Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered
into as of February 4, 2004, is by and among Dwango North America Corp., a
Nevada corporation ("Buyer"), OTA Acquisition Corp., a Washington corporation
and a wholly-owned subsidiary of Buyer ("Merger Sub"), Over-The-Air Wireless,
Inc., a Washington corporation ("Seller"), Rick Hennessey ("Hennessey"), David
C. Adams ("Adams"), Mark Sanders ("Sanders") and Alexander U. Conrad ("Conrad"),
the sole stockholders of Seller. Hennessey, Adams, Sanders and Conrad are
hereinafter collectively referred to as the "Seller Stockholders" and
individually as a "Seller Stockholder".
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the Washington Business Corporation Act ("Washington Law"),
Buyer and Seller will enter into a business combination transaction pursuant to
which Seller will merge with and into Merger Sub (the "Merger").
B. The Board of Directors of Buyer (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Buyer and fair to, and in the best interests of, Buyer and its stockholders and
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement.
C. The Board of Directors of Merger Sub (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Merger Sub and fair to, and in the best interests of, Merger Sub and its sole
stockholder, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, and (iii) has recommended the
approval of this Agreement by the sole stockholder of Merger Sub.
D. The Board of Directors of Seller (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Seller and fair to, and in the best interests of, Seller and the Seller
Stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has recommended the
approval of this Agreement by the Seller Stockholders.
E. The Seller Stockholders, as the sole stockholders of Seller, and
Buyer, as the sole stockholder of Merger Sub, have approved this Agreement, the
Merger and the transactions contemplated hereby.
F. Buyer and Merger Sub, on the one hand, and Seller and the Seller
Stockholders, on the other hand, desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, premises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Washington Law, Seller shall be merged with and into
Merger Sub, the separate corporate existence of Seller shall cease and Merger
Sub shall continue as the surviving corporation. Merger Sub as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
Articles of Merger (the "Articles of Merger") with the Secretary of State of the
State of Washington in accordance with the relevant provisions of Washington Law
(the time of such filing, or such later time as may be agreed in writing by the
parties and specified in the Articles of Merger, being the "Effective Time") as
soon as practicable on or after the Closing Date (as herein defined). Unless the
context otherwise requires, the term "Agreement" as used herein refers
collectively to this Agreement and the Articles of Merger. The closing of the
Merger (the "Closing") shall take place at the offices of Moomjian & Waite, LLP,
500 North Broadway - Suite 142, Jericho, New York 11753 as of the date of this
Agreement (the "Closing Date").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Washington Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Seller and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Seller and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law.
(b) At the Effective Time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law and such
Bylaws.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
to serve in such capacity until their respective successors are duly elected and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to serve in such capacity at
the pleasure of the Board of Directors of the Surviving Corporation and until
their successors are duly appointed and qualified.
2
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Seller or the holders
of any of the following securities:
(a) CONVERSION OF SELLER COMMON STOCK. Each share of common
stock, without par value, of Seller (the "Seller Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Seller Common Stock to be canceled pursuant to Section 1.6(b)) will be canceled
and extinguished and automatically converted (subject to Section 1.6(d)) into
the right to receive .68119891 of a share of common stock, par value $.001 per
share, of Buyer ("Buyer Common Stock") upon surrender of the certificate
representing such shares of Seller Common Stock as provided in Section 1.7 (i.e.
Seller Stockholders to receive an aggregate of 681,200 shares of Buyer Common
Stock).
(b) CANCELLATION OF SELLER COMMON STOCK. Each share of Seller
Common Stock held in the treasury of Seller immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of common stock,
par value $.001 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock, par value
$.001 per share, of the Surviving Corporation. Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(d) FRACTIONAL SHARES. No fraction of a share of Buyer Common
Stock will be issued by virtue of the Merger, but, in lieu thereof, each holder
of shares of Seller Common Stock who would otherwise be entitled to a fraction
of a share of Buyer Common Stock (after aggregating all fractional shares of
Buyer Common Stock to be received by such holder) shall receive from Buyer a
number of shares of Buyer Common Stock rounded up or down to the nearest whole
share.
1.7 EXCHANGE OF CERTIFICATES. At the Closing, (i) each holder of record
(as of the Effective Time) of Seller Common Stock shall surrender to Buyer a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Seller Common Stock which
shares were converted into the right to receive the consideration specified in
Section 1.6, (ii) Buyer shall deliver to each such holder of record a
certificate representing the number of whole shares of Buyer Common Stock to
which such holder is entitled pursuant to Section 1.6(a) (or as soon thereafter
as reasonably possible), and (iii) each Certificate surrendered pursuant to
clause (i) hereof shall be canceled. Exhibit A hereto sets forth the number of
shares of Seller Common Stock held by each Seller Stockholder and the number of
shares of Buyer Common Stock to be received by such person in accordance with
this Agreement.
1.8 NO FURTHER OWNERSHIP RIGHTS IN SELLER COMMON STOCK . All shares of
Buyer Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Seller Common Stock, and
there shall be no further registration of transfers on the
3
records of the Surviving Corporation of shares of Seller Common Stock which were
outstanding immediately prior to the Effective Time.
1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a tax-free reorganization within the
meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Seller and Merger Sub, the officers and directors of Seller
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and each Seller Stockholder hereby jointly and severally
represent and warrant to Buyer and Merger Sub, subject to the exceptions
specifically disclosed in writing in the disclosure schedules attached hereto
supplied by Seller and the Seller Stockholders to Buyer and Merger Sub, as
follows. When used in connection with Seller, the term "Material Adverse Effect"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition, results of operations or prospects of Seller.
2.1 ORGANIZATION OF SELLER. Seller is a corporation duly organized and
validly existing under the laws of the State of Washington. Seller has no
subsidiaries and Seller does not own any equity interest in any entity or any
right (contingent or otherwise) to acquire any equity interest in any business
or entity. Seller has delivered a true and correct copy of the Articles of
Incorporation and Bylaws of Seller, as amended to date, to counsel for Buyer.
2.2 SELLER CAPITAL STRUCTURE. The authorized capital stock of Seller
consists of 100,000,000 shares of Seller Common Stock, of which there are
1,000,000 shares issued and outstanding as of the date of this Agreement. All
outstanding shares of Seller Common Stock are duly authorized, validly issued,
fully paid and non-assessable, are held by the Seller Stockholders free and
clear of any Encumbrances (as hereinafter defined), and are not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Seller or any agreement or document to which Seller is a party or by which it is
bound.
