PLAN OF MERGER
AND STOCK PURCHASE AGREEMENT
BY
AND AMONG
MODAVOX, INC.
AND
NEW AUG, LLC.
AND
NEWCO
January 16 , 2009
PLAN OF
REORGANIZATION
AND
STOCK PURCHASE
AGREEMENT
This Plan of Reorganization and Stock Purchase
Agreement (“Agreement”) is entered into as of this
16 th
day of January, 2009 by and among
Modavox, Inc. (“ Buyer ”), a Delaware
corporation; New Aug, LLC (“ Seller ”), a
Delaware limited liability company; and Augme Mobile, Inc. (“
Newco ”), a Delaware corporation. This
Agreement in its entirety represents the Plan of Reorganization and
Stock Purchase Agreement between Buyer, Seller and
Newco. Buyer, Newco and Seller are sometimes referred to
herein individually as a “Party” or collectively as the
“Parties.”
RECITALS
A.
Seller operates a technology and software company that specializes
and in mobile marketing solutions and services (the “
Business ”).
B. Seller
will transfer all of the assets and operations of the Business and
substantially all of the assets of Seller to
Newco. Assets transferred will include intellectual
property, trademarks, and other intangibles, software, and all
other technology. Seller’s liabilities will not be
tranferred into Newco and must be cleared prior to the Closing
Date; provided, however, that existing contracts related to current
and ongoing delivery of services and management of the company will
be transferred and honored by Newco.
C. Buyer
will acquire a majority interest totaling 60% of the stock of Newco
from Seller at the Closing, all upon the terms and subject to the
conditions and provisions set forth in this
Agreement. Seller also grants to Buyer a contingent
option to acquire, after twelve (12) months, the remaining minority
interest in Newco.
D. Except
as specifically provided in this Agreement, neither Buyer nor Newco
will assume any Liabilities, actual or contingent, of either Seller
or the Business.
AGREEMENT
In consideration of the Recitals, promises,
representations, warranties and covenants contained in this
Agreement, the parties agree as follows.
“ Acquired Assets ”
shall mean the assets used in, or held for use in, the Business,
excluding Cash (except that cash deposits and pre-pays from
customers for work yet to be done post-Closing by Newco will be a
transferred Acquired Asset), including all of the
following:
Assets . Assets transferred will include
intellectual property, trademarks and other intangibles, software,
and all other technology including but not limited to the
following:
1. ALL
source codes, software, and technology that comprise
Seller
systems,
including but not limited to the creation of QR codes or datamatrix
barcodes, websites, and any designs, diagrams, illustrations,
enhancement or functionality plans, or anything deemed by Modavox
and Seller as Seller Technology;
2. Domain
Names: Augme.com and any other domain owned, operated, purchased,
hosted, or managed for the purpose of retailing the Seller system
either in use or practice; and
3. Any
trademark or patent related items belonging to Seller and any
technology being developed by Seller for future release.
Inventory. All of the inventories and supplies
of the Business as of the Closing Date (the “
Inventory ”).
Accounts
Receivable . All accounts receivable of as of
the Closing Date (the “ Accounts Receivable
”).
Contracts . All of the rights in, to and under
any and all contracts of the Business (the “ Assumed
Contracts ”). To the extent that any Contracts
are not assignable as provided in this Agreement without the
consent of another party, this Agreement shall not constitute an
assignment or an attempted assignment thereof if such assignment or
attempted assignment would constitute a breach
thereof. Seller agrees to obtain the consent, in form
and substance reasonably satisfactory to Buyer, of such other party
to the assignment of any such Assumed Contract to the Business, as
owned by Buyer, in all cases in which such consent is or may be
required for such assignment.
Intellectual
Property . All
rights in and to all Intellectual Property as defined
below.
Miscellaneous . Any and all approvals, permits,
licenses, orders, registrations, certificates, variances and
similar rights obtained from governments and governmental agencies
related to the Business. Any books and records relating
to the Business, the Acquired Assets or Assumed
Liabilities.
“ Basis ” means any
past or present fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction that forms or could form the basis
for any specified consequence.
