Exhibit 10.1
-------------------------------------
AGREEMENT AND PLAN OF MERGER
-------------------------------------
Among
CELL POWER TECHNOLOGIES, INC.,
PORTAGY ACQUISITION CORP.
and
PORTAGY CORP.
March 17, 2006
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
SECTION 1.01 The Merger....................................................1
SECTION 1.02 Closing.......................................................2
SECTION 1.03 Effective Time................................................2
SECTION 1.04 Effects of the Merger.........................................2
SECTION 1.05 Certificate of Incorporation and Bylaws.......................2
SECTION 1.06 Directors.....................................................2
SECTION 1.07 Officers......................................................2
ARTICLE II
Effect of the Merger on the Capital Stock of
the Constituent Corporations; Exchange of Certificates
SECTION 2.01 Effect on Capital Stock.......................................3
SECTION 2.02 Exchange of Certificates......................................4
ARTICLE III
Representations and Warranties of the Company
SECTION 3.01 Organization..................................................5
SECTION 3.02 Subsidiaries..................................................5
SECTION 3.03 Capitalization................................................6
SECTION 3.04 Authority.....................................................6
SECTION 3.05 Consents and Approvals; No Violations.........................7
SECTION 3.06 Financial Statements..........................................7
SECTION 3.07 Absence of Certain Changes or Events..........................7
SECTION 3.08 No Undisclosed Liabilities....................................8
SECTION 3.09 Benefit Plans.................................................8
SECTION 3.10 Other Compensation Arrangements...............................8
SECTION 3.11 Litigation....................................................8
SECTION 3.12 Permits; Compliance with Law..................................9
SECTION 3.13 Tax Matters...................................................9
SECTION 3.14 Intellectual Property........................................10
SECTION 3.15 Vote Required................................................12
SECTION 3.16 Labor Matters................................................12
SECTION 3.17 Title to Property............................................13
SECTION 3.18 Environmental Matters........................................13
SECTION 3.19 Accounts Receivable..........................................13
SECTION 3.20 Customers....................................................14
SECTION 3.21 Interested Party Transactions................................14
(i)
SECTION 3.22 Absence of Certain Payments..................................14
SECTION 3.23 Insurance....................................................14
SECTION 3.24 Full Disclosure..............................................14
SECTION 3.25 Contracts....................................................15
SECTION 3.26 Real Property................................................16
SECTION 3.27 No Other Representations.....................................16
ARTICLE IV
Representations and Warranties of the Parent and the Acquisition Sub
SECTION 4.01 Organization.................................................17
SECTION 4.02 Subsidiaries.................................................17
SECTION 4.03 Capitalization...............................................18
SECTION 4.04 Authority....................................................18
SECTION 4.05 Consents and Approvals; No Violations........................18
SECTION 4.06 SEC Reports and Financial Statements.........................19
SECTION 4.07 Absences of Certain Changes or Events........................19
SECTION 4.08 No Undisclosed Liabilities...................................20
SECTION 4.09 Benefit Plans................................................20
SECTION 4.10 Other Compensation Arrangements..............................21
SECTION 4.11 Litigation...................................................21
SECTION 4.12 Permits; Compliance with Law.................................21
SECTION 4.13 Tax Matters..................................................22
SECTION 4.14 Brokers......................................................23
SECTION 4.15 Intellectual Property........................................24
SECTION 4.16 Vote Required................................................24
SECTION 4.17 Labor Matters................................................24
SECTION 4.18 Title to Property............................................24
SECTION 4.19 Environmental Matters........................................24
SECTION 4.20 Interested Party Transactions................................24
SECTION 4.21 Absence of Certain Payments..................................24
SECTION 4.22 Insurance....................................................25
SECTION 4.23 Full Disclosure..............................................25
SECTION 4.24 Acquisition Sub..............................................25
SECTION 4.25 Real Property................................................25
SECTION 4.26 No Other Representations.....................................25
ARTICLE V
Covenants
SECTION 5.01 Covenants....................................................26
SECTION 5.02 No Solicitation..............................................29
SECTION 5.03 Trading Restrictions.........................................31
SECTION 5.04 Other Actions................................................31
(ii)
SECTION 5.05 The Parent and the Parent Subsidiary Liabilities/Cash at
Closing......................................................31
ARTICLE VI
Additional Agreements
SECTION 6.01 Lock-Up Agreements...........................................31
SECTION 6.02 Access to Information........................................31
SECTION 6.03 Reasonable Efforts...........................................32
SECTION 6.04 Confidentiality..............................................32
SECTION 6.05 Fees and Expenses............................................33
SECTION 6.06 Indemnification; Insurance...................................33
ARTICLE VII
Conditions
SECTION 7.01 Conditions to Each Party's Obligation To Effect
the Merger...................................................33
SECTION 7.02 Conditions to Obligations of the Parent and the
Acquisition Sub to Effect the Merger.........................34
SECTION 7.03 Conditions to Obligations of the Company to Effect
the Merger...................................................36
ARTICLE VIII
Termination and Amendment
SECTION 8.01 Termination..................................................38
SECTION 8.02 Effect of Termination........................................40
SECTION 8.03 Amendment....................................................40
SECTION 8.04 Extension; Waiver............................................40
ARTICLE IX
Miscellaneous
SECTION 9.01 Nonsurvival of Representations and Warranties................41
SECTION 9.02 Notices and Addresses........................................41
SECTION 9.03 Interpretation...............................................42
SECTION 9.04 Counterparts.................................................42
SECTION 9.05 Entire Agreement; Third Party Beneficiaries..................42
SECTION 9.06 Governing Law................................................42
SECTION 9.07 Publicity....................................................42
SECTION 9.08 Assignment...................................................43
SECTION 9.09 Enforcement..................................................43
SECTION 9.10 No Remedy in Certain Circumstances...........................43
EXHIBIT A Stock Exchange Table........................................A-1
EXHIBIT B Lock-Up Agreement...........................................B-1
(iii)
Defined Terms
Acquisition Proposal.........................................................1
Acquisition Sub..............................................................1
Acquisition Sub Common Stock................................................15
Articles and Plan of Merger..................................................2
Balance Sheet Date...........................................................6
Certificate of Merger........................................................2
Closing......................................................................1
Closing Date.................................................................1
Code ........................................................................1
Company......................................................................1
Company Derivative Stock.....................................................1
Company Financial Statements.................................................8
Company Indemnified Parties.................................................33
Company Options..............................................................1
Company Permits..............................................................7
Company Stock................................................................1
Company Warrants.............................................................1
DGCL.........................................................................1
Disclosure Schedule..........................................................6
Dissenting Company Shares....................................................3
Effective Time...............................................................2
Environmental Laws..........................................................11
Exchange Act................................................................16
Florida Act..................................................................1
GAAP.........................................................................6
Governmental Entity..........................................................6
Intellectual Property........................................................9
Material Adverse Effect.....................................................41
Merger.......................................................................1
Merger Consideration.........................................................3
Notice of Company Superior Proposal.........................................30
Notice of Parent Superior Proposal..........................................31
PCAOB........................................................................6
Parent.......................................................................1
Parent Benefit Plan.........................................................18
Parent Common Stock..........................................................1
Parent Derivative Stock......................................................1
Parent Financial Statements.................................................16
Parent Indemnified Parties..................................................33
Parent Options...............................................................1
Parent Permits..............................................................19
Parent SEC Documents........................................................16
(iv)
Parent Subsidiaries.........................................................15
Parent Subsidiary...........................................................15
Parent Warrants..............................................................1
SEC..........................................................................6
SOX.........................................................................19
Superior Proposal...........................................................30
Surviving Corporation........................................................1
Termination Fee.............................................................33
(v)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of March
17, 2006, among Cell Power Technologies, Inc., a Florida corporation (the
"Parent"), Portagy Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of the Parent (the "Acquisition Sub") and Portagy
Corp., a Delaware corporation (the "Company").
WHEREAS the respective Boards of Directors of the Parent, the Acquisition
Sub and the Company have approved the acquisition of the Company by the Parent
on the terms and subject to the conditions set forth in this Agreement; and
WHEREAS the respective Boards of Directors of the Parent, the Acquisition
Sub and the Company have each approved, and the Board of Directors of the Parent
in its capacity as the sole stockholder of the Acquisition Sub has approved, the
merger of the Acquisition Sub into the Company in a reverse triangular merger
pursuant to Section 368(a)(1)(A) of the Internal Revenue Code of 1986 (the
"Code") (the "Merger"), upon the terms and subject to the conditions set forth
in this Agreement, whereby each outstanding share of common stock, par value
$0.001 per share, of the Company and each outstanding share of Series A
preferred stock, par value $0.001 per share, of the Company (collectively, the
"Company Stock"), other than Dissenting Company Shares (as hereinafter defined)
and those shares of Company Stock owned directly or indirectly by the Parent or
the Company, will be converted into the right to receive shares of common stock,
no par value, of the Parent ("Parent Common Stock"), and each outstanding
warrant to purchase shares of Company Stock (the "Company Warrants") and each
outstanding option to purchase shares of Company Stock (the "Company Options")
(collectively, the "Company Derivative Stock" respectively, will be converted
into the right to receive warrants to purchase Parent Common Stock (the "Parent
Warrants") or options to purchase shares of Parent Common Stock (the "Parent
Options") (collectively, the "Parent Derivative Stock"), all as reflected on
Exhibit A; and
WHEREAS the Parent, the Acquisition Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parent, the Acquisition Sub and the Company hereby agree as follows:
ARTICLE I
The Merger
SECTION 1.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL") and the Florida Business Corporation Act (the "Florida Act"),
the Acquisition Sub shall be merged into the Company at the Effective Time (as
defined in Section 1.03). Following the Effective Time, the separate corporate
existence of the Acquisition Sub shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of the Acquisition Sub in accordance with
the DGCL.
SECTION 1.02 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. (local time) on a date to be specified by the Parent, which
shall be no later than the fifth business day after satisfaction or waiver of
the conditions set forth in Article VII (the "Closing Date").
SECTION 1.03 Effective Time. Subject to the provisions of this Agreement,
at the Closing, the parties shall file a Certificate of Merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
and filed with the Delaware Secretary of State in accordance with the relevant
provisions of the DGCL, and shall file the Articles and Plan of Merger
("Articles and Plan of Merger") with the Florida Department of State, and shall
make all other filings or recordings required under the DGCL and the Florida
Act. The Merger shall become effective at such time as the Certificate of Merger
is duly filed with the Delaware Secretary of State and the Articles and Plan of
Merger are filed with the Florida Secretary of State, or at such other time as
the Parent and the Company shall agree should be specified in the Certificate of
Merger and/or the Articles and Plan of Merger (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.04 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL and the Florida Act.
SECTION 1.05 Certificate of Incorporation and Bylaws.
(a) The certificate of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law.
(b) The bylaws of the Company as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.06 Directors. Todd Ruhalter, James Davidson and Jacob
Hershkovitz shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be
SECTION 1.07 Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of
the Constituent Corporations; Exchange of Certificates
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SECTION 2.01 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Stock or any shares of capital stock of the Acquisition Sub:
(a) Capital Stock of the Acquisition Sub. Each issued and
outstanding share of capital stock of the Acquisition Sub shall be converted
into and become one fully paid and nonassessable share of common stock, par
value $0.001 of the Company.
(b) Cancellation of Company Owned Stock. Each share of Company Stock
that is held in the treasury of the Company shall automatically be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Company Stock and Company Derivative Stock.
Subject to Section 2.01(d), each share of Company Stock (other than shares of
Company Stock to be canceled in accordance with Section 2.01(b) shall be
converted into the right to receive from the Surviving Corporation shares of
Parent Common Stock, each Company Warrant shall be converted into the right to
receive from the Surviving Corporation that number of Parent Warrants, and each
Company Option shall be converted into the right to receive from the Surviving
Corporation that number of Parent Options, which are reflected on Exhibit A,
(the Parent Common Stock, Parent Options and Parent Warrants, collectively, the
"Merger Consideration"). As of the Effective Time, all shares of Company Stock,
Company Warrants and Company Options shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Company Stock, Company Warrants
or Company Options shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration.