2.3 OBLIGATIONS WITH RESPECT TO SELLER COMMON STOCK. Except as set
forth in Section 2.2, there are no equity securities of any class of Seller, or
any securities exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. There are no options,
warrants, equity securities, calls, rights (including preemptive rights),
commitments or agreements of any character to which Seller is a party or by
which it is bound obligating Seller to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition, of any shares of capital stock of
Seller or obligating Seller to grant, extend, accelerate the vesting of
4
or enter into any such option, warrant, equity security, call, right, commitment
or agreement. There are no registration rights, voting trusts, proxies or other
agreements or understandings with respect to any equity security of any class of
Seller.
2.4 AUTHORITY.
(a) Seller has all requisite corporate power and authority and the
Seller Stockholders have all requisite legal capacity to enter into 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 authorized by all necessary corporate action
on the part of Seller. This Agreement has been duly executed and delivered by
Seller and the Seller Stockholders and, assuming the due authorization,
execution and delivery by Buyer and Merger Sub, constitutes the valid and
binding obligation of Seller and the Seller Stockholders, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity. The execution
and delivery of this Agreement by Seller and the Seller Stockholders does not,
and the performance of this Agreement by Seller and the Seller Stockholders will
not, (i) conflict with or violate the Articles of Incorporation or Bylaws of
Seller, (ii) subject to compliance with the requirements set forth in Section
2.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Seller or by which any of its properties is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or impair Seller's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Seller pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Seller is a party or by
which Seller or any of its properties are bound or affected. Schedule 2.4(a)
lists all consents, waivers and approvals under any of Seller's agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, all of which have been
obtained as of the date hereof.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Seller or the Seller Stockholders in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Articles of
Merger with the Secretary of State of the State of Washington pursuant to
Washington Law, and (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws.
2.5 SELLER FINANCIAL STATEMENTS. Attached hereto as Schedule 2.5 is the
unaudited balance sheet and profit and loss statement of Seller (i) as at and
for the year ended December 31, 2002 (the "Seller Financials"). The Seller
Financials fairly present the financial position of Seller as at the date
thereof and the results of its operations for the period indicated. The
unaudited balance sheet of Seller as of December 31, 2002 is hereinafter
referred to as the "Seller Balance Sheet." Except as disclosed in the Seller
Balance Sheet, Seller does not have any liabilities (absolute, accrued,
contingent or otherwise) which are, individually or in the aggregate, material
to the business, results of operations or financial condition of Seller, except
liabilities
5
incurred since the date of the Seller Balance Sheet in the ordinary course of
business consistent with past practices. As of the date hereof, the liabilities
of Seller do not exceed $20,000 in the aggregate.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Schedule 2.6, since December 31, 2002, Seller
has not:
(i) incurred any obligation or liability (whether absolute,
accrued, contingent or otherwise), except in the ordinary
course of business and consistent with past practice;
(ii) suffered any damage, destruction or loss, whether or not
covered by insurance, affecting its properties, assets or
business;
(iii) mortgaged, pledged or subjected to any lien, charge or other
Encumbrance any of its assets, tangible or intangible, except
in the ordinary course of business and consistent with past
practice;
(iv) leased, licensed or granted to any person or entity any rights
in any of its assets or properties other than to Buyer outside
the ordinary course of business and inconsistent with past
practice; or
(v) entered into any agreement to do any of the foregoing.
2.7 TAXES.
(a) Except as set forth in Schedule 2.7, all returns and reports
relating to Taxes (as hereinafter defined) which are required to be filed with
respect to Seller on or before the date hereof have been duly and timely filed
and all such returns and reports are complete and correct in all material
respects. All Taxes, assessments, fees and other governmental charges imposed on
or with respect to Seller which have become due and payable on or before the
Closing Date have been paid in a timely manner by Seller with the exception of
those Taxes for which Seller has established adequate reserves. There are no
actions or proceedings currently pending or threatened against Seller by any
Governmental Entity for the assessment or collection of Taxes, no claim for the
assessment or collection of Taxes has been asserted or threatened against
Seller, and there are no matters under discussion by Seller with any
Governmental Entity regarding claims for the assessment or collection of Taxes
against Seller. There are no agreements, waivers or applications by Seller for
an extension of time for the assessment or payment of any Taxes. There are no
Tax liens on any of the assets of Seller. No claim has ever been made by an
authority in a jurisdiction where Seller does not file Tax returns or reports
that it is or may be subject to taxation by that jurisdiction. Seller is not a
party to any Tax allocation or sharing agreement. Seller is not and has never
been a member of an affiliated group of corporations filing a consolidated U.S.
income Tax return and is not liable, as a transferee or successor (by contract
or otherwise), for the Taxes of any corporation that previously was a member of
such an affiliated group.
(b) For purposes of this Agreement, the terms "Tax" and "Taxes" shall
mean and include any and all foreign, national, federal, state, local or other
income, franchise, sales, gross
6
receipts, use, value added, goods and services, withholding, employment,
payroll, social security, unemployment, real and personal property, stamp duty,
customs duty and intangibles tax and all other taxes of any nature,
deficiencies, fees, assessments, interest, penalties or any other governmental
charges, duties, impositions and liabilities of whatever nature, including,
without limitation, any installment payment for taxes and contributions or other
amounts determined with respect to compensation paid to directors, officers,
employees or independent contractors, from time to time imposed by or required
to be paid to any Governmental Entity (including penalties and additions to
taxes thereon, penalties for failure to file a return or report and interest on
any of the foregoing).
(c) Seller has not, with regard to any assets or property held,
acquired or to be acquired by Seller, filed a consent to the application of
Section 341(f) of the Code.
(d) Seller does not conduct any operations or sales which have been or
are required to be reported to the Internal Revenue Service (the "IRS") under
the provisions of Section 999 of the Code.