“ Cash ” means cash and cash
equivalents.
“ Closing ” has the meaning
set forth in Section 2.6 below.
“ Closing Date ” has the
meaning set forth in Section 2.6 below.
“ Code ” means the Internal
Revenue Code of 1986, as amended.
“ Damages ” has the meaning
set forth in Section 8.1 below.
“ Employee(s) ” means the
individuals who were employed directly or indirectly by Seller or
Newco prior to the Closing.
“ Employee Benefit Plan ”
means any “employee benefit plan” (as such term is
defined in ERISA §3(3)) and any other employee benefit plan,
program or arrangement of any kind.
“ Encumbrance ” means any
mortgage, pledge, lien, encumbrance, charge or other security
interest, other than (a) mechanics’, materialmen’s, and
similar liens, (b) liens for Taxes not yet due and payable or for
Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements and (d)
other liens arising in the Ordinary Course of Business and not
incurred in connection with the borrowing of money.
“ Excluded Assets ” means any
asset of Seller listed as an Excluded Asset on Exhibit A
.
“ Intellectual Property ”
means any and all interests in and to (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice),
all improvements thereto, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations
thereof, (b) the Augme name and all trademarks, service marks,
trade dress, logos, trade names and corporate names, together with
all translations, adaptations, derivations and combinations
thereof, and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith,
(c) all copyrightable works, all copyrights and all applications,
registrations, and renewals in connection therewith, (d) all trade
secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions,
manufacturing, production and research processes and techniques,
technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and
marketing plans and proposals), (e) all computer software,
including software, and any and all proprietary rights thereto, (f)
all other proprietary rights, (g) all copies and tangible
embodiments of the foregoing (in whatever form or medium), (h) the
website having the web address of www.augme.com, (i) all
office and studio phone and fax numbers, (j) active and conceptual
work projects, new project ideas conceived or in process, ideas and
concepts relating to operations marketing and management, and (k)
goodwill associated with all of such intellectual
property.
" Knowledge "--an individual will be
deemed to have Knowledge of a particular fact or other matter
if:
(a) that
individual is actually aware of that fact or matter; or
(b) a
prudent individual could be expected to discover or otherwise
become aware of that fact or matter in the course of conducting a
reasonably comprehensive investigation regarding the accuracy of
any representation or warranty contained in this
Agreement.
A Person (other than an individual) will be
deemed to have Knowledge of a particular fact or other matter if
any individual who is serving, or who has at any time served, as a
member, manager, director, officer, partner, executor or trustee of
that Person (or in any similar capacity) has, or at any time had,
Knowledge of that fact or other matter (as set forth in (a) and (b)
above), and any such individual (and any individual party to this
Agreement) will be deemed to have conducted a reasonably
comprehensive investigation regarding the accuracy of the
representations and warranties made herein by that Person or
individual.
“ Liabilities
.” All obligations of Seller or Newco under the
contracts, leases, licenses, and other arrangements referred to in
the definition of Acquired Assets, including (i) obligations of
Seller or Newco to pay any Employee expenses such as salaries,
wages, benefits, withholding, social security or unemployment
taxes; (ii) any long or short-term debt of Seller or Newco
(including any obligations to pay for Trade Accounts Payable
incurred prior to the Closing Date); (iii) any Liability of Seller
or Newco, any other Person for Taxes, (iv) any obligation of Seller
or Newco to indemnify any one including by reason of the fact that
such Person was a director, manager, officer, shareholder, Employee
or agent of Seller or Newco; (v) any Liability of Seller or Newco
for costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby and (vi) any Liability or
obligation of Seller or Newco under this Agreement (or under any
side agreement between Seller on the one hand and Buyer on the
other hand entered into on or after the date of this
Agreement).
“ Liability ” means any
liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated and whether due or to
become due), including any liability for Taxes.
“Manager(s)” means the individuals
who were managing members of Seller or Newco prior to the
Closing.
“ Ordinary Course of Business
” means the ordinary course of business in the Business
consistent with past custom and practice of Seller.
