authorized to issue under its articles of
incorporation but that are not issued and outstanding (and are not
subscribed for or otherwise committed to be issued) at the time of
exercise of the Top-Up Option.
(b)
In the event that the number of shares
the Company is authorized to issue under its articles of
incorporation would not constitute 95% of the total outstanding
immediately after issuance, the Company shall take the necessary
steps to increase the authorized shares in order to issue the full
amount of the Top-Up Option equal to 95% of the outstanding
immediately after issuance.
(c)
The Top-Up Option may be exercised by
SUTIOC, in whole or in part, at any time and up to two years after
the Closing. The aggregate purchase price payable for the
shares of Company common stock and preferred stock being purchased
by SUTIOC pursuant to the Top-Up Option shall be determined as set
forth in Section 1.2(d) herein. Such purchase price may be paid by
SUTIOC, at its election, either entirely in cash or shares of
common stock, valued at no less than the closing share price on the
day immediately preceding the day Top-Up Option is exercised by
SUTIOC, of an entity trading on the over the counter bulletin board
or a recognized exchange and which entity is subject to the
reporting requirements of the Securities Exchange Act of 1934 and
is current in all such reports which shares are owned and held by
SUTIOC.
(d)
The aggregate purchase price SUTIOC will
be required to pay to Company when exercising the Top-Up Option
will be calculated as 2.5 times the then trailing ninety days
annualized revenue, plus current and fixed assets and less any
debt, accounts payable and other liabilities exceeding one million
dollars ($1,000,000) with the minimum aggregate purchase price
being two million dollars ($2,000,000) plus current and fixed
assets and less debt, accounts payable and other liabilities.
In the event that the Company’s debt, accounts payable
and other liabilities is below $1,000,000, then in such a case, the
aggregate purchase price shall be calculated as 3 times the then
trailing ninety days annualized revenue, plus current and fixed
assets and less debt, accounts payable and other
liabilities.
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(e)
In the event SUTIOC wishes to exercise
the Top-Up Option, SUTIOC shall deliver to the Company a notice
setting forth (i) the number of shares of Company common stock and
preferred stock that SUTIOC intends to purchase pursuant to the
Top-Up Option, (ii) the manner in which SUTIOC intends to pay the
applicable exercise price and (iii) the place and time at which the
closing of the purchase of such shares of Company common stock by
SUTIOC is to take place. At the closing of the purchase of such
shares of Company common stock and preferred stock, SUTIOC shall
cause to be delivered to the Company the consideration required to
be delivered in exchange for such shares, and the Company shall
cause to be issued to SUTIOC a certificate representing such
shares. The obligation of the Company to issue such shares will be
subject to compliance with all applicable regulatory
requirements.
(f)
Certificates evidencing Top-Up Option
Shares delivered hereunder shall bear a legend in substantially the
following form:
THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.
Section 1.3
Directors.
At Closing, SUTIOC shall be entitled to
designate such number of directors, rounded up to the next whole
number, on the Company Board as shall give SUTIOC majority
representation on the Company Board. The Company shall,
upon request by SUTIOC, promptly increase the size of the Company
Board or exercise its best efforts to secure the resignations of
such number of directors as is necessary to enable SUTIOC's
designees to be appointed to the Company Board in accordance with
the terms of this Section 1.3 and shall cause SUTIOC's designees to
be so appointed. At Closing, or as soon thereafter as
practicable, the Board of Directors shall be comprised of a total
of five (5) members, three (3) of which shall be SUTIOC
designees.
Section 1.4
Anti-Dilution Rights.
In consideration of this Agreement and
the mutual covenants and promises contained herein, as of the
Closing of the Acquisition, the Company agrees to assure that
SUTIOC shall have and maintain at all times, weighted average
anti-dilution protection rights as to the total number of issued
and outstanding shares of common stock and preferred stock of the
Company from time to time, at the rate of 50.1%. In the event
that the Company issues any shares of common stock, preferred stock
or any security convertible into or exchangeable for common stock
or preferred stock to any person or entity, the Company agrees to
undertake all necessary measures as may be necessary or expedient
to accommodate its performance under this Agreement, including,
without limitation, the amendment of its articles of incorporation
to the extent necessary to provide for a sufficient number of
shares of authorized common stock or preferred stock to be issued
to SUTIOC so as to maintain in SUTIOC the minimum interest in the
common stock and preferred stock of the Company consistent with
this Agreement.