2.8 INTELLECTUAL PROPERTY.
(a) Seller owns, or has the right to use, sell or license all patents,
trademarks, trade names, service marks, copyrights and other intellectual
property necessary or required for the conduct of its business as conducted and
proposed to be conducted at the time Hennessey commenced employment with Buyer,
which was May 1, 2003 (such intellectual property and the rights thereto are
collectively referred to herein as the "Seller IP Rights"). Schedule 2.8(a) sets
forth (i) a complete and correct list of all the Seller IP Rights, except any
license generally available to the public and acquired by Seller at a cost of
less than $5,000, and indicates which of the scheduled Seller IP Rights are
owned by Seller, and (ii) indicates with respect to each patent, trademark,
trade name, service mark and copyright any application for registration or other
filing by Seller with any Governmental Entity.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Seller IP Rights (the
"Seller IP Rights Agreements"), will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Seller IP Rights or
impair the right of Seller, the Surviving Corporation or Buyer to use, sell or
license any Seller IP Rights or portion thereof.
(c) Neither the manufacture, marketing, license, sale or intended use
of any product or technology licensed or sold or under development by Seller at
the time Hennessey commenced employment with Buyer violates any license or
agreement between Seller and any third party or infringes any intellectual
property right of any other party. There is no pending or threatened claim,
arbitration or litigation contesting the validity, ownership or right to use,
sell, license or dispose of any Seller IP Rights, nor has Seller received any
notice asserting that any Seller IP Rights or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party.
(d) Except for interactions with Buyer and its representatives, Seller
has taken reasonable and practicable steps designed to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, all Seller IP
Rights.
7
2.9 COMPLIANCE; RESTRICTIONS. Seller is not in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Seller or by which any of its properties is bound or
affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Seller is a party or by which Seller or any of its properties is bound or
affected, except where such conflict, default or violation would not have a
Material Adverse Effect. No investigation or review by any Governmental Entity
is pending or, to Seller or any Seller Stockholder's knowledge, threatened
against Seller, nor has any Governmental Entity indicated an intention to
conduct the same.
2.10 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation (a "Proceeding") pending or, to Seller or any
Seller Stockholder's knowledge, threatened that relates to or that may adversely
affect the business of, or assets owned or used by, Seller. There is no
Proceeding pending or, to Seller or any Seller Stockholder's knowledge,
threatened that in any manner challenges or seeks to prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement. To Seller or any
Seller Stockholder's knowledge, no event has occurred or circumstance exists
that could give rise to or serve as the basis for the commencement of any such
Proceeding.
2.11 BROKERS' AND FINDERS' FEES. Neither Seller nor any Seller
Stockholder has incurred, nor will it or they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
2.12. EMPLOYEES; EMPLOYEE BENEFITS.
(a) Schedule 2.12(a) sets forth the names of all employees of Seller as
of the date of this Agreement (the "Employees") and, with respect to each
Employee, such Employee's job title and the date of commencement of employment
of such Employee. Seller has no further obligations to any Employee or former
employee for salaries, vacations, benefits or other compensation, including, but
not limited to, severance, bonuses, incentive and deferred compensation, and all
commissions and other fees payable to salespeople, sales representatives and
other agents. Seller does not currently offer, and has never offered, retiree
health and insurance benefits to Employees or former employees, and Seller has
no liabilities (contingent or otherwise) with respect thereto. There are no
outstanding loans from Seller to any of its officers, directors, employees or
other affiliates. Complete and correct copies of all written agreements with or
concerning Employees, including, without limitation, and all employment
policies, and all amendments and supplements thereto, have been delivered to
Buyer, and a list of all such agreements and policies is set forth in Schedule
2.12(a).
(b) Seller has complied at all times and in all respects with all laws,
statutes, rules and regulations applicable with respect to employees in each of
the jurisdictions in which it operates and/or does business.
(c) Schedule 2.12(c) sets forth a list of each defined benefit and
defined contribution plan, stock ownership plan, executive compensation program
or arrangement, bonus plan, incentive compensation plan or arrangement, deferred
compensation agreement or arrangement, supplemental retirement plan or
arrangement, vacation pay, sickness, disability or death benefit
8
plan (whether provided through insurance, on a funded or unfunded basis or
otherwise), medical or life insurance plan, providing benefits to any Employee,
retiree or former employee or any of their dependents, survivors or
beneficiaries, employee stock option or stock purchase plan, severance pay,
termination or salary continuation plan, and each other employee benefit plan,
program or arrangement, including, without limitation, each "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which is maintained by Seller for
the benefit of or relating to any of the Employees or to any former employees of
Seller or their dependents, survivors or beneficiaries, whether or not legally
binding, and for which Seller could reasonably have any liabilities, all of
which are hereinafter referred to as the "Benefit Plans." None of Buyer,
Surviving Corporation or Seller will incur any liability under any severance
agreement, deferred compensation agreement, employment agreement, similar
agreement or Benefit Plan of Seller as a result of the consummation of the
transactions contemplated by this Agreement.
2.13 ENVIRONMENTAL MATTERS. Seller is, and at all times has been, in
full compliance with, and has not been and is not liable under, any
Environmental Law. For purposes hereof, "Environmental Law" shall mean any
federal, state, local, municipal, foreign, international, multinational, or
other administrative order, constitution, law, ordinance, principle of common
law, regulation, statute, or treaty that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencement of
activities, such as resource extraction or construction, that could have
significant impact on the soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource (the "Environment");
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
9
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in
Schedule 2.14, Seller is not a party to or bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(e) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than normal indemnification agreements
between Seller and any of its officers or directors;
(f) any agreement, contract or commitment containing any covenant
limiting the freedom of Seller to engage in any line of business or compete with
any person;
(g) any confidentiality or non-disclosure agreement;
(h) any agreement, contract or commitment relating to future capital
expenditures;
(i) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(j) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit;
(k) any joint marketing or development agreement;
(l) any distribution agreement (identifying any that contain
exclusivity provisions);
(m) any royalty agreement; or
(n) any other agreement, contract, lease or commitment which involves
payment or receipt by Seller under any such agreement, contract, lease or
commitment of $5,000 or more in the aggregate.
Schedule 2.14 contains a complete and correct list of all Seller Contracts,
whether oral or written. Each Seller Contract is in full force and effect and is
valid and enforceable in accordance with its terms. Neither Seller nor, to the
best knowledge of Seller and each Seller Stockholder, any other party to a
Seller Contract (as defined below), has breached, violated or defaulted under,
or
10
received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Seller is a party or by which it is bound of the type described in clauses (a)
through (n) above (any such agreement, contract or commitment, a "Seller
Contract") in such a manner as would permit any other party to cancel or
terminate any such Seller Contract, or would permit any other party to seek
damages.