“ Person ” means an
individual, corporation, partnership or limited liability company
or any other legal entity or organization.
“ Purchase Price ” has the
meaning set forth in Section 2.4 below.
“ SEC ” means the U.S.
Securities and Exchange Commission.
“ Tax ” means any federal,
state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code §59A),
customs duties, membership interests, franchise, profits,
withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated
or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
“ Tax Return ” means any
return, declaration, report, claim for refund or information return
or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
“ Trade Accounts Payable ”
means the accounts payable arising from the Seller’s regular
historical suppliers of services and materials to customers of the
Business.
2.1
Reorganization of Seller . Subject to the terms
and conditions of this Agreement, prior to the Closing Date Seller
will transfer to Newco, free and clear of all Encumbrances, all of
the Acquired Assets, but not the Excluded Assets, in exchange for
100% of the common stock of Newco.
2.2
Purchase and Sale of Stock . On the Closing Date,
and subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from Seller, free and clear of all Encumbrances,
60% of the issued and outstanding common stock of Newco, and Seller
agrees to sell, transfer, convey, assign and deliver to Buyer, all
of such common stock for the Purchase Price, described in Section
2.4.
2.3
No Assumption of Liabilities . Neither Buyer nor
Newco will assume or have any responsibility with respect to any
obligation or any of the Liabilities of either Seller or the
Business except for any Liability arising after the Closing under
contracts of the Business; provided, however, that
existing contracts related to current and ongoing delivery of
services and management of the company will be transferred and
honored by Newco.
2.4
Purchase Price . The total purchase price (the
“ Purchase Price ”) will be (i) $1,000,000 in
operating cash (”Majority Cash”) transferred by Buyer
to Newco; (ii) issuance to Seller of shares of Buyer’s common
stock (MDVX: Modavox “Commons Stock”) as defined in
Section 2.4(c) below (“Majority Equity”);
and (iii) grant to Newco of an exclusive, fully paid, perpetual and
irrevocable license to use, including the rights to sublicense,
Modavox Patent No. 6,594,691 and Patent No. 7,269,636 (the
“Modavox Patents”) with respect to the business of
providing mobile interactive services, including SMS, MMS, targeted
mobile ad delivery and 2D/QR barcode publishing and management
directly to Internet and Mobile Internet Destinations (the
“Modavox Licenses”).
a. The Majority
Cash will be transferred to the account of Newco on the Closing
Date, which shall be no later than March 31, 2009, to be used for
Newco operational requirements and the continued development of
Newco business strategies, sales infrastructure, product
development, and product deployment.
b. Upon the
Parties’ execution of this Agreement, which date shall not be
later than January 16, 2009 (the “Agreement Date”),
Seller/Newco will be granted an exclusive license to use, including
the right to sublicense the Modavox Patents with respect to the
business of providing mobile interactive services, including SMS,
MMS, targeted mobile ad delivery and 2D/QR barcode publishing and
management directly to Internet and Mobile Internet
destinations.
c. The share
price of Modavox common stock used to calculate the number of
shares required for the Majority Equity (“Acquisition Share
Price”) will be the lesser of (i) $1.50 per share, or (ii)
the closing price of Modavox stock on the Agreement Date, or (iii)
the average closing price of Modavox stock during the 30-day period
preceding Agreement Date. The number of Modavox shares included in
the Majority Equity will be $2,900,000 divided by the Acquisition
Share Price. (For example, if Acquisition Share Price remains $1.50
per share, the number of shares that comprise the Majority Equity
would be 1,933,333 shares.)
d. Modavox has
or will issue to Seller Modavox Common Stock shares, as evidenced
by two (2) Common Stock Certificates, as follows: (i) a 200,000
shares certificate (the “First Certificate”); and (ii)
a shares certificate for the number of shares necessary to reach
the Majority Equity when combined with the First Certificate (e.g.,
1,733,333 shares if the Acquisition Share Price remains $1.50 per
share) (the “Second Certificate”). The First
Certificate was issued to Seller following the Parties’
execution of a Letter of Intent to enter into the transaction
contemplated hereunder. Upon the Agreement Date, a
lawyers trust (or lawyers trusts) will be established (i) to hold
the Second Certificate until the Closing Date, at which time the
Second Certificate will be delivered to Seller; and (ii) to hold a
share certificate representing 60% of the common stock of Newco
until the Closing Date, at which time such share certificate will
be delivered to Modavox.