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ARTICLE II
ASSET PURCHASE OPTION
Section 2.1
Definitions
(a)
“Bankruptcy”
means, with respect to any Person or
Entity, a “Voluntary Bankruptcy” or an
“Involuntary Bankruptcy”. A “Voluntary
Bankruptcy” means, with respect to any Person or Entity, the
inability of such Person or Entity generally to pay its debts as
such debts become due, or an admission in writing by such Person or
Entity of its inability to pay its debts generally or a general
assignment by such Person or Entity for the benefit of creditors;
the filing of any petition or answer by such Person or Entity
seeking to adjudicate it bankrupt or insolvent, or seeking for
itself any liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of such Person or
Entity or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking,
consenting to, or acquiescing in the entry of an order for relief
or the appointment of a receiver, trustee, custodian, or other
similar official for such Person or Entity or for any substantial
part of its property; or corporate action taken by such Person or
Entity to authorize any of the actions set forth above. An
“Involuntary Bankruptcy” means, with respect to any
Person or Entity, without the consent or acquiescence of such
Person or Entity, the entering of an order for relief or approving
a petition for relief or reorganization or any other petition
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or other similar relief under any present
or future bankruptcy, insolvency or similar statute, law, or
regulation, or the filing of any such petition against such Person
which petition shall not be dismissed within ninety (90) days, or,
without the consent or acquiescence of such Person or Entity, the
entering of an order appointing a trustee, custodian, receiver, or
liquidator of such Person or Entity or of all or any substantial
part of the property of such Person or Entity which order shall not
be dismissed within sixty (60) days.
(b)
“Depreciation”
means, for each Fiscal Year, an amount
equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such Fiscal
Year.
(c)
“ Book Value” means
the original cost of an asset less depreciation or
amortization.
Section 2.2
Purchase Upon Bankruptcy.
Upon the Bankruptcy of the Company or any
of its subsidiaries, SUTIOC shall have the right to purchase all of
the equipment, furniture, personal property and certain intangible
assets, including customer lists, customer purchase history and
supplier lists (collectively the “Assets”), from the
Company and its subsidiaries. The purchase price for such
purchase shall be as set forth in Section 2.3 below. The
Closing of the purchase shall take place at the principal office of
the Company, or at such other place set by mutual consent, and the
purchase price shall be paid at the Closing via wire transfer.
The Closing shall take place within 30 days of the Bankruptcy
or such earlier day as agreed by SUTIOC and the Company.
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Section 2.3
Purchase Price
The purchase price for the Assets shall
be calculated as 49.9% of the net Book Value of the tangible assets
being purchased (furniture, equipment and personal property) plus
the amount of the trailing thirty (30) days of revenue of the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
The Company hereby represents and
warrants to SUTIOC, subject to the exceptions set forth in the
Disclosure Letter which shall be delivered by the Company to SUTIOC
(the "Disclosure Letter") prior to execution of this Agreement, and
certified by a duly authorized officer of the Company (which
exceptions shall specifically identify the Section, subsection or
paragraph, as applicable, to which such exception relates),
that:
Section 3.1
Organization and Qualification;
Subsidiaries; Investments.
(a)
Section 3.1(a) of the Disclosure Letter
sets forth, as of the date of this Agreement, a true and complete
list of each person (as defined below) in which the Company owns,
directly or indirectly, fifty percent (50%) or more of the voting
interests or of which the Company otherwise has the right to direct
the management (each, a "Subsidiary") together with the
jurisdiction of incorporation or organization of each Subsidiary
and the percentage of each Subsidiary's outstanding capital stock
or other equity interests owned directly or indirectly by the
Company. Except as set forth in Section 3.1(a) of the Disclosure
Letter, all the outstanding capital stock or other ownership
interests of each Subsidiary is owned by the Company, directly or
indirectly, free and clear of any Lien (as defined below) or any
other limitation or restriction. Each of the Company and the
Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business
as now being conducted. The Company has delivered to SUTIOC's
counsel accurate and complete copies of the Articles of
Incorporation and bylaws or comparable governing documents, each as
in full force and effect on the date hereof, of the Company and
each Subsidiary. Other than as specified in Section 3.1(a) of the
Disclosure Letter, the Company has no operating Subsidiaries other
than those incorporated in a state of the United States.
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(b)
Each of the Company and the Subsidiaries
is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed
and in good standing, individually or in the aggregate, does not
have a Material Adverse Effect on the Company. For purposes hereof,
the term "Material Adverse Effect on the Company" means any
circumstance involving, change in or effect on the Company or any
Subsidiary (i) that is, or is reasonably likely in the future to
be, materially adverse to the business, operations, earnings or
results of operations, assets or liabilities (including contingent
liabilities), the financial condition or prospects of the Company
and the Subsidiaries, taken as a whole, excluding from the
foregoing any event, change or circumstance arising out of (A) the
compliance by the Company, the Subsidiaries, or SUTIOC with the
terms and conditions of this Agreement, (B) changes in applicable
law or regulations or in United States generally accepted
accounting principles ("GAAP") or (C)(x) changes in economic
conditions in the telephone and wireless service business generally
and (y) changes in regulatory conditions in the telephone and
wireless business, except, in the case of clauses (C)(x) and
(C)(y), to the extent such changes have a materially
disproportionate effect on the Company relative to other
participants in the telephone and wireless business, or (ii) that
is reasonably likely to prevent or materially delay or impair the
ability of the Company to consummate the transactions contemplated
by this Agreement. Except as specifically set forth in this
Agreement, all references to Material Adverse Effect on the Company
or its Subsidiaries contained in this Agreement shall be deemed to
refer solely to the Company and its Subsidiaries without including
its ownership by SUTIOC after the Acquisition.