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Company Stock issued and outstanding immediately prior
to the Effective Time and held by any stockholder of the Company who did not
vote in favor of the Merger and complies with Section 262 of the DGCL (the
"Dissenting Company Shares") shall not be converted into or be exchangeable for
the right to receive the Merger Consideration, but, instead, shall be converted
into the right to receive such consideration as may be determined to be due such
holder pursuant to the DGCL upon surrender of such holder's certificate
representing such shares of Company Stock.. From and after the Effective Time, a
holder of any Dissenting Company Shares shall not be entitled to exercise any of
the voting rights or other rights of a stockholder of the Surviving Corporation.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost his rights to appraisal under the DGCL, that holder's shares
of Company Stock shall thereupon be converted into and become exchangeable for
the right to receive, as of the Effective Time, the Merger Consideration without
any interest.
3
SECTION 2.02 Exchange of Certificates.
(a) Exchange Procedure. At the Closing or as soon as reasonably
practicable thereafter, the Company on behalf of its stockholders shall deliver
the Company Stock, Company Warrants and Company Options to the Acquisition Sub
and the Acquisition Sub shall deliver the Merger Consideration to the Company
for distribution to its stockholders In the event of a transfer of ownership of
shares of Company Stock that is not registered in the transfer records of the
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the number of
shares of Parent Common Stock into which the shares of Company Stock theretofore
represented by such Certificate shall have been converted pursuant to Section
2.01. No interest will be paid or will accrue on any cash payable upon the
surrender of any Certificate. In the event any Certificate shall have been lost,
stolen or destroyed, the Parent may, in its discretion and as a condition
precedent to the payment of the Merger Consideration in respect of the shares
represented by such Certificate, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against the Parent or the
Surviving Corporation.
(b) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
issued and paid to the record holder of the Certificate, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole shares of
Parent Common Stock, without interest, and, at the appropriate payment date, the
amount of dividends or other distributions having a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
that are payable with respect to such whole shares of Parent Common Stock.
(c) No Further Ownership Rights in Company Stock. All shares of
Parent Common Stock exchanged upon the surrender of Certificates in accordance
with the terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Stock theretofore
represented by such Certificates. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Company
for any reason, they shall be canceled and exchanged as provided in this Article
II.
(d) No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued in connection with the
Merger, and such fractional interest shall not entitle the owner thereof to vote
or to any rights of a stockholder. In lieu of any such fractional shares, each
holder of Company Stock who would otherwise have been entitled to a fraction of
a share of Parent Common Stock upon surrender of stock certificates for exchange
pursuant to this Article II shall be paid cash upon such surrender in an amount
equal to the product of such fraction multiplied by the average of the closing
prices as reported by the Over-the-Counter Bulletin Board for the five (5)
trading days ending two business days prior to the Effective Time.
4
(f) No Liability. Neither the Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Stock for any Merger
Consideration or cash properly and legally delivered to a public official
pursuant to any abandoned property, escheat or similar law.
(g) Withholding Rights. Each of the Surviving Corporation and the
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld, the Surviving Corporation or
the Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Stock in respect of which such deduction and withholding were made by
the Surviving Corporation or the Parent, as the case may be.
ARTICLE III
Representations and Warranties of the Company
The Company represents and warrants to the Parent and the Acquisition Sub
as follows:
SECTION 3.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry on its business as
now being conducted, except where the failure to be so organized, existing and
in good standing or to have such power and authority could not be reasonably
expected to (i) prevent or materially delay the consummation of the Merger, or
(ii) have a material adverse effect (as defined in Section 9.03) on the Company.
The Company is duly qualified or licensed to do business and in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing could not reasonably be expected to
have a material adverse effect on the Company or prevent or materially delay the
consummation of the Merger. The Company has made available to the Parent
complete and correct copies of its Certificate of Incorporation and Bylaws.
SECTION 3.02 Subsidiaries. Except as set forth in Section 3.062 of the
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity.
5
SECTION 3.03 Capitalization. As of the date of this Agreement, the
authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock of which 4,099,997 shares are issued and outstanding, and 5,000,000 shares
of preferred stock of which 3,000,000 have been designated as Series A. There
are 2,250,000 shares of Series A issued and outstanding. All outstanding shares
of capital stock of the Company are duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. As of the date of this
Agreement, there are no bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of the
Company may vote. As of the date of this Agreement, there were 4,074,994 Company
Warrants and 600,000 Company Options outstanding. Except as set forth above,
there are not any securities, options, warrants, calls, rights, commitments,
agreements, arrangements or on Section 3.03 of the Disclosure Schedule, or
undertakings of any kind to which the Company is a party or by which it is bound
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of the Company or obligating the Company to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. There are not any outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company.
SECTION 3.04 Authority.
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated, subject to approval by Company stockholders and
the filing of the Certificate of Merger in Delaware and the Articles and Plan of
Merger in Florida. This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding obligation
of the Parent and the Acquisition Sub, constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally.
(b) The Board of Directors of the Company duly and unanimously
adopted resolutions (i) approving this Agreement and the Merger, (ii)
determining that the terms of the Merger are in the best interests of, the
Company's stockholders, and (iii) recommending that the Company's stockholders
approve and adopt this Agreement.
(c) Holders of a majority of the shares of Company Stock have
executed a written consent adopting resolutions approving this Agreement and the
Merger.
6
SECTION 3.05 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of Section 251 of the DGCL, and the filings
contemplated in connection with the Merger, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws of the
Company, (ii) require any filing with, or permit, authorization, consent or
approval of, any federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity") (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings could not reasonably be expected
to have a material adverse effect on the Company or prevent or materially delay
the consummation of the Merger), (iii) except as set forth in Section 3.05 of
the disclosure schedule annexed hereto (the "Disclosure Schedule"), result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company is a party or by which the
Company or its properties or assets may be bound; or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its properties or assets, except in the case of clauses (iii) or (iv)
for violations, breaches or defaults that could not reasonably be expected to
have a material adverse effect on the Company or prevent or materially delay the
consummation of the Merger.
SECTION 3.06 Financial Statements. The audited financial statements of the
Company set forth in Section 3.06 of the Disclosure Schedule as of and for the
year ended October 31, 2005, (the "Balance Sheet Date") and the unaudited
financial statements for the quarter ended January 31, 2006 set forth in Section
3.06 of the Disclosure Schedule comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Securities and Exchange Commission (the "SEC") and the Public Company
Accounting Oversight Board (the "PCAOB") with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the financial position of the
Company as at the dates thereof and the results of the Company's operations and
cash flows for the periods then ended.
SECTION 3.07 Absence of Certain Changes or Events. Except as set forth in
Section 3.07 of the Disclosure Schedule, since the Balance Sheet Date, the
Company has conducted its businesses only in the ordinary course consistent with
past practice, there has not been any material adverse change (as defined in
Section 9.03) with respect to the Company. Except as set forth in Section 3.07
of the Disclosure Schedule, since the Balance Sheet Date, there has not been (i)
any declaration, setting aside or payment of any dividend or other distribution
with respect to the Company's capital stock or any redemption, purchase or other
acquisition of any of its capital stock, (ii) any split, combination or
reclassification of any of the Company's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iii) any material change in
accounting methods, principles or practices by the Company, (iv) (w) any
granting by the Company to any employee of the Company of any increase in
compensation except as provided for in written employment agreement15, (x) any
granting by the Company to any employee of any increase in severance or
termination pay, except as part of a standard employment package to any person
promoted or hired, or as was required under employment, severance or termination
agreements in effect as of the Balance Sheet Date, (y) except employment
arrangements in the ordinary course of business consistent with past practice
with employees, any entry by the Company into any employment, severance or
termination agreement with any employee, or (z) any increase in or establishment
of any bonus, insurance, deferred compensation, pension, retirement,
profit-sharing, stock option (including the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards or the
amendment of any existing stock options, stock appreciation rights, performance
awards or restricted stock awards), stock purchase or other employee benefit
plan or agreement or arrangement, (v) any damage, destruction or loss, whether
or not covered by insurance, that has or reasonably could be expected to have a
material adverse effect on the Company, (vi) any amendments or changes in the
Certificate of Incorporation or Bylaws of the Company, (vii) any material
revaluation by the Company of any of its assets, including writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business, (viii) any increase in debt over $50,000 or (ix)
any other action or event that would have required the consent of the Parent
pursuant to Section 5.01 had such action or event occurred after the date of
this Agreement.
7
SECTION 3.08 No Undisclosed Liabilities. Except as and to the extent set
forth in Section 3.08 of the Disclosure Schedule, as of the Balance Sheet Date,
to the knowledge of the Company, the Company did not have any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by GAAP to be reflected on a balance sheet of the Company
(including the notes thereto). Since the Balance Sheet Date, except as and to
the extent set forth in Section 3.08 of the Disclosure Schedule and except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice, the Company has not incurred any liabilities of
any nature, whether or not accrued, contingent or otherwise, that could be
reasonably expected to have a material adverse effect on the Company, or would
be required by GAAP to be reflected on a consolidated balance sheet of the
Company (including the notes thereto).
SECTION 3.09 Benefit Plans. The Company has not adopted any employee
benefit plans.
SECTION 3.10 Other Compensation Arrangements. Except as disclosed in
Section 3.10 of the Disclosure Schedule, and except as provided in this
Agreement, as of the date of this Agreement, the Company is not a party to any
oral or written (i) consulting agreement that is not terminable on not more than
30 calendar days notice, or union or collective bargaining agreement, (ii)
agreement with any executive officer or other key employee of the Company (iii)
agreement with a third party in which a Company officer or other employee is a
shareholder, partner, consultant or employee or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan.
SECTION 3.11 Litigation. Except as disclosed in Section 3.11 of the
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending before any Governmental Entity or, to the best knowledge
of the Company, threatened against the Company that could reasonably be expected
to have a material adverse effect on the Company or prevent or materially delay
the consummation of the Merger. Except as disclosed in Section 3.11 of the
Disclosure Schedule, the Company is not subject to any outstanding order, writ,
injunction or decree that could reasonably be expected to have a material
adverse effect on the Company or prevent or materially delay the consummation of
the Merger.
8
SECTION 3.12 Permits; Compliance with Law. The Company holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of its business (the "Company
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals that could not reasonably be expected to have a
material adverse effect on the Company. The Company is in compliance with the
terms of the Company Permits, except where the failure so to comply could not
reasonably be expected to have a material adverse effect on the Company. Except
as disclosed in Section 3.12 of the Disclosure Schedule, to the knowledge of the
Company, the business of the Company is not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for possible
violations that could not reasonably be expected to have a material adverse
effect on the Company or prevent or materially delay the consummation of the
Merger. As of the date of this Agreement, no investigation, inquiry or review by
any Governmental Entity with respect to the Company is pending or, to the best
knowledge of the Company, threatened, nor has any Governmental Entity indicated
an intention to conduct any such investigation, inquiry or review, other than,
in each case, those the outcome of which could not be reasonably expected to
have a material adverse effect on the Company or prevent or materially delay the
consummation of the Merger.
SECTION 3.13 Tax Matters.
(a) The financial statements of the Company (the "Company Financial
Statements") reflect an adequate reserve for all taxes payable by the Company
for all taxable periods and portions thereof through the Balance Sheet Date).
The unpaid taxes do not exceed that reserve as adjusted for the passage of time
through the Closing Date.
(b) The Company completed its first fiscal year on October 31, 2005,
and has not yet filed a tax return, and the Company is not under audit or
examination by any taxing authority, and no written or unwritten notice of such
an audit or examination has been received by the Company. No claim has ever been
made by an authority in a jurisdiction where Company does not file tax returns
that it is or may be subject to taxation by that jurisdiction.
(c) There is no agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any taxes and no
power of attorney with respect to any taxes has been executed or filed with any
taxing authority.
(d) No liens for taxes exist with respect to any assets or
properties of the Company, except for liens for taxes not yet due.