e. As
commitment to the success of Newco, Seller Management (i) will
contract to provide services for a period of at least twelve (12)
months after the Transaction Date; and (ii) will not sell any
interest in Newco for a period of one year after the Closing
Date.
f. Except with
respect to Modavox shares evidenced by the First Certificate, all
shares of Modavox common stock transferred under this Agreement
will have a restricted legend limiting resale, and the restrictions
will not be lifted for twelve (12) months after the Closing Date,
unless a change in control or acquisition of Modavox occurs in
which case the restriction is void.
g. If for any
reason Modavox is unable by March 31, 2009 (or, as extended by
written agreement of both Parties), to secure appropriate financing
(whether by investment, acquisition and/or settlement with
infringing entities in connection with pending patent and validity
litigation) or otherwise fails to provide to Newco the Majority
Cash as described in Section 2.4(a), or, in the event Modavox is
acquired on or before March 31 (or as mutually extended) as
described in Section 2.4(i), Modavox fails to pay the consideration
described in Section 2.4(i), then both parties agree that the
purchase described in Section 2.2 (or, if applicable, in Section
2.4(i)) will not occur (and shares of Modavox and Newco held in
trust as described in Section 2.4(d) above will be returned to
Modavox and Seller respectively); provided, however, that the
parties further agree that:
(i) Seller will
retain ownership of the Modavox Common Stock evidenced and conveyed
by the First Certificate; and
(ii) Seller
will retain its rights to the Modavox Licenses as
described in Section 2.4(b) provided that Seller pays to Modavox
the transaction-based /“click-through”-based license
fees (“Per Transaction License Fees”) described below
related to Seller’s (and Seller’s clients’) use
of the Modavox Patents. Such Per Transaction License
Fees will be equal to five percent (5%) of the
click-through/transaction fees collected by Seller from
Seller’s clients or end users related to use of the Modavox
Patents. For purposes of this paragraph, a Transaction
occurs any time a consumer accesses content or information through
Seller’s mobile interactive systems and services (or through
a Seller sub-licensee) which information is customized for the
consumer due to Seller’s use of the Modavox
Patents.
h. At any time
after the Closing Date, if (i) Modavox discontinues its current
business operations, declares bankruptcy or experiences a
liquidation event, then Seller will be granted an option to
re-acquire a portion of Majority Interest (“Buy Back
Option”). The Buy Back Option is defined as
follows:
1. Seller will
have a 30-day option to re-acquire from Modavox 44.62% of Newco in
exchange for Seller returning to Modavox the number of Modavox
shares issued to Seller as Majority Equity;
2. Modavox will
retain 15.38% ownership interest in Newco, which is consideration
for the Majority Cash as an equity investment in Newco at a
pre-money value of $5,500,000;
3. Continuation
of Newco’s exclusive license to Modavox patents will be
subject to terms defined by Modavox and accepted by Newco;
and
4. Modavox will
relinquish its seat on the Newco Board of Directors and lose rights
to the corresponding majority governance Control Provisions but
shall gain any and all rights and privileges available to the next
round of Newco equity investors, anticipated to be Series A
Preferred Rights.
i. If Modavox
is acquired on or before the Closing Date, the transactions
described herein (including both the Basic Transaction to purchase
60% of Seller as described in Section 2 and the Option to buy the
remaining 40% of Seller as described in Section 5) shall accelerate
and the Closing Date for purposes of this Agreement shall mean the
day before the date on which Modavox is so acquired. In
such event, (i) the purchase price to be paid on the Closing Date
will be the sum of the consideration described in Section 2.4
(excluding the Majority Cash) and the consideration described in
Section 5.2, and (ii) upon receipt of such consideration, Seller
will have sold 100% of Newco and will not have the management
rights described in Section 3 or the buy-back rights described in
Section 2.4(h).