(c)
Section 3.1(c) of the Disclosure Letter
sets forth a true and complete list, as of the date hereof, of each
equity investment made by the Company or any Subsidiary in any
person (including the percentage ownership, purchase price and any
management rights granted to the Company or any such Subsidiary)
other than the Subsidiaries ("Other Interests"). The Other
Interests are owned directly or indirectly by the Company free and
clear of all Liens.
Section 3.2
Capitalization of the Company and
Subsidiaries.
The authorized capital stock of the
Company consists of 300,000,000 shares of Company Common Stock, of
which, as of December 8, 2006, 126,209,933 Shares were issued and
outstanding, and twenty million (20,000,000) shares of preferred
stock, of which, as of the date hereof, 4,250,000 were issued and
outstanding. All of the outstanding Shares are, and the Shares
issuable upon exercise of Company Stock Options, when issued would
be, validly issued and fully paid, nonassessable and not subject to
any preemptive rights. As of December 8, 2006, an aggregate of
____________ Shares were reserved for issuance pursuant to the
Company's Equity Incentive Plan, or other outstanding warrants,
options or convertible securities. Except as set forth above,
as of the date hereof, there are outstanding (i) no shares of
capital stock or other voting securities of the Company, (ii) no
securities of the Company or any Subsidiary convertible into, or
exchangeable or exercisable for, shares of capital stock or voting
securities of the Company or any Subsidiary, (iii) no options,
warrants or other rights to acquire from the Company or any
Subsidiary, and no obligations of the Company or any Subsidiary to
issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock
or voting securities of the Company or any Subsidiary and (iv) no
equity equivalent interests in the ownership or earnings of the
Company or any Subsidiary or other similar rights.
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All of the outstanding Shares and Company
Stock Options (collectively, the "Company Securities") were issued
in compliance with the Securities Act and applicable state
securities laws. As of the date hereof, there are no outstanding
rights or obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any of its outstanding
capital stock or other ownership interests. Except as set forth in
Section 3.2(a) of the Disclosure Letter, there are no stockholder
agreements, voting trusts or other arrangements or understandings
to which the Company or any Subsidiary is a party or by which it or
the Company Board is bound, and, to the Company's knowledge, there
are no other agreements, voting trusts or other arrangements or
understandings relating to the voting or registration of any shares
of capital stock or other voting securities of the Company or any
Subsidiary. No Shares are issued and held by the Company in its
treasury as of the date hereof. Section 3.2(a) of the Disclosure
Letter sets forth a true and complete list of all holders of
outstanding Company Stock Options, the exercise or vesting
schedule, the exercise price per share and the term of each such
Company Stock Option, whether such option is a nonqualified stock
option or incentive stock option and any restrictions on the
Company's right to repurchase the Shares underlying the options.
Except as set forth in Section 3.2 of the Disclosure Letter, none
of the terms of the Company Stock Options provides for accelerated
vesting or exercisability as a result of the execution and delivery
of this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth on Section 3.2 of the
Disclosure Letter, each outstanding Company Stock Option has an
exercise price per share no less than the fair market value per
Share at the time of grant of such Company Stock Option.
Section 3.3
Authority Relative to this Agreement;
Recommendation.
(a)
The Company has all necessary corporate
power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the
Company Board, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby, except the
approval and adoption of this Agreement by the holders of a
majority of the outstanding Shares. This Agreement has been duly
and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery hereof by SUTIOC,
constitutes a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms,
subject to any applicable bankruptcy, insolvency (including all
applicable laws relating to fraudulent transfers), reorganization,
moratorium or similar laws now or hereafter in effect relating to
creditors' rights generally or to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(b)
The Company Board, at a meeting duly
called and held, has (i) determined that this Agreement and the
transactions contemplated hereby are fair to and in the best
interests of Company's stockholders, (ii) approved and adopted this
Agreement and the transactions contemplated hereby and (iii)
resolved to recommend that Company's stockholders accept this
Agreement and the transaction contemplated thereby if such
stockholder approval is necessary in accordance with the Company,
articles, bylaws of the laws of Nevada.
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Section 3.4
SEC Reports; Financial
Statements.
(a)
The Company has not filed all
required forms, reports and documents ("Company SEC Reports") with
the SEC for the periods on and after January 1, 2006. As
further set forth in Section 6.1 regarding preconditions to
Closing, prior to the Closing of this Agreement, the Company shall
have filed all SEC reports through and including its Form 10K or
10K-SB for its 2005 fiscal year end and shall have proper records
prepared and accessible for the completion and filing of its fiscal
2006 quarterly reports. At the Closing, the Company shall
represent and warrant that for all periods prior to and including
December 31, 2005, the Company has filed all required forms,
reports and documents and each of such Company SEC Reports complied
at the time of filing in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in
effect on the dates such forms, reports and documents were filed.
None of such Company SEC Reports, including any financial
statements or schedules included or incorporated by reference
therein, contained when filed any untrue statement of a material
fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the
statements therein in light of the circumstances under which they
were made not misleading, except to the extent superseded by a
Company SEC Report filed subsequently and prior to the date hereof.