(e) The Company is not liable for taxes of any other person nor is
the Company a party to or bound by any tax sharing agreement, tax indemnity
obligation or similar agreement, arrangement or practice with respect to taxes
(including any advance pricing agreement, closing agreement or other agreement
relating to taxes with any taxing authority).
(f) The Company shall not be required to include in a taxable period
ending after the Effective Time taxable income attributable to income that
accrued in a prior taxable period but was not recognized in any prior taxable
period as a result of the installment method of accounting, the completed
contract method of accounting, the long-term contract method of accounting, the
cash method of accounting or Section 481 of the Code or comparable provisions of
state, local or foreign tax law.
9
(g) As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise, withholding and other
taxes, tariffs or governmental charges of any nature whatsoever, together with
all interest, penalties and additions imposed with respect to such amounts.
(h) The Company has not filed a consent pursuant to or agreed to the
application of Section 341(f) of the Code.
(i) Except as set forth in Section 3.13 of the Disclosure Schedule,
the Company is not a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes.
(j) Except as set forth in Section 3.13 of the Disclosure Schedule,
the Company has not entered into any sale leaseback or any leveraged lease
transaction that fails to satisfy the requirements of Revenue Procedure 75-21
(or similar provisions of foreign law).
(k) The Company is not a party to any agreement, contract,
arrangement or plan that would result (taking into account the transactions
contemplated by this Agreement), separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code.
(l) The Company has never been a Subchapter S corporation (as
defined in Section 1361 (a)(1) of the Code).
(m) All material elections with respect to taxes affecting the
Company are disclosed or attached to the Company's tax returns.
(n) There are no private letter rulings in respect of any tax
pending between the Company and any taxing authority.
(o) The Company is not a "United States real property holding
company" as defined in Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
SECTION 3.14 Intellectual Property.
(a) Except as set forth in Section 3.14(a) of the Disclosure
Schedule, except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy) could not reasonably be
expected to have a material adverse effect on the Company:
(1) the Company owns an interest in, or is licensed or
otherwise has the legally enforceable right to use (in each case, clear of any
liens or encumbrances of any kind), all Intellectual Property (as hereinafter
defined) used in or necessary for the conduct of its business as currently
conducted;
(2) except as set forth in Section 3.14(a) of the Disclosure
Schedule, no claims are pending or, to the best knowledge of the Company,
threatened that the Company is infringing on or otherwise violating the rights
of any person with regard to any Intellectual Property used by, owned by and/or
licensed to the Company and, to the best knowledge of the Company, there are no
valid grounds for any such claims;
10
(3) except as set forth in Section 3.14(a) of the Disclosure
Schedule, to the best knowledge of the Company, no person is infringing on or
otherwise violating any right of the Company with respect to any Intellectual
Property owned by and/or licensed to the Company.
(4) to the knowledge of the Company, there are no valid
grounds for any claim challenging the ownership or validity of any Intellectual
Property owned by the Company or challenging the Company's license or legally
enforceable right to use any Intellectual Property licensed by it; and
(5) to the knowledge of the Company, all patents, registered
trademarks, service marks and copyrights held by the Company are valid and
subsisting.
(b) For purposes of this Agreement, "Intellectual Property" means
trademarks (registered or unregistered), service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patented, patentable or not in any jurisdiction; trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works of authorship, whether
copyrighted, copyrightable or not in any jurisdiction; registration or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights and computer programs and software (including source code, object code
and data); licenses, immunities, covenants not to sue and the like relating to
the foregoing; and any claims or causes of action arising out of or related to
any infringement or misappropriation of any of the foregoing.
(c) Section 3.14(c) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to any
of its Intellectual Property, identifies each pending patent application or
application for registration which the Company has made with respect to any of
its Intellectual Property, and identifies each material license, agreement, or
other permission which the Company has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). The Company
has delivered to the Parent or its counsel correct and complete copies of all
such patents, registrations, applications, licenses, agreements, and permissions
(as amended to date). Section 3.14(c) of the Disclosure Schedule also identifies
each registered trademark used by the Company in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in Section 3.14(c) of the Disclosure Schedule:
(i) to the knowledge of the Company, the Company possesses all
right, title, and interest in and to the item, free and clear of any security
interest, license, or other restriction;
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(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) the Company has not received notice of any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand is
pending or, to the knowledge of the Company, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item; and
(iv) The Company has not agreed to indemnify any person for or
against any interference, infringement, misappropriation, or other conflict with
respect to the item, other than customary intellectual indemnities contained in
its customer agreements.
(d) Section 3.14(d) of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission, other
than "off the shelf" software licensed to the Company pursuant to shrinkwrap or
clickwrap agreements. The Company has delivered to the Parent or its counsel
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 3.14(d) of the Disclosure
Schedule:
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and effect in
all material respects;
(ii) no party to the license, sublicense, agreement, or
permission is in material breach or default, and no event has occurred which
with notice or lapse of time would constitute a material breach or default or
permit termination, modification, or acceleration thereunder;
(iii) no party to the license, sublicense, agreement, or
permission has repudiated any material provision thereof; and
(iv) the Company not has granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission in
violation of such license, sublicense, agreement or permission.
SECTION 3.15 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Stock voting as a class is the
only vote of the holders of any class of capital stock of the Company necessary
to approve this Agreement and the Merger.
SECTION 3.16 Labor Matters. Except as set forth in Section 3.16 of the
Disclosure Schedule, (i) there are no controversies pending or, to the knowledge
of the Company or any of its subsidiaries, threatened, between the Company and
any of its employees, which controversies have had, or could reasonably be
expected to have, a material adverse effect; (ii) the Company is not a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company, nor does the Company know of any activities or
proceedings of any labor union to organize any such employees; and (iii) the
Company does not have any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the Company
which could reasonably be expected to have a material adverse effect.
12
SECTION 3.17 Title to Property. Except as set forth in Section 3.17 of the
Disclosure Schedule, the Company has good and defensible title to all of its
properties and assets, free and clear of all liens, charges and encumbrances,
except liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby or which
could not reasonably be expected to have a material adverse effect; and, to the
knowledge of the Company, all leases pursuant to which the Company leases from
others material amounts of real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, to
the knowledge of the Company, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default could not
reasonably be expected to have a material adverse effect.
SECTION 3.18 Environmental Matters. Except as set forth in Section 3.18 of
the Disclosure Schedule, and except in all cases as have not had and could not
reasonably be expected to have a material adverse effect, to the best knowledge
of the Company, the Company (i) has obtained all applicable permits, licenses
and other authorizations which are required to be obtained under all applicable
federal, state or local laws or any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic material or wastes into ambient
air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") by the Company (or its agents); (ii)
is in compliance with all terms and conditions of such required permits,
licenses and authorization, and also is in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (iii) as of the date hereof, is not aware of nor has received notice of
any past or present violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding against the Company based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling, emission, discharge or release into the
environment of any pollutant, contaminant, or hazardous or toxic material or
waste; and (iv) has taken all actions necessary under applicable Environmental
Laws to register any products or materials required to be registered by the
Company (or any of its agents) thereunder.
SECTION 3.19 Accounts Receivable. The accounts receivable of the Company
as reflected in the Balance Sheet Date financial statements, to the extent
uncollected on the date hereof, and the accounts receivable reflected on the
books of the Company, are valid and existing and represent monies due, and the
Company has made reserves reasonably considered adequate for receivables not
collectible in the ordinary course of business, and (subject to the aforesaid
reserves) are subject to no refunds or other adjustments and to no defenses,
rights of setoff, assignments, restrictions, encumbrances or conditions
enforceable by third parties on or affecting any thereof, except for such
refunds, adjustments, defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions as would not reasonably be expected to have a
material adverse effect.
13
SECTION 3.20 Customers. Except as set forth in Section 3.20 of the
Disclosure Schedule, since inception there have not been any changes in the
business relationships of the Company with any of its merchants or customers
that would constitute a material adverse effect.
SECTION 3.21 Interested Party Transactions. Except as set forth in Section
3.21 of the Disclosure Schedule, since inception, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-B promulgated by the SEC.
SECTION 3.22 Absence of Certain Payments. None of the Company, any of its
subsidiaries or any of their respective affiliates, officers, directors,
employees or agent or other people acting on behalf of any of them have (i)
engaged in any activity prohibited by the United States Foreign Corrupt
Practices Act of 1977, or any other similar law, regulation, decree, directive
or order of any other country and (ii) without limiting the generality of the
preceding clause (i), used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others.
None of the Company, or any of its affiliates, directors, officers, employees or
agents of other persons acting on behalf of any of them, has accepted or
received any unlawful contributions, payments, gifts or expenditures.
SECTION 3.23 Insurance. The Company maintains all material fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance policies reasonably required for its
business and assets, such policies are with reputable insurance carriers,
provide coverage of all normal risks incident to the business of the Company and
its properties and assets and are in character and amount at least equivalent to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except as could not reasonably be expected to have a
material adverse effect. With respect to each such insurance policy: (a) to the
Company's knowledge, the policy is legal, valid, binding, enforceable, and in
full force and effect in all material respects; (b) neither the Company nor any
other party to the policy is in material breach or material default (including
with respect to the payment of premiums or the giving of notices), and, to the
Company's knowledge, no event has occurred which, with notice or the lapse of
time, would constitute such a material breach or material default, or permit
termination, modification, or acceleration, under the policy; and (c) no party
to the policy has provided the Company with notice of repudiation of any
material provision thereof.
SECTION 3.24 Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by the Company to the Parent and the
Acquisition Sub in, or pursuant to the provisions of, this Agreement, contains
or will contain any untrue statement of a material fact or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading. To the
Company's knowledge, there is no fact known to the Company that has not been
disclosed in writing to the Parent that would reasonably be expected to have or
result in a material adverse effect.
14
SECTION 3.25 Contracts. Section 3.25 of the Disclosure Schedule lists the
following contracts and other agreements to which the Company 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 $25,000 per annum;
(b) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year or involve consideration in
excess of $10,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $10,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement between the Parent and its affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time basis;
(j) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the ordinary course of
business;
(k) any agreement under which the consequences of a default or
termination would have a material adverse effect on the business, financial
condition, operations or results of operations of the Parent or a Parent
Subsidiary; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Company has delivered to the Parent or its counsel a complete copy of
each written agreement listed in Section 3.25 of the Disclosure Schedule (as
amended to date) and a written summary setting forth the material terms and
conditions of each oral agreement referred to in Section 3.25 of the Disclosure
Schedule. With respect to each such agreement: (i) the agreement is valid and
binding on the Company and in full force and effect in all material respects;
(ii) to the Company's knowledge, no party is in material breach or default, and,
no event has occurred which with notice or lapse of time would constitute a
material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iii) no party has provided the Company
with notice of repudiation of any material provision of the agreement.
15
SECTION 3.26 Real Property. The Company does not own any real property.
Section 3.26 of the Disclosure Schedule lists and describes briefly all real
property leased or subleased to the Company. Company has delivered to the Parent
or its counsel correct and complete copies of the leases and subleases listed in
Section 3.26 of the Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in Section 3.26 of the Disclosure Schedule,
except as otherwise stated therein:
(a) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect in all material respects;
(b) no party to the lease or sublease is in material breach or
material default, and, to the Company's knowledge, no event has occurred which,
with notice or lapse of time, would constitute a material breach or material
default or permit termination, modification, or acceleration thereunder;
(c) to the Company's knowledge, no party to the lease or sublease
has repudiated any material provision thereof;
(d) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(e) The Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or subleasehold;
and
(f) all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including material licenses and permits)
required in connection with the operation thereof, except where the lack of such
approvals, licenses or permits would not have a material adverse effect on the
Parent, and have been operated and maintained in accordance with applicable
laws, rules, and regulations in all material respects.
SECTION 3.27 No Other Representations. The Company and Company
stockholders shall not be deemed to have made a representation or warranty to
the Parent or the Acquisition Sub other than those expressly set forth in
Sections 3.01 through 3.26 above.