2.5
Name Change . Seller will inform its current
clients and channel partners of the transaction and the name change
to Newco, and make available upon request, where applicable, all
contracts upon closing to Buyer. Buyer understands there
is limited revenue generated from these
clients. However, Seller will make every effort to renew
those contracts and assign them to Newco. Current
contracts and channel partner agreements are described in Exhibit
A, attached hereto.
2.6
Closing . The closing of the transactions
contemplated by this Agreement (the “ Closing ”)
shall take place on the business day following the satisfaction or
waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the parties may
mutually determine (the “ Closing Date ”)
provided, however, that the Closing Date shall be no later than
March 31, 2009.
3.
Newco Management and Governance .
3.1 Newco
management and governance will be structured such that Seller
Management will maintain authority to manage day-to-day operations
of the company, subject to certain “control provisions”
to govern corporate actions and activities with respect to major
decisions.
3.2. A
Board of Directors comprised of three members, two from Seller
Management and one from Modavox Management. Board decisions will be
made by majority vote.
3.3. Control
Provisions will be put in place such that major decisions will
require unanimous consent of the Board.
3.4. Seller
understands that the governance and management of Newco will be
impacted by the status as a subsidiary of a publicly held company.
Prior to the Closing Date, Buyer will communicate such requirements
to Seller.
3.5. Seller
Executive Committee Members, in their capacity as the management
team of Newco (a majority owned subsidiary of Buyer/Modavox), will
be eligible for Modavox Executive Stock Option Awards based on
performance, meeting or exceeding budgets and forecasts, and market
penetration. These awards are typically given following the Modavox
annual company report and the second quarter results.
4.
Majority Cash
4.1. Modavox
and Seller acknowledge that the Majority Cash provided to Newco by
Modavox will facilitate Newco business operations for a period of
approximately twelve (12) months, and that Newco may require
additional operating cash prior to achieving positive cash flow. If
additional capital is required, the parties agree that Newco will
first seek funding from Modavox. If Modavox elects not to invest
additional operating cash at terms agreeable to Seller management,
Newco has the right to raise capital from external sources, subject
to the following provisions:
a. Modavox
maintains a right of first refusal on any terms negotiated with
external investors through the next round of funding;
and
b. If Newco
fails to achieve pre-established first year milestones (to be
determined by both parties prior to the Closing Date), the next
round of external investment will not dilute Modavox’s
ownership interest in Newco.
5.
Option Conditions
5.1 If
certain conditions (the “Option Conditions”) are
satisfied as of twelve (12) months after the Closing Date , or, if
Modavox is acquired, at any time within twelve (12) months after
the Closing Date, Modavox (or its successor) will be granted an
option, which option shall last thirty (30) days (or, with respect
to a Modavox successor, for a period of thirty days after
Modavox’s acquisition) (the “Option Period”), to
buy the remaining 40% ownership interest in Newco (the
“Option”). If the Option Conditions are satisfied,
Modavox (or its successor) may exercise the Option during the
Option Period by issuing to Seller shares of Modavox common stock
(or the successor’s common stock) as defined in Section 5.2
below (the “Option Equity”).
5.2. The
share price of Modavox common stock used to calculate
the number of shares required for the Option Equity will be the
Acquisition Share Price (“Option Share Price”). The
number of Modavox shares required to exercise the Option
will be $2,600,000 divided by the Option Share Price. (For example,
if Acquisition Share Price remains $1.50 per share, the Option
Share Price would be $1.50, and the number of shares that comprise
the Minority Equity would be 1,733,334 shares.)
5.3. Modavox
will hold Option Equity shares in trust as of the Closing Date and
Modavox will release these shares to Seller management if Modavox
elects to exercise the Option.
5.4. The
Option is only valid if the average closing share price of Modavox
(or successor) common stock for the 30-days preceding the one-year
anniversary of the Transaction Date is at least 80% of the
Acquisition Share Price.