Each of the consolidated financial statements (including, in each
case, any related notes and schedules thereto) contained in the
Company SEC Reports (the "Financial Statements") have been prepared
in all material respects in accordance with GAAP consistently
applied and maintained throughout the periods indicated, except
where noted therein, and fairly present the consolidated financial
condition of the Company and the Subsidiaries at their respective
dates and the results of their operations and changes in financial
position for the periods covered thereby, in each case in
conformity with GAAP (subject, in each case, to normal year-end
adjustments and except that unaudited financial statements do not
contain all footnotes required for audited financial
statements).
(b)
The Company has delivered to SUTIOC a
complete and correct copy of any amendment or modification (that
has not yet been filed with the SEC, but that the Company presently
intends to file) to agreements, documents or other instruments
previously filed by the Company with the SEC.
(c)
If the Company is at any time unable to
timely compile and file the required reports, forms and documents
necessary for the Company to regain or maintain its compliance with
all regulations and its listing on the Pink Sheets, the Company
will deliver within ten business days to SUTIOC a complete and
correct set of records by which SUTIOC will be able to compile and
file any required reports, forms and documents with the SEC, NASD
and any other agency for which it will be necessary for the Company
to file with in order to become fully-compliant and have its stock
re-listed on the OTCBB.
Section 3.5
Information Supplied.
None of the information supplied or to be
supplied by the Company will contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading.
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Section 3.6
Consents and Approvals; No
Violations.
Except for filings, permits,
authorizations, consents and approvals as may be required under
applicable requirements of the Securities Act, the Exchange Act,
state securities or "blue sky" laws, no filing with or notice to
and no permit, authorization, consent or approval of any United
States or foreign court or tribunal, or administrative,
governmental or regulatory body, agency or authority (each, a
"Governmental Entity") is necessary for the execution and delivery
by the Company of this Agreement or the consummation by the Company
of the transactions contemplated hereby. Except as set forth in
Section 3.6 of the Disclosure Letter, neither the execution,
delivery and performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby
will (i) conflict with or result in a breach of any provision of
the respective Certificates of Incorporation or bylaws (or similar
governing documents) of the Company or any Subsidiary; (ii) result
in a violation or breach of or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or
Lien) under any of the terms, conditions or provisions of any
Material Contract (as defined below) to which the Company or any
Subsidiary is a party or by which any of them or their respective
properties or assets are bound; (iii) result in a violation or
breach of or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under any of the
terms, conditions or provisions of any Contract (as defined below),
other than any Material Contract, to which the Company or any
Subsidiary is a party or by which any of them or their respective
properties or assets are bound; or (iv) violate any order, writ,
injunction or decree to which the Company or a Subsidiary is
subject, or any law, statute, rule or regulation applicable to the
Company or any Subsidiary or any of their respective properties or
assets, except, in the case of the foregoing clauses (iii) and
(iv), for violations, breaches or defaults that, individually or in
the aggregate, would not result in a Material Adverse Effect on the
Company.
Section 3.7
No Default.
Except as set forth in Section 3.7 of the
Disclosure Letter, neither the Company nor any Subsidiary is in
breach, default or violation (and no event has occurred that with
notice or the lapse of time, or both, would constitute a breach,
default or violation) of any term, condition or provision of (i)
its Certificate of Incorporation or bylaws (or similar governing
documents); (ii) any Material Contract; (iii) any other Contract or
obligation to which the Company or any Subsidiary is now a party or
by which it or any of its properties or assets may be bound; or
(iv) any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Company or any Subsidiary or any of
its properties or assets, except, in the case of the foregoing
clauses (iii) and (iv), for violations, breaches or defaults that,
individually or in the aggregate, would not result in a Material
Adverse Effect on the Company. Neither the Company nor any
Subsidiary knows of, or has received notice of, the existence of
any event or condition which constitutes, or, after notice or lapse
of time or both, will constitute, a default, event of default or
other breach on the part of the Company or any of its Subsidiaries
under any such Contract, except where such breach, default or
violation, either individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the
Company.
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Section 3.8
No Undisclosed Liabilities; Absence of
Changes.
Except as disclosed by the Company; as
contained in its SEC Reports filed prior to the date hereof
(including through the end of fiscal 2005) and except as fully and
completely disclosed to SUTIOC in Section 3.8 of the Disclosure
Letter, neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that would be required by GAAP to be
reflected on a consolidated balance sheet of the Company and its
consolidated Subsidiaries (including the notes thereto). Except as
disclosed by the Company and except for liabilities incurred in
connection with this Agreement or the transactions contemplated
hereby, (i) the Company and its Subsidiaries have conducted their
business only in the ordinary course; (ii) through the date hereof,
there has not been any declaration, setting aside or payment of any
dividend or other distribution in cash, stock or property in
respect of the Company's capital stock; (iii) there has not been
any action by the Company or any of its Subsidiaries during the
period from December 31, 2005 through the date of this Agreement
that, if taken during the period from the date of this Agreement
through the Effective Time would constitute a breach of Section 5.1
hereof; and (iv) except as required by GAAP, there has not been any
change by the Company in accounting principles, practices or
methods. Except as disclosed by the Company, since December 31,
2005, there has not been a Material Adverse Effect on the
Company.
Section 3.9
Litigation.