16
ARTICLE IV
Representations and Warranties of the Parent and the Acquisition Sub
Each of the Parent and the Acquisition Sub represents and warrants to the
Company as of the date hereof and as of the Closing that, except as otherwise
provided in the Disclosure Schedule or in the Parent's SEC Documents as follows:
SECTION 4.01 Organization. Each of the Parent, the Acquisition Sub and the
Parent Subsidiaries (as defined in Section 4.02) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority could not be reasonably expected to (i) prevent or materially
delay the consummation of the Merger or (ii) have a material adverse effect on
the Parent, the Acquisition Sub or the Parent Subsidiaries. Each of the Parent,
the Acquisition Sub and the Parent Subsidiaries is duly qualified or licensed to
do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing could
not reasonably be expected to have a material adverse effect on the Parent, the
Acquisition Sub or the Parent Subsidiaries or prevent or materially delay the
consummation of the Merger. Each of the Parent and the Acquisition Sub has made
available to the Company, and the Parent has caused each of the Parent
Subsidiaries to make available to the Company, complete and correct copies of
its certificate of incorporation and bylaws.
SECTION 4.02 Subsidiaries. The only subsidiaries of the Parent other than
the Acquisition Sub are listed in Section 4.02(a) of the Disclosure Schedule
("Parent Subsidiaries" or individually, a "Parent Subsidiary"). All the
outstanding shares of capital stock or membership interests of the Acquisition
Sub and each Parent Subsidiary are owned by the Parent or by another Parent
Subsidiary as set forth in Section 4.02(a) of the Disclosure Schedule, free and
clear of all Liens, and are duly authorized, validly issued, fully paid and
nonassessable. Except for the capital stock of the Acquisition Sub and the
Parent Subsidiaries or as set forth on Section 4.02 of the Disclosure Schedule,
the Parent does not own, directly or indirectly, any capital stock or other
ownership interest in any corporation, partnership, joint venture or other
entity.
17
SECTION 4.03 Capitalization. The authorized capital stock of the Parent
consists of one hundred million (100,000,000) shares of Parent Common Stock. As
of the date of this Agreement, (i) 32,157,560 shares of Parent Common Stock were
issued and outstanding, and (ii) listed on Section 4.03 of the Disclosure
Schedule are outstanding Parent Options Parent Warrants. Except as set forth
above, shares issued upon the exercise of Parent Derivative Stock and securities
to be issued by the Parent to Superior Associates as consideration to modify its
consulting agreement as reflected on Section 4.03 of the Disclosure Schedule,
since the date of this Agreement no shares of capital stock or other voting
securities of the Parent were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of the Parent are, and all shares which may
be issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Parent having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Parent may vote. Except as set forth
above, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Parent, the Acquisition Sub or any Parent Subsidiary is a party or by which any
of them is bound obligating the Parent, the Acquisition Sub or any Parent
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the Parent, the
Acquisition Sub or of any Parent Subsidiary obligating the Parent, the
Acquisition Sub or any Parent Subsidiary to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. There are not any outstanding contractual
obligations (i) of the Parent, the Acquisition Sub or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Parent, the Acquisition Sub or any Parent Subsidiary or (ii) of the Parent to
vote or to dispose of any shares of the capital stock of any of the Acquisition
Sub or any Parent Subsidiary. Except as set forth in Section 4.03 of the
Disclosure Schedule, there are no restrictions on the right of the Parent or the
Acquisition Sub to vote or dispose of any shares of the capital stock of the
Acquisition Sub or any Parent Subsidiary. The authorized capital stock of the
Acquisition Sub consists of 100 shares of common stock, par value, $0.001 (the
"Acquisition Sub Common Stock"), 100 of which are issued and outstanding as of
the date hereof. The Parent owns all issued and outstanding shares of the
Acquisition Sub Common Stock.
SECTION 4.04 Authority. Each of the Parent and the Acquisition Sub has
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will have been duly authorized by all necessary corporate
action on the part of the Parent and the Acquisition Sub and no other corporate
proceedings on the part of the Parent or the Acquisition Sub are necessary to
authorize this Agreement or to consummate such transactions. This Agreement has
been duly executed and delivered by the Parent and the Acquisition Sub, and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of the Parent and the
Acquisition Sub enforceable against each of them in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally. The Board of Directors of each of the Parent and
the Acquisition Sub, unanimously adopted resolutions approving this Agreement
and the Merger.
SECTION 4.05 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934 (the
"Exchange Act"), Section 251 of the DGCL and Section 607.1101 of the Florida
Act, neither the execution, delivery or performance of this Agreement by the
Parent and the Acquisition Sub nor the consummation by the Parent and the
Acquisition Sub of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of the certificate or articles of
incorporation or bylaws of the Parent or the Acquisition Sub, (ii) require any
filing with, or permit, authorization, consent or approval of, any Governmental
Entity (except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings could not be reasonably expected
to prevent or materially delay the consummation of the Merger), (iii) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument or obligation to which the Parent or the Acquisition Sub is a
party or by which either of them or any of their properties or assets may be
bound or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent or the Acquisition Sub or any of their
properties or assets, except in the case of clauses (iii) and (iv) for
violations, breaches or defaults that could not be reasonably be expected to
have a material adverse effect on the Parent or prevent or materially delay the
consummation of the Merger.
18
SECTION 4.06 SEC Reports and Financial Statements. The Parent has filed
with the SEC, and has heretofore made available to the Company true and complete
copies of, all forms, reports, schedules, statements and other documents (other
than preliminary materials) required to be filed by it under the Exchange Act
from and after January 1, 2005 (such forms, reports, schedules, statements and
other documents, including any financial statements or schedules included
therein, are referred to as the "Parent SEC Documents"). The Parent SEC
Documents, at the time filed, (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Exchange Act and the applicable
rules and regulations of the SEC thereunder (and to the extent applicable, the
PCAOB). The financial statements of the Parent included in the Parent SEC
Documents (the "Parent Financial Statements"), heretofore delivered to the
Company, as of the dates thereof comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC and the PCAOB with respect thereto, have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Rule 10-01 of Regulation S-X promulgated by the SEC)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments, none of which will be material) the consolidated
financial position of the Parent and its consolidated Parent Subsidiaries as at
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended. None of the Parent Subsidiaries is required to
file any forms, reports, schedules, statements or other documents with the SEC.
SECTION 4.07 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents or as set forth in Section 4.07 of the Disclosure
Schedule, since the Balance Sheet Date, the Parent, the Acquisition Sub and the
Parent Subsidiaries have conducted their respective businesses only in the
ordinary course consistent with past practice, and there has not been any
material adverse change (as defined in Section 9.03) with respect to the Parent,
the Acquisition Sub or the Parent Subsidiaries. Except as disclosed in the
Parent SEC Documents or as set forth in Section 4.07 of the Disclosure Schedule,
since the Balance Sheet Date, there has not been (i) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
Parent's capital stock or any redemption, purchase or other acquisition of any
of its capital stock, (ii) any split, combination or reclassification of any of
the Parent's capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of its capital stock, (iii) any material change in accounting methods,
principles or practices by the Parent (except insofar as may be required by a
change in GAAP), (iv) (w) any granting by the Parent, the Acquisition Sub or any
of the Parent Subsidiaries to any executive officer of the Parent, the
Acquisition Sub or any of the Parent Subsidiaries of any increase in
compensation, except in the ordinary course of business (including in connection
with promotions) consistent with past practice or as was required under
employment agreements in effect as of the Balance Sheet Date, (x) any granting
by the Parent, the Acquisition Sub or any of the Parent Subsidiaries to any such
officer of any increase in severance or termination pay, except as part of a
standard employment package to any person promoted or hired, or as was required
under employment, severance or termination agreements in effect as of the
Balance Sheet Date, (y) except employment arrangements in the ordinary course of
business consistent with past practice with employees other than any executive
officer of the Parent, the Acquisition Sub or any of the Parent Subsidiaries, as
applicable, any entry by the Parent, the Acquisition Sub or any of the Parent
Subsidiaries, as applicable, into any employment, severance or termination
agreement with any such employee or executive officer, or (z) any increase in or
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit-sharing, stock option (including the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards or the amendment of any existing stock options, stock appreciation
rights, performance awards or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, (v) any damage, destruction
or loss, whether or not covered by insurance, that has or reasonably could be
expected to have a material adverse effect on the Parent, (vi) any amendments or
changes in the certificate or articles of incorporation or bylaws of the Parent,
or Acquisition Sub or the Parent Subsidiaries (vii) any material revaluation by
the Parent of any of its assets, including writing down the value of inventory
or writing off notes or accounts receivable other than in the ordinary course of
business, or (viii) any other action or event that would have required the
consent of the Company pursuant to Section 5.01 had such action or event
occurred after the date of this Agreement.
19
SECTION 4.08 No Undisclosed Liabilities. To the knowledge of the Parent,
except as and to the extent set forth in the Parent SEC Documents or in Section
4.08 of the Disclosure Schedule, as of the Balance Sheet Date, none of the
Parent, the Acquisition Sub or the Parent Subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by GAAP to be reflected on a consolidated balance sheet of the
Company, the Acquisition Sub and the Parent Subsidiaries (including the notes
thereto). To the knowledge of the Parent, since the Balance Sheet Date, except
as and to the extent set forth in the Parent SEC Documents or in Section 4.08 of
the Disclosure Schedule and except for liabilities or obligations incurred in
the ordinary course of business consistent with past practice, none of the
Parent, the Acquisition Sub and the Parent Subsidiaries has incurred any
liabilities of any nature, whether or not accrued, contingent or otherwise, that
could be reasonably expected to have a material adverse effect on the Parent,
the Acquisition Sub or the Parent Subsidiaries or would be required by GAAP to
be reflected on a consolidated balance sheet of the Parent, the Acquisition Sub
and the Parent Subsidiaries (including the notes thereto).
SECTION 4.09 Benefit Plans. The Parent and Acquisition Sub have no
benefit plans or other plan, arrangement or policy (written or oral) relating to
stock options, stock purchases, compensation, deferred compensation, bonuses,
severance, fringe benefits or other employee benefits, maintained or contributed
to, or required to be maintained or contributed to, by the Parent, the
Acquisition Sub or the Parent Subsidiaries for the benefit of any present or
former employee, officer or director.
20
SECTION 4.10 Other Compensation Arrangements. Except as disclosed in
Section 4.10 of the Disclosure Schedule, and except as provided in this
Agreement, as of the date of this Agreement, the Parent and Acquisition Sub are
not a parties to any oral or written (i) consulting agreement that is not
terminable on not more than 30 calendar days notice, or union or collective
bargaining agreement, (ii) agreement with any executive officer or other key
employee of the Parent or Acquisition Sub (iii) agreement with a third party in
which a Parent of Acquisition Sub officer or other employee is a shareholder,
partner, consultant or employee or (iv) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan.
SECTION 4.101 Litigation. Except as disclosed in the Parent SEC Documents
or Section 4.11 of the Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending before any Governmental Entity or, to the
best knowledge of the Parent, threatened against the Parent, the Acquisition Sub
or any of the Parent Subsidiaries that could reasonably be expected to have a
material adverse effect on the Parent, the Acquisition Sub or any of the Parent
Subsidiaries or prevent or materially delay the consummation of the Merger.
Except as disclosed in the Parent SEC Documents or Section 4.11 of the
Disclosure Schedule, none of the Parent, the Acquisition Sub or any of the
Parent Subsidiaries is subject to any outstanding order, writ, injunction or
decree that could reasonably be expected to have a material adverse effect on
the Parent or prevent or materially delay the consummation of the Merger.