2.15 CHANGE OF CONTROL PAYMENTS. There are no plans or agreements
pursuant to which any amounts may become payable (whether currently or in the
future) to current or former officers, directors or employees of Seller as a
result of or in connection with the Merger except as set forth in this
Agreement.
2.16. TITLE TO PROPERTIES AND RELATED MATTERS. Except as set forth in
Schedule 2.16, Seller has good and marketable title to all its property and
assets which it owns, including, without limitation, the properties and assets
reflected in the Seller Financials or acquired after the date thereof (other
than properties and assets sold or otherwise disposed of since the date thereof
in the ordinary course of business and consistent with past practice), free and
clear of any mortgages, pledges, security interests, liens, claims, charges,
equities, conditional sales contracts, restrictions, reservations, options,
first refusal rights or encumbrances of any nature whatsoever (collectively,
"Encumbrances").
2.17 BOARD AND SHAREHOLDER APPROVAL. The Board of Directors and
shareholders of Seller have, as of the date of this Agreement, approved the
execution and delivery of this Agreement and consummation of the transactions
contemplated hereby.
2.18 BOOKS AND RECORDS. The books of account, minute books, stock
record books and other records of Seller, all of which have been made available
to counsel for Buyer, are complete and correct in all material respects. The
minute books made available to Seller are the only minute books of Seller and
contain a reasonably accurate summary of all meetings of directors (or
committees thereof) and stockholders or actions by written consent since the
time of incorporation of Seller.
2.19 COMPLIANCE WITH APPLICABLE LAW. Seller is not in violation of any
applicable foreign or domestic laws, rules, regulations, ordinances, codes,
judgments, orders, injunctions, writs or decrees of any federal, state, local or
foreign court or governmental body or agency thereof to which it may be subject
which are applicable to or which could reasonably be expected to affect the
business or operations of Seller. No claims have been filed against Seller, and
Seller has not received any notice, alleging any such violation, nor is there
any inquiry, investigation or proceeding relating thereto.
2.20 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 2.20 sets forth a
complete and correct list showing: (a) all banks in which Seller maintains a
bank account or safe deposit box (collectively, "Bank Accounts"), together with,
as to each such Bank Account, the account number, the names of all signatories
thereof and the authorized powers of each such signatory and, with respect to
each such safe deposit box, the number thereof and the names of all persons
having access thereto; and (b) the names of all persons holding powers of
attorney from Seller and a summary statement of the terms thereof.
2.21 INVESTMENT REPRESENTATIONS. Each Seller Stockholder represents,
warrants and covenants as to himself as follows:
11
(a) INVESTMENT INTENT. Seller Stockholder is acquiring all of the
shares of Buyer Common Stock described in Section 1.6 for Seller Stockholder's
own account, for investment only and not with a view to, or for sale in
connection with, a distribution thereof or any part thereof, within the meaning
of the Securities Act of 1933 (the "Securities Act") or any applicable state
securities or blue-sky laws;
(b) INTENT TO TRANSFER. Seller Stockholder is not a party to or subject
to or bound by any contract, undertaking, agreement or arrangement with any
person to sell, transfer or pledge the Buyer Common Stock or any part thereof to
any person, and has no present intention to enter into such a contract,
undertaking, agreement or arrangement;
(c) OFFERING EXEMPT FROM REGISTRATION; BUYER'S RELIANCE.
(i) Buyer has advised the Seller Stockholder that the
Buyer Common Stock has not been registered under the
Securities Act or under the laws of any state on the
basis that the issuance thereof is exempt from such
registration;
(ii) Buyer's reliance on the availability of such exemption
is, in part, based upon the accuracy and truthfulness
of Seller Stockholder's representations contained
herein;
(iii) As a result of such lack of registration, none of the
Buyer Common Stock may be resold or otherwise
transferred or disposed of without registration
pursuant to or an exemption therefrom available under
the Securities Act and such state securities laws; and
(iv) In furtherance of the provisions of this paragraph
(d), all of the certificates representing the Buyer
Common Stock shall bear a restrictive legend
substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SHARES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
(d) SOPHISTICATION OF THE SELLER STOCKHOLDER. Seller Stockholder has
evaluated the merits and risks of acquiring the Buyer Common Stock and has such
knowledge and experience in financial and business matters that Seller
Stockholder is capable of evaluating the merits and risks of such purchase, is
aware of and has considered the financial risks and financial hazards of
acquiring Buyer Common Stock, and is able to bear the economic risk of acquiring
Buyer Common Stock, including the possibility of a complete loss with respect
thereto;
12
(e) ACCESS TO INFORMATION. Seller Stockholder has had access to such
information regarding the business and finances of Buyer, including the filings
of the Company with the SEC since October 1, 2003, including, without
limitation, the Registration Statement on Form SB-2 (File No. 333-112371) filed
by the Company on January 30, 2004, the receipt and careful reading of which is
hereby acknowledged by the undersigned, and has been provided the opportunity to
discuss with the Buyer's management the business, affairs and financial
condition of the Buyer and such other matters with respect to Buyer as would
concern a reasonable person considering the transactions contemplated by the
Agreement and/or concerned with the operations of the Buyer including, without
limitation, pursuant to a meeting and/or discussions with management of the
Buyer; and
(f) NO GUARANTEES. It never has been represented, guaranteed or
warranted to Seller Stockholder by Buyer, or any of its officers, directors,
agents, representatives or employees, or any other person, expressly or by
implication, that:
(i) Any gain will be realized by Seller Stockholders from
their investment in the Buyer Common Stock; or
(ii) That the past performance or experience on the part of
Buyer, its predecessors or of any other person, will
in any way indicate any future results of Buyer.
2.22 DISCLOSURE. No representation or warranty by Seller or any of the
Seller Stockholders contained in this Agreement (including, without limitation,
in Section 2.1 through 2.21, inclusive), nor any other statement, schedule,
certificate or other document delivered or to be delivered by Seller or any of
the Seller Stockholders to Buyer or Merger Sub pursuant hereto or in connection
with the transactions contemplated by this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements made herein or therein,
in the light of the circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
Buyer and Merger Sub, jointly and severally, represent and warrant to
Seller and the Seller Stockholders, subject to the exceptions specifically
disclosed in the disclosure schedules supplied by Buyer and Merger Sub to Seller
and the Seller Stockholders and attached hereto, as follows:
3.1 ORGANIZATION OF BUYER. Buyer and Merger Sub each is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own, lease and
operate its property and to carry on its business as now being conducted and as
proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Buyer Material Adverse Effect (as defined below).