Except as set forth in Section 3.9 of the
Disclosure Letter, there are no suits, claims, actions, proceedings
or, to the Company's knowledge, investigations pending or, to the
Company's knowledge, threatened against the Company, any Subsidiary
or any of their respective properties or assets before any
Governmental Entity as of the date hereof. No suits, claims,
actions, proceedings or investigations set forth in Section 3.9 of
the Disclosure Letter (if any) would, if decided adversely to the
Company or any Subsidiary, individually or in the aggregate, result
in any charge, assessment, levy, fine or other liability being
imposed upon or incurred by the Company or any Subsidiary exceeding
Ten Thousand Dollars ($10,000). Neither the Company nor any
Subsidiary is subject to any outstanding order, writ, injunction or
decree of any Governmental Entity.
11
Section 3.10
Compliance with Applicable
Law.
Except as set forth in Section 3.10 of
the Disclosure Letter, each of the Company and the Subsidiaries
holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful
conduct of its business (collectively, the "Company Permits"),
except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals that, individually or in the
aggregate, would not result in a Material Adverse Effect on the
Company and that have not resulted in, and could not reasonably be
expected to result in, any injunction or other equitable remedy
being imposed on the Company or any Subsidiary that, individually
or in the aggregate, would result in a Material Adverse Effect on
the Company. Each of the Company and the Subsidiaries is in
compliance with the terms of the Company Permits held by it, except
where the failure so to comply, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse
Effect on the Company and that have not resulted in, and would not
reasonably be expected to result in, any injunction or other
equitable remedy being imposed on the Company or any Subsidiary
that, individually or in the aggregate, would result in a Material
Adverse Effect on the Company. The businesses of the Company and
the Subsidiaries are being conducted in compliance with all
applicable laws, ordinances and regulations of the United States or
any foreign country or any political subdivision thereof or of any
Governmental Entity, except for violations or possible violations
of any such laws, ordinances or regulations that, individually or
in the aggregate, do not and would not reasonably be expected to
result in a Material Adverse Effect on the Company and that have
not resulted in, and would not reasonably be expected to result in,
any injunction or other equitable remedy being imposed on the
Company or any Subsidiary that, individually or in the aggregate,
would result in a Material Adverse Effect on the Company. Except as
set forth in Section 3.10 of the Disclosure Letter, to the
Company's knowledge, no investigation or review by any Governmental
Entity with respect to the Company or any Subsidiary is pending nor
has any Governmental Entity indicated an intention to conduct the
same.
12
Section 3.11
Employee Benefit Plans; Labor
Matters.
(a)
Section 3.11(a) of the Disclosure Letter
lists, as of the date hereof, all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), and all compensation, bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, pension, profit sharing, supplemental retirement,
health, life or disability insurance, dependent care, severance,
termination pay and other similar fringe or employee benefit plans,
programs or arrangements and any current employment or executive
compensation or severance agreements written or otherwise
maintained, contributed to or been required to contribute to for
the benefit of or relating to any current employee, officer or
director of the Company or any trade or business (whether or not
incorporated) that is a member of a controlled group including the
Company or that is under common control with the Company within the
meaning of Section 414 of the Code (an "ERISA Affiliate"), or with
respect to which the Company or any ERISA Affiliate has or may have
any liability or obligation (together, the "Employee Plans"). The
Company has made available to SUTIOC a copy of (i) the two (2) most
recent annual reports on Form 5500 filed with the Internal Revenue
Service (the "IRS") for each disclosed Employee Plan where such
report is required, (ii) the documents and instruments governing
each such Employee Plan (including, without limitation, the plan
document, summary plan description or other summary, most recent
actuarial report and trust or other funding arrangement, where
applicable) and (iii) all IRS determination, opinion, notification
and advisory letters and rulings relating to each disclosed
Employee Plan. Except as set forth in Section 3.11(a) of the
Disclosure Letter: (A) each Employee Plan has been maintained in
all material respects in accordance with its terms and each
Employee Plan subject to ERISA and the Code has been maintained in
all material respects in accordance with ERISA and the Code and (C)
there has been no violation of any reporting or disclosure
requirement imposed by ERISA or the Code. Each Employee Plan
intended to be qualified under Section 401(a) of the Code, and each
trust intended to be exempt under Section 501(a) of the Code, has
been determined to be so qualified or exempt by the IRS, and there
has been no event, condition or circumstance that has adversely
affected or is likely to adversely affect such qualified status.
With respect to each Employee Plan, there has been no transaction
prohibited under Section 4975 of the Code or Section 406 of ERISA
which is not exempt under Section 4975 of the Code or Section 408
of ERISA, respectively. With respect to any Employee Plan, (1)
neither the Company nor any of its ERISA Affiliates has had
asserted against it any claim for taxes under Chapter 43 of
Subtitle D of the Code and Section 5000 of the Code, or for
penalties under ERISA Section 502(c), (i) or (l), nor, to the
Company's knowledge, is there a basis for any such claim and (2) no
officer, director or employee of the Company has committed a breach
of any fiduciary responsibility or obligation imposed by Title I of
ERISA. Other than routine claims for benefits, there is no claim or
proceeding (including any audit or investigation) pending or, to
the Company's knowledge, threatened, involving any Employee Plan by
any person, or by the IRS, the United States Department of Labor or
any other Governmental Entity, against such Employee Plan or the
Company or any ERISA Affiliate.