SECTION 4.112 Permits; Compliance with Law. The Parent, the Acquisition
Sub and the Parent Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for the
lawful conduct of their respective businesses (the "Parent Permits"), except for
failures to hold such permits, licenses, variances, exemptions, orders and
approvals that could not reasonably be expected to have a material adverse
effect on the Parent. The Parent, the Acquisition Sub and the Parent
Subsidiaries are in compliance with the terms of the Parent Permits, except
where the failure so to comply could not reasonably be expected to have a
material adverse effect on the Parent, the Acquisition Sub or a Parent
Subsidiary, as applicable. Except as disclosed in the Parent SEC Documents or in
Section 4.11 of the Disclosure Schedule, to the knowledge of the Parent, the
businesses of the Parent, the Acquisition Sub and the Parent Subsidiaries are
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations that could not reasonably be
expected to have a material adverse effect on the Parent, the Acquisition Sub or
a Parent Subsidiary or prevent or materially delay the consummation of the
Merger. As of the date of this Agreement, no investigation, inquiry or review by
any Governmental Entity with respect to the Parent, the Acquisition Sub or any
Parent Subsidiary is pending or, to the best knowledge of the Parent,
threatened, nor has any Governmental Entity indicated an intention to conduct
any such investigation, inquiry or review, other than, in each case, those the
outcome of which could not be reasonably expected to have a material adverse
effect on the Parent or prevent or materially delay the consummation of the
Merger. The Parent is and at all times has been in full compliance with the
Sarbanes-Oxley act of 2002 ("SOX"). In furtherance of this representation, and
without limiting the foregoing, the Parent has taken those actions set forth on
Section 4.12 of the Disclosure Schedule and copies of the written procedures and
policies adopted to comply with SOX are attached to Section 4.12 of the
Disclosure Schedule.
21
SECTION. 4.13 Tax Matters.
(a) As of the Closing, the Parent, the Acquisition Sub and each of
the Parent Subsidiaries has filed all tax returns and reports required to be
filed by it, the failure of which filing would be reasonably expected to have a
material adverse effect on the Parent, the Acquisition Sub or a Parent
Subsidiary or prevent or materially delay the consummation of the Merger. As of
the Closing, all such returns are complete and correct in all material respects
(except to the extent a reserve has been established on its most recent
financial statements contained in the Parent SEC Documents). As of the Closing,
each of the Parent, the Acquisition Sub and the Parent Subsidiaries has paid (or
the Parent has paid on its subsidiaries' behalf) all taxes required to be paid
by it (without regard to whether a tax return is required or to the amount shown
on any tax return), except taxes for which an adequate reserve has been
established on its most recent financial statements. As of the Closing, the most
recent financial statements reflect an adequate reserve for all taxes payable by
the Parent and the Parent Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements. The unpaid taxes do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Parent and each Parent
Subsidiary in filing their tax returns.
(b) Except as set forth in Section 4.13 of the Disclosure Schedule,
no material tax return of the Parent, the Acquisition Sub or any of the Parent
Subsidiaries is under audit or examination by any taxing authority, and no
written or unwritten notice of such an audit or examination has been received by
the Parent, the Acquisition Sub or any of the Parent Subsidiaries. Each material
deficiency resulting from any audit or examination relating to taxes by any
taxing authority has been paid, except for deficiencies being contested in good
faith. No material issues relating to taxes were raised in writing by the
relevant taxing authority during any presently pending audit or examination, and
no material issues relating to taxes were raised in writing by the relevant
taxing authority in any completed audit or examination that can reasonably be
expected to recur in a later taxable period. The tax returns of the Parent and
the Parent Subsidiaries have not been examined by and/or settled with any
Governmental Entity. No claim has ever been made by an authority in a
jurisdiction where the Parent or the Parent Subsidiaries does not file tax
returns that it is or may be subject to taxation by that jurisdiction.
(c) With regard to the Parent and the Parent Subsidiaries, there is
no agreement or other document extending, or having the effect of extending, the
period of assessment or collection of any taxes and no power of attorney with
respect to any taxes has been executed or filed with any taxing authority.
(d) No liens for taxes exist with respect to any assets or
properties of the Parent, the Acquisition Sub or any of the Parent Subsidiaries,
except for liens for taxes not yet due.
22
(e) None of the Parent, the Acquisition Sub or any of the Parent
Subsidiaries is liable for taxes of any other person (other than taxes of the
Parent, the Acquisition Sub and the Parent Subsidiaries,) or is a party to or is
bound by any tax sharing agreement, tax indemnity obligation or similar
agreement, arrangement or practice with respect to taxes (including any advance
pricing agreement, closing agreement or other agreement relating to taxes with
any taxing authority).
(f) None of the Parent, the Acquisition Sub or any of the Parent
Subsidiaries shall be required to include in a taxable period ending after the
Effective Time taxable income attributable to income that accrued in a prior
taxable period but was not recognized in any prior taxable period as a result of
the installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state, local
or foreign tax law.
(g) Neither the Parent nor, to the best knowledge of the Parent, the
Acquisition Sub or any of the Parent Subsidiaries has filed a consent pursuant
to or agreed to the application of Section 341(f) of the Code.
(h) Except as set forth in Section 4.13 of the Disclosure Schedule,
none of the Parent, the Acquisition Sub or any of the Parent Subsidiaries is a
party to any joint venture, partnership, or other arrangement or contract which
could be treated as a partnership for federal income tax purposes.
(i) Except as set forth in Section 4.13 of the Disclosure Schedule,
none of the Parent, the Acquisition Sub or any of the Parent Subsidiaries has
entered into any sale leaseback or any leveraged lease transaction that fails to
satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of
foreign law).
(j) None of the Parent, the Acquisition Sub or any of the Parent
Subsidiaries is a party to any agreement, contract, arrangement or plan that
would result (taking into account the transactions contemplated by this
Agreement), separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(k) None of the Parent, the Acquisition Sub or any of the Parent
Subsidiaries has ever been a Acquisition Subchapter S corporation (as defined in
Section 1361 (a)(1) of the Code).
(l) All material elections with respect to taxes affecting the
Parent, the Acquisition Sub and the Parent Subsidiaries are disclosed or
attached to the Parent's tax returns.
(m) There are no private letter rulings in respect of any tax
pending between the Parent, the Acquisition Sub or a Parent Subsidiary and any
taxing authority.
SECTION. 4.14 Brokers. No broker, investment banker, financial advisor or
other person, , the fees and expenses of which will be paid by the Parent, is
entitled to any broker's fees, finder's fees, financial advisor's fees or other
similar fees or commissions in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Parent.
23
SECTION 4.15 Intellectual Property. The Parent and the Acquisition Sub
have no intellectual property.
SECTION. 4.16 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of the Acquisition Sub Common Stock is the
only vote of the holders of any class of capital stock of the Acquisition Sub,
or any Parent Subsidiary, the Parent necessary to approve this Agreement and the
Merger.
SECTION 4.17 Labor Matters. The Parent and the Acquisition Sub have no
liabilities and we unaware of controversies with employees, which controversies
could be reasonably expected to have a material adverse effect on the Parent or
the Acquisition Sub.
SECTION.4.18 Title to Property. Except as set forth in Section 4.18 of the
Disclosure Schedule, the Parent, the Acquisition Sub and each of the Parent
Subsidiaries have good and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances, except liens for
taxes not yet due and payable and such liens or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which could not reasonably be
expected to have a material adverse effect; and, to the knowledge of the Parent,
all leases pursuant to which the Parent, the Acquisition Sub or any of the
Parent Subsidiaries lease from others material amounts of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of the Parent, under any of
such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default), except where the
lack of such good standing, validity and effectiveness or the existence of such
default or event of default could not reasonably be expected to have a material
adverse effect.
SECTION 4.19 Environmental Matters. The Parent and the Acquisition Sub
have no liabilities under any environmental laws or rules, which could be
reasonably expected to have or result in a material adverse effect.
SECTION. 4.20 Interested Party Transactions. Except as set forth in
Section 4.20 of the Disclosure Schedule or the Parent SEC Documents, since the
Balance Sheet Date, no event has occurred that would be required to be reported
as a Certain Relationship or Related Transaction, pursuant to Item 404 of
Regulation S-B promulgated by the SEC.
SECTION. 4.21 Absence of Certain Payments. None of the Parent, the
Acquisition Sub and any of the Parent Subsidiaries or any of their respective
affiliates, officers, directors, employees or agent or other people acting on
behalf of any of them have (i) engaged in any activity prohibited by the United
States Foreign Corrupt Practices Act of 1977, or any other similar law,
regulation, decree, directive or order of any other country and (ii) without
limiting the generality of the preceding clause (i), used any corporate or other
funds for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others. None of the Parent, the Acquisition Sub and any of the Parent
Subsidiaries or any of their respective affiliates, directors, officers,
employees or agents of other persons acting on behalf of any of them, has
accepted or received any unlawful contributions, payments, gifts or
expenditures.
24
SECTION 4.22 Insurance. The Parent and each Parent Subsidiary maintain all
material fire and casualty, general liability, business interruption, product
liability and sprinkler and water damage insurance policies reasonably required
for its business and assets, such policies are with reputable insurance
carriers, provide coverage of all normal risks incident to the business of the
Parent and the Parent Subsidiaries, as applicable, and their respective
properties and assets and are in character and amount at least equivalent to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except as could not reasonably be expected to have a
material adverse effect. With respect to each such insurance policy: (a) to the
Parent's and the Parent Subsidiary's knowledge, as applicable, the policy is
legal, valid, binding, enforceable, and in full force and effect in all material
respects; (b) neither the Parent or the Parent Subsidiary, as applicable, nor
any other party to the policy is in material breach or material default
(including with respect to the payment of premiums or the giving of notices),
and, to the Parent's knowledge, no event has occurred which, with notice or the
lapse of time, would constitute such a material breach or material default, or
permit termination, modification, or acceleration, under the policy; and (c) no
party to the policy has provided the Parent or a Parent Subsidiary with notice
of repudiation of any material provision thereof.
SECTION 4.23 Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by the Parent to the Company in, or
pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading. To the Parent's
knowledge, there is no fact known to the Parent that has not been disclosed in
writing to the Company that would reasonably be expected to have or result in a
material adverse effect.
SECTION 4.24 Acquisition Sub. The Acquisition Sub was organized under
Florida law on February 27, 2006 and has not engaged in any business
transactions or incurred any liabilities. Its only assets are organizational
costs. Immediately prior to the Closing, Parent will make a capital contribution
to Acquisition Sub consisting of the Parent Common Stock and Parent Derivative
Stock which constitutes the Merger Consideration.
SECTION 4.25 Real Property. Neither the Parent nor the Acquisition Sub
owns any real property nor is either a party to a lease that is (i) terminable
on more than 30 days' notice or (ii) could be reasonably expected to have a
material adverse effect on the Parent or the Acquisition Sub.
SECTION 4.26 No Other Representations. The Parent and the Parent
stockholders shall not be deemed to have made a representation or warranty to
the Company other than those expressly set forth in Sections 4.01 through 4.25
above.
25
ARTICLE V
Covenants
SECTION 5.01 Covenants. Each of the Company and the Parent agrees as to
itself, the Acquisition Sub and the Parent Subsidiaries that (except as
expressly contemplated or permitted by this Agreement, as set forth in the
Disclosure Schedule or to the extent that the other party shall otherwise
consent in writing in advance), from and after the execution of this Agreement
through the earlier of Closing or termination of this Agreement:
(a) Ordinary Course. Each of the Company and the Parent shall, and
the Parent shall cause the Parent Subsidiaries to, carry on their respective
businesses in the usual, regular and ordinary course and each of the Company and
the Parent shall, and the Parent shall cause the Parent Subsidiaries to, use all
reasonable efforts to preserve intact their present business organizations, keep
available the services of their present officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with the Company or the Parent and the Parent Subsidiaries,
respectively.
(b) Dividends; Changes in Stock. Except for the reverse split, the
dividend to warrant holders and exchange offer required by Article VII, neither
the Company nor the Parent shall, and the Parent shall not permit the
Acquisition Sub or any of the Parent Subsidiaries to, (i) declare or pay any
dividends on or make other distributions in respect of any of its capital stock,
except for, (ii) split, combine or reclassify any of its capital stock or issue
or authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iii) repurchase,
redeem or otherwise acquire any shares of its capital stock or the capital stock
of its subsidiaries or any other securities thereof.