5.5. If
Modavox (or its successor) does not exercise the Option during the
Option Period, then the Option will expire.
5.6. Upon
expiration of the Option, Seller will be granted the Buy Back
Option described in Section 2(g).
5.7. Upon
exercising the Option, Modavox (or its successor) will have
transferred common stock with a total value of at least $5,500,000
(the “Acquisition Price”) in exchange for all Acquired
Assets, and at such time will have acquired 100% ownership of
Newco.
6.
Representations and Warranties of Seller . Seller
will warrant and guarantee that the systems in place (i) conform to
specifications provided by Seller and (ii) are suitable for their
intended purpose. Seller represents and warrants to
Buyer that the statements contained in this Section 6 are
correct and complete with respect to Seller and the Business as of
the date of this Agreement and will be correct and complete with
respect to Newco and the Business as of the Closing
Date. The representations and warranties will apply to
Newco as though made through the Closing Date, with the Closing
Date substituted for the date of this Agreement throughout this
Section 6, and the name Newco substituted for Seller
throughout this Section 6 except in instances which clearly are
intended to apply only to Seller. Seller shall make and
be responsible for all representations and warranties relating to
Newco.
6.1
Organization of Seller and Newco . Seller is a
limited liability company duly organized, validly existing and in
good standing under the laws ofDelaware. Newco will be
established as a corporation duly organized, validly existing and
in good standing under the laws of Delaware.
6.2
Authorization of Transaction . Seller has full
corporate power and authority and has obtained all corporate
approvals and consents to execute and deliver this Agreement and to
perform its obligations hereunder. Newco has full
corporate power and authority and has obtained all corporate
approvals and consents to execute and deliver this Agreement and to
operate the Business after the Closing. This Agreement
constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms and conditions, subject to
applicable bankruptcy, insolvency, reorganization and other similar
laws affecting the enforceability of creditors’ rights
generally, general equitable principles and the discretion of
courts in granting equitable remedies.
6.3
Noncontravention . Neither the execution and
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will (i) require any consent from
or violate any regulation, ruling or other restriction of any
government or agency to which Seller is subject; (ii) conflict with
any provision of the articles of incorporation or bylaws of Newco
or the Articles of Incorporation or Bylaws of Seller; or (iii)
conflict with, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease or other
arrangement to which Seller is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition
of any Encumbrance upon any of its assets).
6.4
No Broker . No broker or finder has acted for
Seller in any manner in connection with this Agreement and the
consummation of the transactions contemplated hereby.
6.5
Title to Assets . Seller has, and Newco will have
as of the Closing, good and marketable title to, or a valid
leasehold interest in all of the Acquired Assets, free and clear of
any Encumbrances or restriction on transfer.
6.6
Non-Soliciation . Seller and all related parties
shall be bound by a no shop and no solicitation clause, which
requires Seller to negotiate exclusively with Modavox, and not
solicit an acquisition or merger proposal from any other entity
without written consent from Modavox for an “exclusivity
period” lasting until March 31, 2009. Nothing in
this paragraph in any way restricts Seller’s right, at any
time, to seek equity investments for the purpose of operating
Seller’s business and operations.
6.7
Material Changes . Since the January 1, 2009,
there have not been any material adverse changes in the Business,
financial condition, operations, results of operations or future
prospects of Seller and none are reasonably expected.
6.8
Undisclosed Liabilities . Seller has no Liability
(and to Seller’s Knowledge there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against it giving rise to any
Liability), except for Liabilities which have arisen in the
Ordinary Course of Business (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of
law).
a. To Seller’s Knowledge,
Seller has complied with all applicable laws and no action, suit,
or other proceeding, including an investigation, has been filed or
commenced against it alleging any failure so to comply.
b. Seller has not been and is not
currently involved in any litigation. Seller is not
subject to any outstanding injunction, judgment, order, decree,
ruling or charge, and is not a party to nor has it been threatened
to be made a party to any action, suit proceeding, hearing or
investigation of, in, or before any court or administrative agency
of any federal, state, local or foreign jurisdiction, or before any
arbitrator.