Buyer has no subsidiaries other than Merger Sub and Dwango North America, Inc.,
a Texas corporation. Merger Sub has no subsidiaries. Buyer and Merger Sub have
each delivered or made available a true and correct copy of the Certificate of
Incorporation and Bylaws of each of them, each as
13
amended to date, to counsel for Seller. When used in connection with Buyer, the
term "Buyer Material Adverse Effect" means, for purposes of this Agreement, any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition, results of operations or
prospects of Buyer and its subsidiaries taken as a whole.
3.2 BUYER CAPITAL STRUCTURE. The authorized capital stock of Buyer
consists of 50,000,000 shares of Buyer Common Stock, and 10,000,000 shares of
preferred stock, par value $.001 per share ("Buyer Preferred Stock"). As of the
date of this Agreement, there are 6,241,800 shares of Buyer Common Stock issued
and outstanding, 2,282,615 shares of Buyers Common Stock underlying outstanding
stock options, 4,228,122 shares of Buyer Common Stock underlying warrants and
3,500,000 shares of Buyer Common Stock underlying convertible notes. There are
no outstanding shares of Buyer Preferred Stock. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $.001 per share,
100 shares of which are issued and outstanding and are held by Buyer. All
outstanding shares of the Buyer Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Buyer or any
agreement or document to which Buyer is a party or by which it is bound. The
shares of Buyer Common Stock to be issued in the Merger will be duly authorized,
validly issued, fully paid and non-assessable.
3.3 OBLIGATIONS WITH RESPECT TO BUYER COMMON STOCK. Except as set forth
in Section 3.2, there are no equity securities of any class of Buyer, or any
securities exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth in
Section 3.2, there are no options, warrants, equity securities, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Buyer or Merger Sub is a party or by which either is bound obligating
Buyer or Merger Sub to issue, deliver or sell, or cause to be issued, delivered
or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of Buyer or Merger Sub
or obligating Buyer or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement.
3.4 AUTHORITY.
(a) Each of Buyer and Merger Sub has all requisite corporate power and
authority to enter into 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 authorized
by all necessary corporate action on the part of Buyer and Merger Sub. This
Agreement has been duly executed and delivered by each of Buyer and Merger Sub
and, assuming the due authorization, execution and delivery of this Agreement by
Seller and each of the Seller Stockholders, this Agreement constitutes the valid
and binding obligations of each of Buyer and Merger Sub, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity. The
execution and delivery of this Agreement by each of Buyer and Merger Sub do not,
and the performance of this Agreement by each of Buyer and Merger Sub will not,
(i) conflict with or violate the Certificate of Incorporation of Buyer or Merger
Sub, (ii) subject to compliance with the requirements set forth in Section
3.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Buyer or Merger Sub or by which its or any of
their
14
respective properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Buyer's or Merger Sub's rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Buyer or
Merger Sub pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Buyer or Merger Sub is a party or by which Buyer or Merger Sub or its
or any of their respective properties are bound or affected. No material
consents, waivers and approvals under any of Buyer's or any of its subsidiaries'
agreements, contracts, licenses or leases is required to be obtained in
connection with the consummation of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Buyer or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Articles of Merger with the Secretary of State
of the State of Washington pursuant to Washington Law, and (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, including
the timely filing of a Form 8-K with the Securities and Exchange Commission (the
"SEC").
3.5 TAXES.
(a) All returns and reports relating to Taxes which are required to be
filed with respect to Buyer on or before the date hereof have been duly and
timely filed and all such returns and reports are complete and correct in all
material respects. All Taxes, assessments, fees and other governmental charges
imposed on or with respect to Buyer which have become due and payable on or
before the Closing Date have been paid in a timely manner by Buyer with the
exception of those Taxes for which Buyer has established adequate reserves.
There are no actions or proceedings currently pending or threatened against
Buyer by any Governmental Entity for the assessment or collection of Taxes, no
claim for the assessment or collection of Taxes has been asserted or threatened
against Buyer, and there are no matters under discussion by Buyer with any
Governmental Entity regarding claims for the assessment or collection of Taxes
against Buyer. There are no agreements, waivers or applications by Buyer for an
extension of time for the assessment or payment of any Taxes. There are no Tax
liens on any of the assets of Buyer. No claim has ever been made by an authority
in a jurisdiction where Buyer does not file Tax returns or reports that it is or
may be subject to taxation by that jurisdiction. Buyer is not a party to any Tax
allocation or sharing agreement. Buyer is not and has never been a member of an
affiliated group of corporations filing a consolidated U.S. income Tax return
and is not liable, as a transferee or successor (by contract or otherwise), for
the Taxes of any corporation that previously was a member of such an affiliated
group.
(b) Buyer has not, with regard to any assets or property held, acquired
or to be acquired by Buyer, filed a consent to the application of Section 341(f)
of the Code.
(c) Buyer does not conduct any operations or sales which have been or
are required to be reported to the IRS under the provisions of Section 999 of
the Code.
15
3.6 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Buyer is not in conflict with, or in default or violation of, (i)
any law, rule, regulation, order, judgment or decree applicable to Buyer or by
which any of its properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Buyer is a party or by which Buyer or
any of its properties is bound or affected, except where such conflict, default
or violation would not have a Material Adverse Effect. No investigation or
review by any Governmental Entity is pending or, to the knowledge of Buyer and
Merger Sub, threatened against Buyer, nor has any Governmental Entity indicated
an intention to conduct the same.
(b) Buyer holds all permits, licenses, variances, exemptions, orders
and approvals from Governmental Entities which are material to the operation of
the business of Buyer (collectively, the "Buyer Permits"). Buyer is in material
compliance with the terms of the Buyer Permits.
3.7 LITIGATION. There is no Proceeding pending or, except as set forth
in Schedule 3.7, to the knowledge of Buyer or Merger Sub, threatened that
relates to or that may adversely affect the business of, or assets owned or used
by, Buyer. There is no Proceeding pending or, to the knowledge of Buyer or
Merger Sub, threatened that in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
To Buyer and Merger Sub's knowledge, except as set forth in Schedule 3.7, no
event has occurred or circumstance exists that could give rise to or serve as
the basis for the commencement of any such Proceeding.