(b)
Section 3.11(b) of the Disclosure Letter
sets forth a list as of the date hereof of all (i) employment
agreements with officers of the Company or any ERISA Affiliate and
(ii) agreements with consultants who are individuals obligating the
Company or any ERISA Affiliate to make annual cash payments in an
amount of Fifty Thousand ($50,000) or more and (iii) severance
agreements, programs and policies of the Company with or relating
to its employees, except such programs and policies required to be
maintained by law. The Company has made available to SUTIOC copies
of all such agreements, plans, programs and other
arrangements.
13
(c)
Except as provided in Section 3.11(c) of
the Disclosure Letter, there will be no payment, accrual of
additional benefits, obligation to fund benefits, acceleration of
payments or vesting of any benefit under any Employee Plan or any
other agreement or arrangement to which the Company or any ERISA
Affiliate is a party, and no employee, officer or director of the
Company or any ERISA Affiliate will become entitled to severance,
termination allowance or similar payments, by reason of entering
into or in connection with the transactions contemplated by this
Agreement (either alone or upon the occurrence of any additional or
subsequent events). Except as provided in Section 3.11(c) of the
Disclosure Letter, no payment or benefit which will or may be made
in connection with the transactions contemplated by this Agreement
(either alone or in combination with any other events) by the
Company, its ERISA Affiliates or SUTIOC or any of its respective
affiliates with respect to any "disqualified individual" (within
the meaning of Section 280G(c) of the Code) will be characterized
as a "parachute payment" (within the meaning of Section 280G(b)(2)
of the Code).
(d)
There are no controversies relating to
any Employee Plan or other labor matters pending or, to the
Company's knowledge, threatened between the Company or any ERISA
Affiliate and any of its employees. Except as set forth in Section
3.11(e) of the Disclosure Letter, neither the Company nor any ERISA
Affiliate is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the
Company or any ERISA Affiliate nor does the Company nor any ERISA
Affiliate know of any activities or proceedings of any labor union
to organize any such employees. No strikes, work stoppage,
grievance, claim of unfair labor practice or labor dispute against
the Company or any ERISA Affiliate has occurred, is pending or, to
the knowledge of the Company or any ERISA Affiliate, threatened,
and, to the knowledge of the Company and its ERISA Affiliates,
there is no basis for any of the foregoing. To the knowledge of the
Company and its ERISA Affiliates, there is no organizational
activity being made or threatened by or on behalf of any labor
union with respect to any employees of the Company or any ERISA
Affiliate.
(e)
Except as set forth in Section 3.11(e) of
the Disclosure Letter, neither the Company nor any of its ERISA
Affiliates sponsors or has ever sponsored, maintained, contributed
to or incurred an obligation to contribute or incurred a liability
(contingent or otherwise) with respect to, any employee benefit
plan that is subject to Title IV of ERISA, any Multiemployer Plan
or to a Multiple Employer Plan. For these purposes, "Multiemployer
Plan" means a multiemployer plan, as defined in Section 3(37) and
4001(a)(3) of ERISA and "Multiple Employer Plan" means any Employee
Benefit Plan sponsored by more than one employer, within the
meaning of Sections 4063 or 4064 of ERISA or Section 413(c) of the
Code.
(f)
Except as set forth in Section 3.11(f) of
the Disclosure Letter, to the extent permitted by applicable law
and the applicable Employee Plan, each Employee Plan (other than
any stock option plan) can be amended or terminated at any time,
without consent from any other party and without liability other
than for benefits accrued as of the date of such amendment or
termination (other than charges incurred as a result of such
termination).
14
(g)
To the knowledge of the Company and its
ERISA Affiliates, no key employee, or group of employees, of the
Company or any ERISA Affiliate has expressed to the Company any
plan to terminate employment with the Company or any ERISA
Affiliate. The Company and its ERISA Affiliates have complied in
all material respects with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal
opportunity and collective bargaining.
(h)
The Company and its ERISA Affiliates have
complied in all material respects with the laws of any foreign
jurisdiction with respect to any employee benefit plan or
arrangements maintained in such jurisdiction in which the employees
of the Company or any ERISA Affiliate participate.
(i)
Except as provided in Section 3.11(i) of
the Disclosure Letter, the Company has no commitment, intention or
understanding to create, terminate or adopt any Employee Plan that
would result in any additional liability to the Company. Since the
beginning of the current fiscal year of any Employee Plan, no event
has occurred and no condition or circumstance has existed that
reasonably would be expected to result in a material increase in
the benefits under or the expense of maintaining such Employee Plan
from the level of benefits or expense incurred for the most
recently completed fiscal year of such Employee Plan other than the
cost of additional benefits accrued in accordance with the terms of
such Employee Plan.
15
Section 3.12
Environmental Laws and
Regulations.