a. Seller
has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in
all respects. All Taxes owed by the Seller (whether or
not shown on any Tax Return) have been paid. The Seller
is not currently the beneficiary of any extension of time within
which to file any Tax Return. There are no Encumbrances
on any of the assets of Seller that arose in connection with any
failure (or alleged failure) to pay any Tax.
b. Seller
has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
c. Seller
(i) has not been a member of an affiliated group filing a
consolidated federal income Tax Return and (ii) to Seller’s
Knowledge does not have any Liability for the Taxes of any Person,
whether as a transferee or successor, by contract, or
otherwise.
d. Seller
has consulted with its legal, tax, accounting, and financial
advisors with regard to the legal, tax, accounting and financial
consequences and effects of the transactions contemplated by this
Agreement and acknowledges that Buyer has not made any
representations, warranties or assurances with respect to any of
such matters.
6.11
Real Property . Seller owns no real property and
no obligations relating to owned or leased real property will be
assumed by Newco or Buyer.
6.12
Intellectual Property .
a. Each
item of Intellectual Property owned or utilized in the Business by
Seller immediately prior to the Closing will be owned or available
for use by Newco on identical terms and conditions immediately
subsequent to the Closing. Seller has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
b. To
Seller’s Knowledge, Seller has not interfered with, infringed
upon, misappropriated or otherwise come into conflict with any
intellectual property rights of third parties. Seller
has never received any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or
violation (including any claim that Seller must license or refrain
from using any intellectual property rights of any third party) by
Seller.
c. Seller
possesses all right, title, and interest in and to its Intellectual
Property, free and clear of any Encumbrance. Except in
the ordinary course of operating its business, Seller has not
sublicensed any Intellectual Property to any third
party.
6.13
Tangible Assets . Seller owns or leases all
equipment and other tangible assets necessary for the conduct of
the Business as presently conducted and as presently proposed to be
conducted. Each such tangible asset is transferred
“as is,” except that manufacturer’s or
vendor’s warranties will be transferred to Newco to the
extent they are assignable.
6.14
Contracts . Attached as Schedule 6.14 is a list
of the following contracts and other agreements to which Seller is
a party:
a. any
agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease
payments in excess of $1,000 per annum;
b. any
agreement (or group of related agreements) for the purchase or sale
of commodities, supplies, products or other personal property, or
for the furnishing or receipt of services, in excess of
$1,000;
c. any
purchase order for products or services in excess of $1,000 that
has not been completed or filled;
d. any
agreement concerning a partnership or joint venture;
e. any
agreement (or group of related agreements) under which Seller has
created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of
$1,000 or under which has been imposed an Encumbrance on any of its
assets, tangible or intangible;
f. any
agreement concerning confidentiality or noncompetition;
g. any
agreement involving any of the members of Seller as a party and
Seller as the other party;
h. any
profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance or other plan or arrangement for
the benefit of its current or former members, managers, directors,
officers or Employees;
i. any
agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation
in excess of $1,000 or providing severance benefits;
j. any
agreement under which the consequences of a default or termination
could have a material adverse effect on the Business, financial
condition, operations, results of operations or future prospects of
the Business;
k. any
other agreement (or group of related agreements) the performance of
which involves total annual consideration in excess of
$1,000.
Seller has
delivered to Buyer a correct and complete copy of each written
agreement listed in Schedule 6.14 and a written summary setting
forth the terms and conditions of each oral
agreement. With respect to each such agreement: (i) the
agreement is legal, valid, binding, enforceable and in full force
and effect; (ii) the agreement will continue to be legal, valid,
binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated
by this Agreement; (iii) no party is in breach or default, and no
event has occurred which, with notice or lapse of time or both,
would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement; and (iv) no
party has repudiated any provision of the agreement.
6.15
Notes and Accounts Receivable . All notes and
accounts receivable of Seller are reflected properly on their books
and records and are valid receivables.
6.16
Insurance . Newco will be established to maintain property,
casualty, liability and workers’ compensation coverage, in
commercially reasonable amounts.