3.8 COMPLIANCE WITH APPLICABLE LAW. Buyer is not in violation of any
applicable foreign or domestic laws, rules, regulations, ordinances, codes,
judgments, orders, injunctions, writs or decrees of any federal, state, local or
foreign court or governmental body or agency thereof to which it may be subject
which are applicable to or which could reasonably be expected to affect the
respective businesses or operations of Buyer. No claims have been filed against
Buyer, and Buyer has not received any notice, alleging any such violation, nor
is there any inquiry, investigation or proceeding relating thereto.
3.9 BROKERS' AND FINDERS' FEES. Buyer has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.10 SEC DOCUMENTS; FINANCIAL STATEMENTS.
(a) Buyer has filed all forms, reports and documents required to be
filed by Buyer with the SEC since October 1, 2003 (the documents so filed,
collectively, the "Buyer SEC Documents"). As of their respective filing dates,
the Buyer SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934 and the Securities Act, and none of the
Buyer SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Buyer SEC
Document.
(b) The financial statements of Buyer, including the notes thereto,
included in the Buyer SEC Documents (the "Buyer Financial Statements"), were
complete and correct in all
16
material respects as of their respective filing dates, complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with United States
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto or, in the case of unaudited statements,
included in Quarterly Reports on Forms 10 Q), except to the extent corrected by
a subsequently filed Buyer SEC Document. The Buyer Financial Statements fairly
present the consolidated financial condition and operating results of Buyer and
its subsidiaries at the dates and during the periods indicated therein (subject,
in the case of unaudited statements, to normal, recurring year-end adjustments).
3.11 DISCLOSURE. No representation or warranty by Buyer or Merger Sub
contained in this Agreement (including, without limitation, in Sections 3.1
through 3.10, inclusive), nor any other statement, schedule, certificate or
other document delivered or to be delivered by Buyer or Merger Sub to Seller or
the Seller Stockholders pursuant hereto or in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 FILINGS WITH GOVERNMENTAL ENTITIES. As promptly as practicable
after the date of this Agreement, Buyer will make or cause to be made any and
all filings with Governmental Entities necessary in connection with the
transactions contemplated hereby.
4.2 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
agents, representatives, counsel, and accountants; provided that Buyer shall pay
the reasonable fees and expenses of counsel to Seller to the extent such payment
is not reasonably likely to affect the tax-free status of the Merger.
4.3 CONFIDENTIALITY. (a) The Seller Stockholders understand and hereby
acknowledge that they have access to Confidential Information (as defined in
Section 4.3(d) below), and that any such Confidential Information, even though
it may be developed or otherwise acquired by the Seller Stockholders, is the
exclusive property of Surviving Corporation or Buyer, to be held by them in
trust solely for the benefit of Surviving Corporation or Buyer, as the case may
be.
(b) Each of the Seller Stockholders agrees that in
consideration of the Buyer Common Stock which he will receive as an owner of
Seller Common Stock in connection with the Merger pursuant to this Agreement,
during the Covered Time (as defined in Section 4.4(e) below), he shall not, and
shall not cause others to, use, reveal, report, publish, transfer or otherwise
disclose to any person any such Confidential Information without prior written
consent of the Surviving Corporation or Buyer, as the case may be, except as may
be required in the course of performance of his duties as an employee of Buyer
or any of its subsidiaries or affiliates. Notwithstanding the foregoing, the
prohibitions of this subparagraph (b) shall not
17
apply to any Confidential Information that becomes general public knowledge
other than due to disclosure by the Seller Stockholder or that the Seller
Stockholder is required to divulge by court order or administrative process.
(c) Upon termination of any employment with Buyer or any of
its subsidiaries or affiliates for any reason, the Seller Stockholder shall
promptly deliver to Buyer all plans, drawings, manuals, letters, notes,
notebooks, reports, data, recorded media, computer programs and copies thereof
and all other materials, including without limitation those of a secret or
confidential nature, relating to Buyer's or any subsidiary's or affiliate's
business that are then in his possession or control.
(d) For purposes hereof, "Confidential Information" means
information about Seller, Buyer or Buyer's subsidiaries or affiliates, as the
case may be, not generally available to the public, including, without
limitation, all computer software and database information, personnel
information, financial information, customer lists, supplier lists, trade
secrets, patented proprietary information, forms, information regarding
operations, systems, services, know how, computer and any other processed or
collated data, computer programs, pricing, marketing and advertising data,
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted or
patented).
4.4 NON-COMPETITION. (a) Each of the Seller Stockholders hereby agrees
that, in consideration of the Buyer Common Stock which he will receive as an
owner of Seller Common Stock in connection with the Merger, during the Covered
Time (as defined in 4.4(e) below) he shall not, directly or indirectly, (A) in
any geographic area of the Territory (as defined in Section 4.4(c) below), for
his own account, or as a partner, member, advisor or agent of any partnership or
joint venture, or as a trustee, officer, director, employee, shareholder,
advisor or agent of any corporation, trust or other business organization or
entity, own, manage, join, participate in, encourage, support, finance, be
engaged in, have an interest in, give financial assistance or advice to, or be
concerned in any way with the ownership, management, operation or control of any
person or entity that develops or sells software or other applications that
enable mobile telephones to download, organize and/or play games, ringtones or
media, or (B) induce or attempt to induce any customer of Buyer or its
subsidiaries or affiliates to cease doing business in whole or in part with the
Buyer or its subsidiaries or affiliates. Nothing in this Agreement shall (C)
prohibit any Seller Stockholder from owning one percent (1%) or less of the
equity interests of any public entity or (D) so long as Eversio, Inc. does not
engage in operations to develop or sell software or other applications that
enable mobile telephones to download, organize and/or play games, ringtones or
media, prohibit Hennessey from maintaining his ownership in, remaining the
chairman of, and, during his employment with Buyer, spending no more than three
hours per week working for Eversio, Inc. Eversio, Inc., founded by Hennessey,
provides mobile data collection products and services, including software,
hardware and integration services.