(c) Issuance of Securities. Except as contemplated by this
Agreement, neither the Company nor the Parent shall, and the Parent shall not
permit the Acquisition Sub or any of the Parent Subsidiaries to, issue, deliver,
sell, pledge or encumber, or authorize or propose the issuance, delivery, sale,
pledge or encumbrance of, any shares of its capital stock of any class or any
securities convertible into, or any rights, warrants, calls, subscriptions or
options to acquire, any such shares or convertible securities, or any other
ownership interest (including stock appreciation rights or phantom stock) other
than (i) the issuance of shares of the Parent Common Stock upon the exercise of
the Parent Options outstanding on the date of this Agreement and in accordance
with the terms of such the Parent Options or Parent Warrants, (ii) issuances by
a wholly-owned subsidiary of the Parent of its capital stock to its parent, or
(iii) the issuance of up to 1,100,000 shares of Company Stock to service
providers, suppliers and distributors.
(d) Governing Documents. Except for the requirement that the Parent
shall reincorporate under the laws of the State of Delaware as required under
Article VII below, neither the Company nor the Parent shall, and the Parent
shall not permit the Acquisition Sub or any of the Parent Subsidiaries to, amend
or propose to amend its certificate or articles of incorporation or bylaws (or
similar organizational documents).
26
(e) No Acquisitions. Neither the Company nor the Parent shall, and
the Parent shall not permit the Acquisition Sub or any of the Parent
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any substantial assets of (other than
inventory and equipment in the ordinary course consistent with past practice, to
the extent not otherwise prohibited by this Agreement), or by any other manner,
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof.
(f) No Dispositions. Other than dispositions in the ordinary course
of business consistent with past practice, neither the Company nor the Parent
shall, and the Parent shall not permit any of the Parent Subsidiaries to, sell,
lease, license, encumber or otherwise dispose of, or agree to sell, lease,
license, encumber or otherwise dispose of, any of its assets.
(g) Indebtedness. Neither the Company nor the Parent shall, and the
Parent shall not permit the Acquisition Sub or any of the Parent Subsidiaries
to, (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or the Parent, the Acquisition Sub or
any of the Parent Subsidiaries, guarantee any debt securities of others, enter
into any "keep-well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the economic
effect of any of the foregoing, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than, with respect
to both clause (i) and (ii) above, any advances to employees in accordance with
past practice. Provided, however, that Parent is entitled to incur debt to pay
professionals in connection with the filing of its Form 10-QSB for the quarter
ended January 31, 2006.
(h) Advice of Changes; Filings. Each of the Company and the Parent
shall confer with the other party on a regular and frequent basis as reasonably
requested by the other party, report on operational matters and promptly advise
the other party orally and, if requested by the other party, in writing of any
change or event having, or which, insofar as can reasonably be foreseen, is
likely to have, a material adverse effect on the Company or the Parent, as
applicable. Each of the Company and the Parent shall promptly provide to the
other party (or its counsel) copies of all filings made by such party with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
(i) Accounting Changes. Neither the Company nor the Parent shall
make any material change, other than in the ordinary course of business,
consistent with past practice, or as required by the SEC, PCAOB or law, with
respect to any accounting methods, principles or practices used by such party
(except insofar as may be required by a change in GAAP, of which the other party
shall be promptly notified).
(j) Discharge of Liabilities. Except for fees and expenses related
to the transactions contemplated herein, neither the Company nor the Parent
shall, and the Parent shall not permit the Acquisition Sub or any of the Parent
Subsidiaries to, pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of (i) liabilities recognized or disclosed in the Parent
Financial Statements, (ii) liabilities incurred since the date of such financial
statements in the ordinary course of business consistent with past practice, or
(iii) the liabilities of the Parent set forth in Section 5.01(j) of the
Disclosure Schedule. Neither the Company nor the Parent shall, and the Parent
shall not permit any of the Parent Subsidiaries to, waive the benefits of, or
agree to modify in any manner, any confidentiality, standstill or similar
agreement to which such party or any of its subsidiaries is a party.
27
(k) Compensation of Employees. Neither the Company nor the Parent or
any of the Parent Subsidiaries will, without the prior written consent of the
other party, except as may be required by law or otherwise provided in this
Agreement, (i) enter into, adopt, amend or terminate any employee benefit planor
any agreement, arrangement, plan or policy for the benefit of any director,
executive officer or current or former key employee, (ii) increase in any manner
the compensation or fringe benefits of, or pay any bonus to, any director,
executive officer or key employee, except as required by any employee benefit
plan or agreement with such employees existing on the date of this Agreement,
(iii) enter into, adopt, amend or terminate any employee benefit plan or
agreement, arrangement, plan or policy for the benefit of any employees other
than increases in compensation as required by written agreement, copies of which
are identified in Section 5.01 of the Disclosure Schedule or (iv) pay any
benefit not required by any plan or arrangement as in effect as of the date
hereof (including the granting of, acceleration of exercisability of or vesting
of stock options, stock appreciation rights or restricted stock).
(l) Material Contracts. Neither the Company nor the Parent or any of
the Parent Subsidiaries shall (i) modify, amend or terminate any material
contract or agreement to which the such party is a party, or (ii) waive, release
or assign any material rights or claims.
(m) No Dissolution, Etc. Neither the Company nor the Parent shall
authorize, recommend, propose or announce an intention to adopt a plan of
complete or partial liquidation of the Company or the Parent or any of its
subsidiaries, respectively.
(n) Tax Election. Except as set forth in Section 3.13 of the
Disclosure Schedule, the Company shall not make any tax election or settle or
compromise any material income tax liability. Except as set forth in Section .
of the Disclosure Schedule, the Parent shall not make any tax election or settle
or compromise and material income tax liability.
(o) Other Actions. Neither the Company nor the Parent shall nor will
the Parent permit any of the Parent Subsidiaries to take or agree or commit to
take any action that is reasonably likely to result in any of the Company's or
the Parent's, as applicable, representations or warranties hereunder being
untrue in any material respect at, or as of any time prior to, the Effective
Time.
(p) General. Neither the Company nor the Parent shall, and the
Parent shall not permit the Acquisition Sub or any of the Parent Subsidiaries
to, authorize any of, or commit or agree to take any of, the foregoing actions
described in this Section 5.01.
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SECTION 5.02 No Solicitation.
(a) The Company and its officers, directors, employees,
representatives and agents and the Parent and its officers, directors,
employees, representatives and agents all shall immediately cease any
discussions or negotiations with any parties that may be ongoing with respect to
an Acquisition Proposal (as hereinafter defined). From and after the date hereof
until the termination of this Agreement, neither the Company nor the Parent
shall, nor the Parent shall not permit the Acquisition Sub or any of the Parent
Subsidiaries to, authorize or permit any of their respective officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing non-public information or assistance), or knowingly take any other
action to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
or (ii) participate in any discussions or negotiations regarding any Acquisition
Proposal; provided, however, that if, at any time the Board of Directors of the
Company or the Parent determines in good faith, after consultation with
independent legal counsel (who may be such party's regularly engaged independent
counsel), that it is necessary to do so in order to comply with its fiduciary
duties to its stockholders under applicable law, the Company or the Parent, as
applicable may, in response to an unsolicited Superior Proposal (as hereinafter
defined), and subject to compliance with Section 5.02(d), (x) furnish
information with respect to the Company or the Parent, as applicable, to the
person making such unsolicited Superior Proposal pursuant to a confidentiality
agreement in reasonably customary form, and (y) participate in discussions or
negotiations regarding such Superior Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 20% or more of the
assets of the Company or the Parent, the Acquisition Sub and the Parent
Subsidiaries, as applicable or 20% or more of any class of equity securities of
the Company, or the Parent, the Acquisition Sub or any of the Parent
Subsidiaries, as applicable, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company or the Parent, the Acquisition Sub or
any of the Parent Subsidiaries, any merger, consolidation, business combination,
sale of all or substantially all the assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company or the Parent, the
Acquisition Sub or any of the Parent Subsidiaries, as applicable, (other than
the transactions between the parties hereto contemplated by this Agreement), or
any other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which could
reasonably be expected to dilute materially the benefits to the other party
hereto of the transactions contemplated hereby. For purposes of this Agreement,
a "Superior Proposal" means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the shares of Company Stock or the Parent Common
Stock, as applicable, then outstanding or all or substantially all the assets of
the Company or the Parent, as applicable, and otherwise on terms which the Board
of Directors of the Company or the Parent, as applicable, determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's stockholders or the
Parent's stockholders, as applicable than the terms of the Merger set forth in
this Agreement.
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(b) Except as set forth in this Section 5.02, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to the Parent, the
approval or recommendation of this Agreement or the Merger by the Board of
Directors or such committee, (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal, or (iii) cause the Company to enter into
any agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, in the event that the Board of Directors of the Company determines in
good faith, after consultation with independent legal counsel (who may be the
Company's regularly engaged independent counsel), that it is necessary to do so
in order to comply with its fiduciary duties to the Company's stockholders under
applicable law, the Board of Directors of the Company may (subject to the other
provisions of Section 5.02) withdraw or modify its approval or recommendation of
this Agreement and the Merger, approve or recommend a Superior Proposal (as
defined above), cause the Company to enter into an agreement with respect to a
Superior Proposal or terminate this Agreement, but in each case only at a time
that is after the fifth business day following the Parent's receipt of written
notice (a "Notice of Company Superior Proposal") advising the Parent that the
Board of Directors of the Company has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company proposes to
enter into an agreement with respect to any Acquisition Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid, to the
Parent the Termination Fee (as such term is defined in Section 6.05(b).
(c) Except as set forth in this Section 5.02, neither the Board of
Directors of the Parent nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to the Company, the
approval or recommendation of this Agreement or the Merger by the Board of
Directors or such committee, (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal, or (iii) cause the Parent to enter into any
agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, in the event that the Board of Directors of the Parent determines in
good faith, after consultation with independent legal counsel (who may be the
Parent's regularly engaged independent counsel), that it is necessary to do so
in order to comply with its fiduciary duties to the Parent's stockholders under
applicable law, the Board of Directors of the Parent may (subject to the other
provisions of Section 5.02) withdraw or modify its approval or recommendation of
this Agreement and the Merger, approve or recommend a Superior Proposal (as
defined below), cause the Company to enter into an agreement with respect to a
Superior Proposal or terminate this Agreement, but in each case only at a time
that is after the fifth business day following the Company's receipt of written
notice (a "Notice of Parent Superior Proposal") advising the Company that the
Board of Directors of the Parent has received a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Parent proposes to
enter into an agreement with respect to any Acquisition Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid, to the
Company the Termination Fee).
(d) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.02, the Company shall promptly advise
the Parent orally and in writing of any request for information or of any
Acquisition Proposal, the material terms and conditions of such request or
Acquisition Proposal and the identity of the person making such request or
Acquisition Proposal. In addition to the obligations of the Parent set forth in
paragraphs (a) and (c) of this Section 5.02, the Parent shall promptly advise
the Company orally and in writing of any request for information or of any
Acquisition Proposal, the material terms and conditions of such request or
Acquisition Proposal and the identity of the person making such request or
Acquisition Proposal.
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(e) Nothing contained in this Section 5.02 shall prohibit the
Company or the Parent from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to its stockholders if, in the good faith judgment of the Board
of Directors of the Company or the Parent, as applicable, after consultation
with independent legal counsel (who may be such party's regularly engaged
independent counsel), failure so to disclose would be inconsistent with its
fiduciary duties to its stockholders under applicable law; provided, however,
none of the Company, the Parent nor their respective Boards of Directors nor any
committee thereof shall, except as permitted by Section 5.02(b) or (c), withdraw
or modify, or propose to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal.
SECTION 5.03 Trading Restrictions The Parent shall use its best efforts to
cause each of its officers and directors not to sell, transfer, assign or
otherwise dispose of any shares of the Parent Common Stock prior to the Closing
Date. The Company shall use its best efforts to cause each of its officers,
directors and stockholders not to sell, transfer, assign or otherwise dispose of
any shares of Company Stock prior to the Closing Date.