(a)
Except as set forth in Section 3.12(a) of
the Disclosure Letter and except for matters which, individually or
in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company, (i) no written notice,
notification, demand, request for information, citation, summons,
complaint or order has been received by, and no action, claim,
suit, proceeding or review or, to the Company's knowledge,
investigation is pending or, to the knowledge of the Company or any
Subsidiary, threatened by any Person against, the Company or any
Subsidiary with respect to any matters relating to or arising out
of any Environmental Law (as defined below); (ii) the Company and
its Subsidiaries are in compliance with all Environmental Laws,
which compliance includes the possession by the Company and each
Subsidiary of all material permits required under applicable
Environmental Laws and compliance with the terms and conditions
thereof, and the Company and its Subsidiaries reasonably believe
that each of them will, without the incurrence of any material
expense, timely attain and maintain compliance with all
Environmental Laws applicable to any of their current operations or
properties or to any of their planned operations; (iii) to the
Company's knowledge, there has been no disposal, release or
threatened release of any Hazardous Substance (as defined below) by
the Company or any Subsidiary on, under, in, from or about any
property currently or formerly owned or operated by the Company or
any Subsidiary, or otherwise related to the operations of the
Company or any Subsidiary, that has resulted or could reasonably be
expected to result in any Environmental Claim against the Company
or any Subsidiary; (iv) neither the Company nor any Subsidiary has
entered into or agreed to or is subject to any consent decree,
order or settlement or other agreement in any judicial,
administrative, arbitral or other similar forum relating to its
compliance with or liability under any Environmental Law; and (v)
neither the Company nor any Subsidiary has assumed or retained by
contract or otherwise any liabilities of any kind, fixed or
contingent, under any applicable Environmental Law (including,
without limitation, any liability from the disposition of any of
its real property). There are no governmental agreements to which
the Company or any of its Subsidiaries is a party relating to human
health and the environment, including, without limitation,
Hazardous Substances.
(b)
For purposes of this Agreement, (i) the
term "Environmental Laws" means federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions and permits relating to human
health and the environment, including, without limitation,
Hazardous Substances; (ii) the term "Hazardous Substances" means
all substances, materials or wastes that are listed, classified or
regulated pursuant to any Environmental Law or which may be the
subject of regulatory action by any Governmental Entity pursuant to
any Environmental Law, including, without limitation, petroleum,
asbestos or polychlorinated biphenyls and, in the United States,
all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution
Contingency Plan, 40 C.F.R. section 300.5; and (iii) the term
"Environmental Claim" means any claim, violation or liability, by
any Person relating to liability (including liability for
enforcement, investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage, personal
injury, fines or penalties) arising out of, based on or resulting
from (A) the presence, discharge, emission, release or threatened
release of any Hazardous Substance at any location and any exposure
of Persons to such Hazardous Substance at any location, (B)
circumstances forming the basis of any violation or alleged
violation of any Environmental Laws or permits or (C) otherwise
relating to obligations or liabilities under any Environmental
Law.
16
Section 3.13
Taxes.
(a)
For purposes of this
Agreement:
(i)
"Tax" (including "Taxes") means (A) all
federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties and other taxes,
governmental assessments, fees, duties or charges of any kind or
nature whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B)
any liability for payment of amounts described in clause (A),
whether as a result of transferee or successor liability, joint and
several liability for being a member of an affiliated,
consolidated, combined or unitary group for any period, or
otherwise by operation of law and (C) any liability for the payment
of amounts described in clause (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to pay or indemnify any other person;
and
(ii)
“Tax Return" means any return,
declaration, report, statement, information statement and other
document filed or required to be filed with respect to Taxes,
including any claims for refunds of Taxes and any amendments or
supplements of any of the foregoing.
(b)
(i) Within the times and in
the manner prescribed by law, the Company and its Subsidiaries (and
their predecessors) have properly prepared and filed all Tax
Returns required by law. All Tax Returns filed by the Company and
its Subsidiaries are true, correct and complete and accurately
reflect the information pertaining to the tax attributes of the
Company and its Subsidiaries, including tax basis in assets and net
operating loss, capital loss and tax credit carryforwards. None of
the Tax Returns filed by the Company or any of its Subsidiaries was
required to contain (in order to avoid the imposition of a penalty
and determined without regard to disclosure that may be made after
the filing of the original Tax Return) a disclosure statement under
Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law). The Company
and its Subsidiaries (and their predecessors) have complied in all
material respects with all applicable laws relating to
Taxes.
(ii) (A) the Company and its
Subsidiaries have timely withheld and paid all Taxes that were
required to have been withheld or have become due or payable
(whether or not shown on any Tax Return), respectively, and have
adequately provided in accordance with GAAP in the Financial
Statements included in the Company SEC Reports for all Taxes
accrued through the date of such Company SEC Reports; and (B) all
Taxes of the Company and its Subsidiaries accrued following the end
of the most recent period covered by the Company SEC Reports have
been incurred in the ordinary course of business of the Company
consistent with past practices and have been paid when due in the
ordinary course of business consistent with past practices. Neither
the Company nor any of its Subsidiaries has been a party to a
"reportable transaction," as such term is defined in Treasury
Regulation § 1.6011-4(b)(1), or to a transaction that is
substantially similar to a "listed transaction," as such term is
defined in Treasury Regulation § 1.6011-4(b)(2), or any
transaction similarly designated under comparable laws of any
state, local or foreign jurisdiction.