(b) Each of the Seller Stockholders agrees that, in consideration of
the Buyer Common Stock which he will receive as an owner of Seller Common Stock
in connection with the Merger, during the Covered Time, he shall not either for
his own account or for any person, firm or company solicit, interfere with, or
endeavor to cause any employee of Buyer or its subsidiaries or affiliates to
leave his employment or induce or attempt to induce any such employee to breach
his employment agreement with Buyer or its subsidiaries or affiliates.
18
(c) For purposes hereof, "Territory" shall mean the United States and
Canada and any other country or place where the Seller has engaged in business
at any time in any material respect during the one (1) year preceding the date
hereof.
(d) The Seller Stockholders acknowledge that the geographic scope of
the restrictions imposed on the Seller Stockholders hereunder are fair and
reasonable under the circumstances and are necessary and fundamental to the
protection of the business of Buyer and its subsidiaries and affiliates and its
goodwill.
(e) For the purposes of this Section 4.4, the "Covered Time" shall mean
the later to expire of (i) the 24-month period immediately following the Closing
Date, or (ii) if applicable, the six month period following the date on which
the Selling Stockholder's employment with Buyer and its subsidiaries and
affiliates terminates for whatever reason.
4.5 EQUITABLE RELIEF. Seller and the Seller Stockholders acknowledge
that the covenants contained in Sections 4.3 and 4.4 hereof are a material and
necessary inducement for Buyer and Merger Sub to agree to the transactions
contemplated hereby, and that a violation of any of such covenants will cause
irreparable and continuing damage to Buyer, Merger Sub and Surviving
Corporation, that Buyer, Merger Sub and Surviving Corporation shall be entitled
to pursue injunctive or other equitable relief from any court of competent
jurisdiction restraining any further violation of such covenants and that such
injunctive relief shall be cumulative and in addition to any other rights or
remedies to which Buyer, Merger Sub or Surviving Corporation may be entitled.
4.6 EXCLUSION OF SANDERS. Notwithstanding anything herein to the
contrary, Sanders shall not be bound by the provisions of Sections 4.4 and 4.5
and the references in Sections 4.4 and 4.5 to the Seller Stockholders shall be
deemed to include only Hennessey, Adams and Conrad.
ARTICLE V
DELIVERIES AT CLOSING
5.1 DELIVERIES TO BUYER. At the Closing Seller and the Seller
Stockholders shall deliver to Buyer:
(a) EMPLOYMENT AGREEMENTS. An Employment Agreement between Buyer and
each of Hennessey, Adams, and Conrad, in the form set forth as Exhibits B, C and
D, respectively, executed by such Seller Stockholder;
(b) REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement
between Buyer and each Seller Stockholder in the form set forth as Exhibit E
executed by such Seller Stockholder;
(c) ASSIGNMENT OF INVENTIONS AGREEMENTS. An Assignment of Inventions
agreement between Buyer and Merger Sub and each of Hennessey, Adams, Sanders and
Conrad, in the form set forth as Exhibit F, executed by such Seller Stockholder;
(d) CERTIFICATES OF EXISTENCE. A Certificate of Existence issued by the
Secretary of State of the State of Washington and Certificates of Good Standing
from every jurisdiction in
19
which Seller is authorized to do business as a foreign corporation in each case
with respect to Seller;
(e) CORPORATE RECORDS. The corporate records of Seller, including
minute books and stockholder records;
(f) CORPORATE APPROVALS. Evidence that the Board of Directors and the
Seller Stockholders have duly approved the Merger in accordance with Washington
Law; and
(g) MISCELLANEOUS. Such other agreements, documents and certificates as
may be reasonably requested by Buyer or Merger Sub.
5.2 DELIVERIES TO SELLER AND THE SELLER STOCKHOLDERS. At the Closing
Buyer, except as expressly noted, shall deliver to Seller and the Seller
Stockholders:
(a) EMPLOYMENT AGREEMENTS. An Employment Agreement between and each of
Hennessey, Adams, and Conrad, in the form set forth as Exhibits B, C and D,
respectively, executed by Buyer;
(b) REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement
between Buyer and each Seller Stockholder in the form set forth as Exhibit E,
executed by Buyer;
(c) ASSIGNMENT OF INVENTIONS AGREEMENTS. An Assignment of Inventions
agreement between Buyer and Merger Sub and each of Hennessey, Adams, Sanders and
Conrad, in the form set forth as Exhibit F, executed by Buyer and Merger Sub;
(d) BUYER COMMON STOCK. Certificates evidencing the shares of Buyer
Common Stock issuable pursuant to the Merger (which will be delivered as soon
after the Closing as reasonably possible);
(e) ARTICLES OF MERGER. Articles of Merger, in the form of Exhibit G
hereto, executed by Merger Sub;
(f) CORPORATE APPROVALS. Evidence that the Board of Directors of Buyer
and Merger Sub and that Buyer, as the sole Shareholder of Merger Sub, have duly
approved the Merger in accordance with Washington Law and the Nevada General
Corporation Law, respectively; and
(g) MISCELLANEOUS. Such other agreements, documents and certificates as
may be reasonably requested by Seller.
ARTICLE VI
INDEMNIFICATIONS; REMEDIES
6.1 SURVIVAL. All representations, warranties, covenants, and
obligations in this Agreement, including the disclosure schedules, and any
certificate or document delivered pursuant to this Agreement, will survive the
Closing until six months after the Closing Date, except those set forth in
Section 2.2 and 2.3, which shall survive indefinitely, and Article IV, which
shall survive until six (6) months after the Covered Time. The right to
indemnification, payment of Damages (as defined below) or other remedy based on
such representations,
20
warranties, covenants, and obligations will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER STOCKHOLDERS. The
Seller Stockholders jointly and severally (except as to Sections 4.3 and 4.4,
which shall be individual) will indemnify and hold harmless Buyer and Surviving
Corporation, and their respective officers, directors, employees, agents,
consultants, advisors, stockholders, controlling persons, and affiliates
(collectively, the "Buyer Indemnified Persons") for, and will, subject to the
limitations set forth in Section 6.7, pay to the Buyer Indemnified Persons the
amount of, any loss, liability, claim, damage, expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by either the
Seller or any of the Seller Stockholders in this Agreement or any other
certificate or document delivered by the Seller or a Seller Stockholder pursuant
to this Agreement;
(b) any breach by Seller or any of the Seller Stockholders of any
covenant, agreement or obligation of the Seller or such Seller Stockholder in
this Agreement;
(c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such person with Seller (or any person acting
on behalf of Seller) or any Seller Stockholder in connection with any of the
transactions contemplated by this Agreement.