SECTION 5.04 Other Actions. Except as contemplated by Section 5.02 or the
other provisions of this Agreement, neither the Company nor the Parent shall,
and the Parent shall not permit the Acquisition Sub or any of the Parent
Subsidiaries to, take any action that could reasonably be expected to result in
(i) any of its representations and warranties set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or (iii) any of the conditions to the Merger set forth in
Article VII hereof not being satisfied in all material respects.
SECTION 5.05 The Parent and the Parent Subsidiary Liabilities / Cash at
Closing. As of the Effective Time, the Parent shall cause all liabilities and
obligations of the Parent and each Parent Subsidiary (including legal,
accounting and financial advisor fees) to be satisfied in full other than those
liabilities and obligations referenced in Article VII below.
ARTICLE VI
Additional Agreements
SECTION 6.01 Lock-Up Agreement. The Parent shall cause Jacob Herskovits
6.01 to execute and deliver to the Parent a Lock-Up Agreement, in substantially
the form attached hereto as Exhibit B, which will permit Mr. Herskovits to sell
no more than 50,000 shares of the Parent Common Stock per 30 day period for the
180 days immediately following the Closing Date.
SECTION 6.02 Access to Information. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which such party is
subject (from which it shall use reasonable efforts to be released), the Company
and the Parent shall, and the Parent shall cause each of the Parent Subsidiaries
to, afford to the other party and to the officers, employees, accountants,
counsel and other representatives of the other party access, during normal
business hours to all their respective properties, books, contracts, commitments
and records and, during such period, the Company and the Parent shall (and shall
cause each of its subsidiaries to) furnish promptly to the other party (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to SEC requirements, and (b) all
other information concerning its business, properties and personnel as the other
party may reasonably request.
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SECTION 6.03 Reasonable Efforts. Each of the Company, the Parent and the
Acquisition Sub agrees to use its reasonable efforts to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on itself with respect to the Merger (which actions shall
include furnishing all information required in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with the
Merger. Each of the Company, the Parent and the Acquisition Sub will, and the
Parent shall cause the Acquisition Sub and each of the Parent Subsidiaries to,
use its reasonable efforts to take all reasonable actions necessary to obtain
(and will cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or other
public or private third party required to be obtained or made by the Parent, the
Company, the Acquisition Sub or any of the Parent Subsidiaries in connection
with the Merger or the taking of any action contemplated by this Agreement,
except that no party need waive any substantial rights or agree to any
substantial limitation on its operations or to dispose of or hold separate any
material assets.
SECTION 6.04 Confidentiality. Prior to the Closing, each of the Company,
the Acquisition Sub and the Parent shall, and shall cause its affiliates (as
defined in Section 9.03) and its and their employees, agents, accountants, legal
counsel and other representatives and advisers to, hold in strict confidence
all, and not divulge or disclose any information of any kind concerning the
other party and its business; provided, however, that the foregoing obligation
of confidence shall not apply to (i) information that is or becomes generally
available to the public other than as a result of a disclosure by such party,
any of its affiliates or any of their respective employees, agents, accountants,
legal counsel or other representatives or advisers, (ii) information that is or
becomes available to such party, any of its affiliates or any of their
respective employees, agents, accountants, legal counsel or other
representatives or advisers on a nonconfidential basis, and (iii) information
that is required to be disclosed by such party, any of its affiliates or any of
their respective employees, agents, accountants, legal counsel or other
representatives or advisers as a result of any applicable law, rule or
regulation of any Governmental Entity; and provided further that such party
promptly shall notify the other party of any disclosure pursuant to clause (iii)
of this Section 6.04. Promptly after any termination of this Agreement, each of
the Company, the Acquisition Sub and the Parent, and their respective
representatives shall return to the other party or destroy all copies of
documentation with respect to the other party that were supplied by or on behalf
of the other party pursuant to this Agreement, without retaining any copy
thereof, and destroy any notes or analyses such party, and/or its
representatives may have prepared containing information derived from such
materials.
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SECTION 6.05 Fees and Expenses. Except as provided in Article VII below,
all fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
SECTION 6.06 Indemnification; Insurance.
(a) The Parent and the Acquisition Sub agree that all rights to
indemnification for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of the Company
(the "Company Indemnified Parties") and the current or former directors or
officers of the Parent (the "Parent Indemnified Parties") as provided in their
respective certificates or articles of incorporation or bylaws (or similar
organizational documents) or existing indemnification contracts shall survive
the Merger and shall continue in full force and effect in accordance with their
terms for a period of one (1) year.
(b) This Section 6.06 shall survive the consummation of the Merger
at the Effective Time, is intended to benefit the Company, the Parent, the
Surviving Corporation, the Company Indemnified Parties and the Parent
Indemnified Parties and their respective heirs, personal representatives,
successors and assigns, and shall be binding on all successors and assigns of
the Company, the Parent and the Surviving Corporation.
ARTICLE VII
Conditions
SECTION 7.01 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Authority or other regulatory
body required in connection with the execution, delivery and performance of this
Agreement, the failure to obtain which would prevent the consummation of the
Merger or have a material adverse effect on the Company or the Parent, shall
have been obtained without the imposition of any condition having a material
adverse effect on Company or the Parent; and
(b) No Governmental Entity or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order or decree, or any
ruling, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal, materially
restricting or in any way preventing or prohibiting the Merger or the
transactions contemplated by this Agreement; provided, however, that each of the
parties shall have used reasonable efforts (subject to the other terms and
conditions of this Agreement) to prevent the entry of any such injunction or
other order.
(c) The record date of the reverse stock split shall have passed.
(d) The Parent shall have filed with the SEC its Form 10-QSB for the
quarter ended January 31, 2006.
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(e) Prior to the Closing, Parent shall offer the stockholders who
purchased its Parent Common Stock pursuant to that certain October 2004 private
placement offering the opportunity to exchange said shares purchased for
convertible notes containing such provisions as shall be reasonably acceptable
to the Company.
SECTION 7.02 Conditions to Obligations of the Parent and the Acquisition
Sub to Effect the Merger. The obligations of the Parent and the Acquisition Sub
to effect the Merger are further subject to satisfaction or waiver at or prior
to the Effective Time of the following conditions.
(a) There shall not have occurred any change, condition, event or
development that has resulted in, or could reasonably be expected to result in,
a material adverse effect on the Company;
(b) The representations and warranties of the Company in this
Agreement that are qualified by materiality shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time;
(c) The representations and warranties of the Company in this
Agreement that are not qualified by materiality shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Time;
(d) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement;
(e) An officer of the Company shall have delivered to the Parent and
the Acquisition Sub a certificate to the effect that each of the conditions
specified in Sections 7.02(a), (b), (c) and (d) is satisfied in all respects;
(f) All authorizations, consents, waivers and approvals from parties
to contracts or other agreements to which the Company is a party, or by which it
is bound, as may be required to be obtained by it in connection with the
performance of this Agreement, the failure to obtain which would prevent the
consummation of the Merger or have, individually or in the aggregate, a material
adverse effect on Company, shall have been obtained;
(g) The Parent shall have received an opinion, dated the Effective
Time, of Harris Cramer LLP, counsel to the Company, in form and substance
reasonably satisfactory to the Parent;
(h) No suit, action or proceeding before any court or any
governmental or regulatory authority shall have been commenced and be pending by
any person against the Company, the Parent, the Acquisition Sub or any of their
affiliates, associates, officers or directors (i) challenging the Merger,
seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or seeking to obtain any substantial damages
relating to the consummation of the transactions contemplated by this Agreement,
(ii) seeking to prohibit or impose any material limitation on the ownership or
operation by the Parent (or any of its affiliates or subsidiaries) of all or a
material portion of the business or assets or properties of the Company or to
compel the Parent (or any of its affiliates or subsidiaries) to dispose of or
hold separate all or any portion of the business or assets of the Company, (iii)
seeking to impose any material limitation upon the ability of the Parent (or any
of its affiliates) effectively to acquire or hold or to exercise full rights of
ownership of the Company, or (iv) which otherwise is reasonably likely to have a
material adverse effect on the Company;
34
(i) Prior to the Effective Time, Jacob Herskovits shall have
cancelled, for no consideration, 9,000,000 shares of the Parent Common Stock
held by him;
(j) Except for the consulting agreement with Superior Associates,
the Parent shall have terminated all leases and consulting agreements to which
it, or any of the Parent Subsidiaries is a party;
(k) The Parent shall have entered into an amendment of its
consulting agreement with Superior Associates temporarily suspending the
obligation to pay any fees pursuant to the consulting agreement, and providing
that upon the Parent obtaining financing in excess of $1,250,000, the Parent
shall resume paying consulting fees in the amount of $6,250 per month;
(l) The Parent shall have entered into an agreement with Aboudi &
Brounstein acknowledging a total balance due of $28,500 (covering $10,000 to
complete the Merger, $3,500 for the Form 10-QSB and $15,000 for previous two
Forms 10-QSB and previous Form 10-KSB), which Aboudi & Brounstein agrees to
accept as payment in full upon the Parent obtaining financing in excess of
$1,250,000;
(m) The Parent shall have entered into an agreement with certain
creditors referred to on Section 7.02 of the Disclosure Schedule acknowledging a
total balance due of $75,314 which they collectively agree to accept as payment
in full upon the Parent obtaining financing in excess of $1,250,000;
(n) The Parent shall have entered into an agreement with a creditor
regarding its existing note payable in the amount of $95,000 providing that
one-half of the principal and interest due on the note shall be paid upon the
Parent receiving financing in excess of $1,250,000 and the balance shall be due
120 days from the date of Closing;
(o) The Company shall deliver to the Parent audited financial
statements for its fiscal year ended October 31, 2005;
(p) the Lock-up Agreement required by Section 6.01 shall be in full
force and effect; and
(q) the Closing Date shall be at least a day after the record date
of the reverse split.
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SECTION 7.03 Conditions to Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger are further subject
to satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) There shall not have occurred any change, condition, event or
development that has resulted in, or could reasonably be expected to result in,
a material adverse effect on the Parent;
(b) The representations and warranties of the Parent in this
Agreement that are qualified by materiality shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time;
(c) The representations and warranties of the Acquisition Sub in
this Agreement that are not qualified by materiality shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time;
(d) The Parent and the Acquisition Sub shall have performed in all
material respects all obligations required to be performed by them under this
Agreement;
(e) The Parent and the Acquisition Sub each shall have delivered to
the Company a certificate to the effect that each of the conditions specified in
Sections 7.03(a), (b), (c) and (d) is satisfied in all respects;
(f) All authorizations, consents, waivers and approvals from parties
to contracts or other agreements to which the Company is a party, or by which it
is bound, as may be required to be obtained by it in connection with the
performance of this Agreement, the failure to obtain which would prevent the
consummation of the Merger or have, individually or in the aggregate, a material
adverse effect on Company, shall have been obtained;
(g) No suit, action or proceeding before any court or any
governmental or regulatory authority shall have been commenced and be pending by
any person against the Company, the Parent, the Acquisition Sub or any of their
affiliates, associates, officers or directors (i) challenging the Merger,
seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or seeking to obtain any substantial damages
relating to the consummation of the transactions contemplated by this Agreement,
(ii) seeking to prohibit or impose any material limitation on the ownership or
operation by the Parent (or any of its affiliates or subsidiaries) of all or a
material portion of the business or assets or properties of the Company or to
compel the Parent (or any of its affiliates or subsidiaries) to dispose of or
hold separate all or any portion of the business or assets of the Company, (iii)
seeking to impose any material limitation upon the ability of the Parent (or any
of its affiliates) effectively to acquire or hold or to exercise full rights of
ownership of the Company, or (iv) which otherwise is reasonably likely to have a
material adverse effect on the Parent or a Parent subsidiary;
(h) The Company shall have received an opinion, dated the Effective
Time, of Aboudi & Brounstein, counsel to the Parent and the Acquisition Sub, in
form reasonably satisfactory to the Company, with respect to the matters set
forth in Sections 4.01, 4.02, 4.03, 4.04 and 4.05 hereof;
36
(i) Prior to the reverse split, Jacob Herskovits shall have
cancelled, for no consideration, 9,000,000 shares of the Parent Common Stock
held by him;
(j) Except for the consulting agreement with Superior Associates,
parent shall have terminated all leases and consulting agreements to which it,
or any of the Parent Subsidiaries is a party;
(k) The Parent shall have entered into an amendment of its
consulting agreement with Superior Associates temporarily suspending the
obligation to pay any fees pursuant to the consulting agreement, and providing
that upon the Parent obtaining financing in excess of $1,250,000, the Parent
shall resume paying consulting fees in the amount of $6,250 per month;
(l) The Parent shall have entered into an agreement with Aboudi &
Brounstein acknowledging a total balance due of $28,500 (covering $10,000 to
complete the Merger, $3,500 for the Form 10-QSB and $15,000 for previous two
Forms 10-QSB and previous Form 10-KSB), which Aboudi & Brounstein agrees to
accept as payment in full upon the Parent obtaining financing in excess of
$1,250,000;
(m) The Parent shall have entered into an agreement with certain
creditors referred to on Section 7.03 of the Disclosure Schedule acknowledging a
total balance due of $75,314 which they collectively agree to accept as payment
in full upon the Parent obtaining financing in excess of $1,250,000;
(n) The Parent shall have entered into an agreement with a creditor
regarding its existing note payable in the amount of $95,000 providing that
one-half of the principal and interest due on the note shall be paid upon the
Parent receiving financing in excess of $1,250,000 and the balance shall be due
120 days from the date of Closing;
(o) shall have reincorporated under the laws of the State of
Delaware;
(p) The Lock-up Agreement required by Section 6.01 shall be in full
force and effect;
(q) The Merger shall have received the requisite Company stockholder
approval; and
(r) The Parent and each of the Parent Subsidiaries shall have filed
all tax returns and reports required to be filed by them and pay all taxes and
penalties relating thereto.