17
(iii) Except as set forth in
Section 3.13(b)(iii) of the Disclosure Letter, neither the Company
nor any of its Subsidiaries (or any predecessor thereof) (A) has
filed a consent or agreement pursuant to former Section 341(f) of
the Code, (B) is a party to or bound by any closing agreement,
offer in compromise, gain recognition agreement or any other
agreement with any Tax authority or any Tax indemnity or Tax
sharing agreement with any person, (C) is a party to an agreement
that could give rise to an "excess parachute payment" within the
meaning of Section 280G of the Code or to remuneration the
deduction for which would be disallowed under Section 162(m) of the
Code, (D) has issued options or stock purchase rights (or similar
rights) that purported to be governed by Sections 421 or 423 of the
Code that were or are not so governed or (E) has ever been a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
(iv) There are and have been
no (A) proposed, threatened or actual assessments, audits,
examinations or disputes as to Taxes relating to the Company or any
Subsidiary (or their predecessors), (B) except as set forth in
Section 3.13(b)(iv) of the Disclosure Letter, adjustments under
Section 481 of the Code or any similar adjustments with respect to
the Company or any Subsidiary (or their predecessors), (C) waivers
or extensions of the statute of limitations with respect to Taxes
for which the Company or any Subsidiary could be held liable
following the date hereof or (D) grants of power of attorney to any
person in effect with respect to Taxes for which the Company or any
of its Subsidiaries would be liable. The Company does not know of
any basis for the assertion by a Tax authority of a Tax deficiency
against the Company or any Subsidiary (or their
predecessors).
(v) Except as set forth in
Section 3.13(b)(v) of the Disclosure Letter, neither the Company
nor any Subsidiary (nor any predecessor thereof) has been a
"distributing corporation" or a "controlled corporation" in
connection with a distribution governed or intended to be governed
by Section 355 of the Code.
(vi) There is currently no
limitation on the utilization of tax attributes of the Company or
any Subsidiary under Sections 269, 382, 383, 384 or 1502 of the
Code (and comparable provisions of state, local or foreign
law).
(vii) Neither the Company nor
any Subsidiary (nor any predecessor thereof) has been a member of
an affiliated group of corporations, within the meaning of Section
1504 of the Code, or a member of a combined, consolidated or
unitary group for state, local or foreign Tax purposes, other than
an affiliated group the common SUTIOC of which is the
Company.
(viii) Except as set forth in
Section 3.13(b)(viii) of the Disclosure Letter, none of the Company
or any of its Subsidiaries is a party to any joint venture,
partnership or other arrangement or contract that could be treated
as a partnership for federal income tax purposes. Section
3.13(b)(viii) of the Disclosure Letter sets forth all elections
pursuant to Treas. Reg. § 301.7701-3 that have been made by
business entities in which the Company or any Subsidiary owns an
equity interest. The Company was an "S corporation" as such term is
defined in Section 1361(a)(1) of the Code at all times from January
1, 2002 until September 27, 2004.
18
(ix) Section 3.13(b)(ix) of
the Disclosure Letter sets forth, on an entity-by-entity basis, all
jurisdictions outside the United States in which the Company or any
Subsidiary is subject to Tax. Neither the Company nor any
Subsidiary is, has been or has owned (whether directly or
indirectly) an interest in, a passive foreign investment company
within the meaning of Section 1297 of the Code. No Subsidiary that
is not a United States person (A) has engaged (or been treated as
engaged) in the conduct of a trade or business within the United
States or (B) has had an investment in "United States property"
within the meaning of Section 956(c) of the Code. Neither the
Company nor any Subsidiary is, or at any time has been, affected by
(1) the dual consolidated loss provisions of the Section 1503(d) of
the Code, (2) the overall foreign loss provisions of Section 904(f)
of the Code or (3) the recharacterization provisions of Section
952(c)(2) of the Code.
Section 3.14
Intellectual Property.
(a)
As used herein, the term "Intellectual
Property" means all intellectual property rights arising from or
associated with the following, whether protected, created or
arising under the laws of the United States or any other
jurisdiction: (i) trade names, trademarks and service marks
(registered and unregistered), domain names and other Internet
addresses or identifiers, trade dress and similar rights and
applications (including intent to use applications) to register any
of the foregoing and registrations therefor (collectively,
"Marks"); (ii) patents and patent applications, including
continuation, divisional, continuation-in-part, reexamination and
reissue patent applications and any patents issuing therefrom, and
rights in respect of utility models or industrial designs
(collectively, "Patents"); (iii) copyrights and registrations and
applications therefor (collectively, "Copyrights"); (iv) non-public
know-how, inventions, discoveries, improvements, concepts, ideas,
methods, processes, designs, plans, schematics, drawings, formulae,
technical data, specifications, research and development
information, technology and product roadmaps, data bases and other
proprietary or confidential information, including customer lists,
but excluding any Copyrights or Patents that may cover or protect
any of the foregoing (collectively, "Trade Secrets"); and (v) moral
rights, publicity rights and any other proprietary, intellectual or
industrial proper