6.17
Warranty . The services and products sold, leased
or delivered by Seller have been in conformity with all applicable
contractual commitments and all express and implied warranties, and
Seller has no Liability (and, to Seller’s Knowledge, there is
no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against
Seller giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to
the reserve for warranty claims. No product or service
sold, leased or delivered by Seller is subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms
and conditions of sale. Attached with Schedule 6.17 is a
copy of the standard terms and conditions of sale for
Seller’s products and services, if such standard terms and
conditions exist, (containing applicable, if any, guaranty,
warranty and indemnity provisions).
6.18
Product Liability . Seller has no Liability (and
to Seller’s Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Seller giving rise to any
Liability) arising out of any injury to individuals or property as
a result of the ownership, possession or use of any product or
service manufactured, sold, leased or delivered by
Seller.
6.19
Employees & Managers .
a. Seller
is not a party to nor is it bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims
of unfair labor practices or other collective bargaining
disputes. Seller has not committed any unfair labor
practice. There is no organizational effort presently
being made or threatened by or on behalf of any labor union with
respect to Employees of Seller.
b. Schedule
6.19 lists for each Employee or Manager his or her name, title,
current compensation, vacation/sick time accrued, severance
agreements and participation in employee benefits. At
the Closing, the Seller will pay directly to all current Employees
all compensation owed or accrued as of the Closing Date, including
wages, accruing but unpaid bonuses, vacation time, sick time or
other paid time off along with any fees and/or penalties, which may
exist in conjunction with the termination of such Employees as of
the Closing Date.
6.20.
Employee Benefits . Schedule 6.20 lists each
Employee Benefit Plan that Seller maintains, to which Seller
contributes or has any obligation to contribute, or with respect to
which Seller has any material Liability or potential
Liability.
6.21.
Investment . Seller understands that the Common
Stock of Buyer issued pursuant to the terms of this Agreement has
not been registered under the Securities Act, or under any state
securities laws, and is being offered and sold in reliance upon
federal and state exemptions for transactions not involving any
public offering. Seller and any Person to whom stock is
distributed (i) is acquiring Buyer Common Stock solely for his or
its own account for investment purposes, and not with a view to the
distribution thereof (except to Seller’s shareholders),
(ii) is a sophisticated investor with knowledge and experience
in business and financial matters, (iii) by reason of his or its
business or financial experience or the business or financial
experience of his or its professional advisors who are unaffiliated
with and who are not compensated by Buyer or any affiliate or
selling agent of Buyer, directly or indirectly, could be reasonably
assumed to have the capacity to protect his or its own interests in
connection with the transaction. (iv) has received certain
information concerning Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits
and the risks inherent in holding Buyer Common Stock, (v) is
able to bear the economic risk and lack of liquidity inherent in
holding Buyer Common Stock, and (vi) is an Accredited Investor
as defined in Regulation D promulgated by the SEC.
6.22.
Disclosure . To Seller’s Knowledge, the
representations and warranties contained in this Section 6 do
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
and information contained in this Section 3 not
misleading.
7.
Representations and Warranties of Buyer . Buyer
represents and warrants to Seller that the statements contained in
this Section 7 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 4).
7.1
Organization of Buyer . Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of Delaware.
7.2
Authorization of Transaction . Buyer has full
corporate power and authority and, except as stated herein, has
obtained all corporate approvals and consents to execute and
deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and
legally binding obligation of Buyer, enforceable in accordance with
its terms and conditions, subject to applicable bankruptcy,
insolvency, reorganization and other similar laws affecting the
enforceability of creditors’ rights generally, general
equitable principles and the discretion of courts in granting
equitable remedies.
7.3
Non-contravention . Neither the execution and
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby will require any consent from or
violate any regulation, ruling or other restriction of any
government or agency to which Buyer is subject or any provision of
the certificate of incorporation of Buyer.
7.4
No Broker . No broker or finder has acted for
Buyer in any manner in connection with this Agreement and the
consummation of the transactions contemplated hereby.