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ARTICLE VIII
Termination and Amendment
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the stockholders of the Company:
(a) by mutual written consent of the Parent and the Company;
(b) by either the Parent or the Company if any Governmental Entity
shall have issued an order, injunction, decree or ruling or taken any other
action (that has not been vacated, withdrawn or overturned) permanently
enjoining, restraining or otherwise prohibiting the acceptance for payment of,
or payment for, shares of Company Stock pursuant to the Merger and such order,
decree or ruling or other action shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant to this
Section 8.01(b) shall not be available to any party that has failed to perform
its obligations under Section 6.03;
(c) by the Parent or the Acquisition Sub, if
(i) (A) the representations and warranties of the Company in
Section 3.03 shall not have been true and correct in all material respects when
made, or (B) any other representation or warranty of the Company pursuant to
this Agreement shall not have been true and correct in all material respects
when made, except in any case where such failure to be true and correct would
not, in the aggregate, (x) have a material adverse effect on the Company, or (y)
prevent or materially delay the consummation of the Merger, provided that such
breach has continued without cure for a period of 20 days after receipt of the
notice of breach;
(ii) (A) the representations and warranties of the Company in
Section 3.03 (other than representations and warranties made as of a specified
date) shall have ceased at any later date to be true and correct in all material
respects as if made as of such later date, or (B) any other representation or
warranty of the Company pursuant to this Agreement (other than representations
and warranties made as of a specified date) shall have ceased at any later date
to be true and correct in all material respects as if made at such later date,
except in any case where such failure to be true and correct would not, (x) in
the aggregate, have a material adverse effect or (y) prevent or materially delay
the consummation of the Merger, provided that such breach has continued without
cure for a period of 20 days after receipt of the notice of breach; or
(iii) the Company shall have failed to comply with any of its
obligations or covenants contained herein except in any case where such failure
to comply would not be reasonably likely to (x) have a material adverse effect
with respect to the Company or (y) prevent or materially delay the consummation
of the Merger, provided that such breach has continued without cure for a period
of 20 days after receipt of the notice of breach.
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(d) by the Company, if
(i) (A) the representations and warranties of the Parent and
the Acquisition Sub in Section 4.03 shall not have been true and correct in all
material respects when made, or (B) any other representation or warranty of the
Parent and the Acquisition Sub pursuant to this agreement shall not have been
true and correct in all material respects when made, except in any case where
such failure to be true and correct would not, in the aggregate, (x) have a
material adverse effect on the Parent or a Parent Subsidiary, or (y) prevent or
materially delay the consummation of the Merger, provided that such breach has
continued without cure for a period of 20 days after receipt of the notice of
breach;
(ii) (A) the representations and warranties of the Parent and
the Acquisition Sub in Section 4.03 (other than representations and warranties
made as of a specified date) shall have ceased at any later date to be true and
correct in all material respects as if made as of such later date, or (B) any
other representation or warranty of the Parent and the Acquisition Sub pursuant
to this Agreement (other than representations and warranties made as of a
specified date) shall have ceased at any later date to be true and correct in
all material respects as if made at such later date, except in any case where
such failure to be true and correct would not, (x) in the aggregate, have a
material adverse effect or (y) prevent or materially delay the consummation of
the Merger, provided that such breach has continued without cure for a period of
20 days after receipt of the notice of breach; or
(iii) The Parent and the Acquisition Sub shall have failed to
comply with any of their obligations or covenants contained herein except in any
case where such failure to comply would not be reasonably likely to (x) have a
material adverse effect with respect to the Parent or a Parent Subsidiary or (y)
prevent or materially delay the consummation of the Merger, provided that such
breach has continued without cure for a period of 20 days after receipt of the
notice of breach.
(e) by the Parent or the Acquisition Sub, if
(i) the Board of Directors of the Company or any committee
thereof shall have failed to approve or shall have withdrawn or modified in a
manner adverse to the Parent its approval of the Merger or this Agreement, or
approved or recommended any Acquisition Proposal;
(ii) the Company shall have entered into any agreement with
respect to any Superior Proposal in accordance with Section 5.02(b); or
(iii) the Board of Directors of the Company or any committee
thereof shall have resolved to take any of the foregoing actions;
(f) by the Company in connection with entering into a definitive
agreement in accordance with Section 5.02(b), provided it has complied with all
provisions thereof, including the notice provisions therein and the payment of
the Termination Fee, and provided that the Company shall not have breached in
any material respect the provisions of Section 5.02(a); or
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(g) by the Company , if
(i) the Board of Directors of the Parent or the Acquisition
Sub or any committee thereof shall have failed to approve or shall have
withdrawn or modified in a manner adverse to the Company its approval of the
Merger or this Agreement, or approved or recommended any Acquisition Proposal;
(ii) The Parent shall have entered into any agreement with
respect to any Superior Proposal in accordance with Section 5.02(c); or
(iii) the Board of Directors of the Parent or the Acquisition
Sub or any committee thereof shall have resolved to take any of the foregoing
actions;
(h) by the Parent in connection with entering into a definitive
agreement in accordance with Section 5.02(c), provided it has complied with all
provisions thereof, including the notice provisions therein and the payment of
the Termination Fee, and provided that the Parent shall not have breached in any
material respect the provisions of Section 5.02(a); or
(i) by either the Parent or the Company if the Effective Time shall
not have occurred on or before March 31, 2006, unless extended by agreement of
the parties hereto.
SECTION 8.02 Effect of Termination. In the event of a termination of this
Agreement by either the Company, the Parent or the Acquisition Sub as provided
in Section 8.01, this Agreement shall forthwith become void and there shall be
no liability or obligation on the part of the Parent, the Acquisition Sub or the
Company or their respective officers, directors, stockholders or affiliates,
except with respect to Section ., Section 6.04, Section 6.05, this Section 8.02
and Article IX; provided, however, that nothing herein shall relieve any party
for liability for any breach hereof.
SECTION 8.03 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
provided, however, that no amendment shall be made which by law requires further
approval by such stockholders (or which reduces the amount or changes the Merger
Consideration to be delivered to such stockholders) without obtaining such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 8.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or, (iii) subject to the
first sentence of Section 8.03, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
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ARTICLE IX
Miscellaneous
SECTION 9.01 Nonsurvival of Representations and Warranties. The
representations and warranties in this Agreement and in any instrument delivered
pursuant to this Agreement shall survive the Effective Time for a period of 24
months. This Section 9.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
SECTION 9.02 Notices and Addresses. All notices, offers, acceptance and
any other acts under this Agreement shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar overnight next business day delivery, or by facsimile delivery
followed by overnight next business day delivery, as follows:
(a) if to Parent or Cell Power Technologies, Inc.
Acquisition Sub, to: 1428 36th Street, Suite 205
Brooklyn, New York 11218
Attention: Jacob Herskovits
Telecopy No.:
Confirm No.:
with a copy to:
Aboudi & Brounstein Law Offices
3 Gavish Street
Kfar Saba Ind. Zone 44641 Israel
Attention: David Aboudi, Esq.
Telecopy No.: 011 972-9-764-4834
Confirm No.: 011 972-9-764-4833
(b) if to the Portagy 29626 Meadowmist Way
Corp. Company, to: Agoura Hills, California 92301
Todd Ruhalter, President
Telecopy No.:
Confirm No.:
with a copy to: Harris Cramer LLP
1555 Palm Beach Lakes Boulevard, Suite 310
West Palm Beach, Florida 33401
Attention: Daryl B. Cramer, Esquire
Telecopy No.: (561) 659-0701
Confirm No.: (561) 478-7077
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or to such other address as any of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be evidence of successful facsimile delivery. Time shall
be counted from the date of transmission.
SECTION 9.03 Interpretation. When a reference is made in this Agreement to
an Article or a Section, such reference shall be to an Article or a Section of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. As used in this Agreement, the term "subsidiary" of any person
means another person, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or, if there are no
such voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person, and the term "affiliate" shall have
the meaning set forth in Rule 12b-2 promulgated under the Exchange Act. As used
in this Agreement, "material adverse change" or "material adverse effect" means,
when used in connection with a person, any change or effect (or any development
that, insofar as can reasonably be foreseen, is likely to result in any change
or effect) that, individually or in the aggregate with any such other changes or
effects, is materially adverse to the business, prospects, assets (including
intangible assets), financial condition or results of operations of such person
and its subsidiaries taken as a whole.
SECTION 9.04 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when said counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all parties
need not sign the same counterpart.
SECTION 9.05 Entire Agreement; Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except as provided in Section 6.06 are not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
SECTION 9.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware and, to the extent provided
herein, the Florida Act, without regard to any applicable conflicts of law.
SECTION 9.07 Publicity. Except as otherwise required by law, for so long
as this Agreement is in effect, neither the Company nor the Parent shall, nor
permit any of its subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld or delayed. Parent's disclosure of
the existence of this Agreement and the terms thereunder in accordance with its
obligation under the Exchange Act shall not be deemed to be a violation of this
Section 9.07
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SECTION 9.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 9.09 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of Florida in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Florida. The prevailing party in any judicial
action shall be entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and court
costs.
SECTION 9.10 No Remedy in Certain Circumstances. Each party agrees that,
should any court or other competent authority hold any provision of this
Agreement to be null, void or unenforceable, or order any party to take any
action inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth in this Agreement shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Agreement or makes this Agreement impossible to perform, in which case this
Agreement shall terminate pursuant to Article VIII hereof. Except as otherwise
contemplated by this Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or required
hereby pursuant to an order or judgment of a court or other competent authority,
such party shall incur no liability or obligation unless such party did not in
good faith seek to resist or object to the imposition or entering of such order
or judgment.
[Signature Page Attached]
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IN WITNESS WHEREOF, the Parent, the Acquisition Sub and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
CELLPOWER TECHNOLOGIES, INC
By:
------------------------------------
Jacob Herskovits, President and
Chief Executive Officer
PORTAGY ACQUISITION CORP.
By:
------------------------------------
Jacob Herskovits, President
PORTAGY CORP.
By:
------------------------------------
Charles Wiesel, President
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