The remedies provided in this Section 6.2 will not be exclusive of or
limit any other equitable remedies that may be available to Buyer or the other
Buyer Indemnified Persons.
6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless the Seller Stockholders and their respective
officers, directors, employees, agents, consultants, advisors, stockholders,
controlling persons and affiliates (the "Seller Indemnified Persons") for, and
will pay to the Seller Stockholders the amount of any Damages arising, directly
or indirectly, from or in connection with, (a) any breach of any representation
or warranty made by Buyer in this Agreement or in any certificate or document
delivered by Buyer pursuant to this Agreement, (b) any breach by Buyer of any
covenant, agreement or obligation of Buyer in this Agreement, or (c) any claim
by any person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
person with Buyer (or any person acting on behalf of Buyer) in connection with
any of the transactions contemplated by this Agreement.
6.4 TIME LIMITATIONS. The Seller Stockholders will have no liability
(for indemnification or otherwise) with respect to any representation, warranty,
covenant, agreement or obligation hereunder, other than those in Sections 2.2
and 2.3 and Article IV, unless on or before six months from the Closing Date
Buyer notifies such Seller Stockholder of a claim
21
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer. With respect to any covenant, agreement or obligation of
any Seller Stockholder set forth in Article IV, the Seller Stockholders will
have no liability (for indemnification or otherwise) unless, on or before the
date that is six months after the Covered Time, Buyer notifies such Seller
Stockholder of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by Buyer. Buyer and Merger Sub will have no
liability (for indemnification or otherwise) with respect to any representation,
warranty, covenant, agreement or obligation hereunder unless on or before six
months from the Closing Date any of the Seller Stockholders notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by such Seller Stockholders.
6.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party of notice of the
commencement of any proceeding against it, such indemnified party will, if a
claim is to be made against an indemnifying party, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such notice.
(b) If any proceeding referred to in Section 6.5(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such proceeding, the indemnifying party will, unless the claim
involves Taxes, be entitled to participate in such proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
proceeding and the indemnified party reasonably determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such proceeding and provide indemnification with respect to
such proceeding), to assume the defense of such proceeding with counsel
reasonably satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Article VI for any fees of other counsel or any other expenses with respect to
the defense of such proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of law or any
violation of the rights of any person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any proceeding and the indemnifying
party does not, within fifteen days after the indemnified party's notice is
given, give notice to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will be bound by any
determination made in such proceeding or any compromise or
22
settlement effected by the indemnified party to which the indemnifying party
consents, which consent may not be unreasonably withheld.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such proceeding, but the indemnifying
party will not be bound by any determination of a proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
6.6 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS . A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
6.7 LIMITATIONS OF SELLER STOCKHOLDER INDEMNIFICATION. At the option of
each Seller Stockholder, indemnification may be paid in the form of the return
of Buyer Common Stock received pursuant to this Agreement. Such Buyer Common
Stock shall be valued at $1.468 per share, subject to adjustment for stock
splits, stock dividends, combinations and the like. Once a Seller Stockholder
has returned to Buyer, for purposes of indemnification or otherwise, 75% of the
shares of Buyer Common Stock received by such Seller Stockholder pursuant to
this Agreement (or, if cash had not been paid, what would have been 75% of such
shares), then such Seller Stockholder shall have no further liability under this
Agreement for indemnification or otherwise (other than equitable remedies).
ARTICLE VII
GENERAL PROVISIONS
7.1 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines.
7.2 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand, (b) sent by facsimile, provided that a copy is
mailed by registered mail, return receipt requested, or (c) received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Seller or a 844 NW 49th Street
Seller Stockholder: Seattle, Washington 98107
Attn: Rick Hennessey
With a copy to: Summit Law Group PLLC
315 Fifth Avenue South
Suite 1000
Seattle, Washington 98104-2682
Attention: Charles P. Carter, Esq.
Facsimile No.: (206) 676-7107
23
If to Buyer: Dwango North America Corp.
5847 San Felipe Street
Suite 3220
Houston, Texas 77057
Attention: Robert E. Huntley
Facsimile No.: (713) 914-9688
With a copy to: Moomjian & Waite, LLP
500 North Broadway
Suite 142
Jericho, New York 11753
Attention: Gary T. Moomjian, Esq.
Facsimile No.: (516) 937-5050
7.3 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement shall be brought against any of the parties in the courts of the State
of Washington and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
7.4 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
7.5 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; and (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given.
7.6 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
24
7.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
7.8 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.9 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.10 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
7.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[signature page follows]
25
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SELLER STOCKHOLDERS
/s/ Rick Hennessey
------------------------------
Rick Hennessey
/s/ David Adams
------------------------------
David Adams
/s/ Mark C. Sanders
------------------------------
Mark C. Sanders
/s/ Alexander U. Conrad
------------------------------
Alexander U. Conrad
SELLER:
OVER-THE-AIR WIRELESS, INC.
By: /s/ Rick Hennessey
--------------------------
Name: Rick Hennessey
Title: Chief Exective Officer
BUYER:
DWANGO NORTH AMERICA CORP.
By: /s/ Robert E. Huntley
--------------------------
Name: Robert E. Huntley
Title: Chairman
MERGER SUB:
OTA ACQUISITION CORP.
By: /s/ Robert E. Huntley
--------------------------
Name: Robert E. Huntley
Title: President
[SIGNATURE PAGE TO MERGER AGREEMENT]
EXHIBITS TO AGREEMENT AND PLAN OF MERGER
Exhibit A - Stock Table
Exhibit B - Employment Agreement - Rick Hennessey
Exhibit C - Employment Agreement - David C. Adams
Exhibit D - Employment Agreement - Alexander U. Conrad
Exhibit E - Registration Rights Agreement
Exhibit F - Form of Assignment of Inventions Agreements
Exhibit G - Articles of Merger
Exhibit A
STOCK TABLE
Number of Shares
Number of Shares of Buyer Common
of Seller Common Stock to be
Name Stock Owned Received
- ---- ---------------- ----------------
Rick Hennessey 430,000 292,916
David C. Adams 430,000 292,916
Mark Sanders 120,000 81,744
Alexander V. Conrad 20,000 13,624
--------- -------
1,000,000 681,200
========= =======