AGREEMENT AND PLAN OF MERGER by and among CUSTOMER ACQUISITION NETWORK HOLDINGS, INC., CUSTOMER ACQUISITION NETWORK, INC. DESKTOP ACQUISITION SUB, INC., DESKTOP INTERACTIVE, INC., MICHAEL KATZ, BRANDON GUTTMAN and STEPHEN GUTTMAN, Dated as of August...
by
and
among
CUSTOMER
ACQUISITION NETWORK, INC.
DESKTOP
ACQUISITION SUB, INC.,
DESKTOP
INTERACTIVE, INC.,
XXXXXXX
XXXX,
XXXXXXX
XXXXXXX
and
XXXXXXX
XXXXXXX,
Dated
as
of August 31, 2007
TABLE
OF CONTENTS
ARTICLE
I DEFINITIONS
|
1
|
|||
ARTICLE
II THE MERGER
|
8
|
|||
2.1
|
The
Merger
|
8
|
||
2.2
|
Effective
Time
|
8
|
||
2.3
|
Effects
of the Merger
|
8
|
||
2.4
|
Certificate
of Incorporation, Bylaws and Directors and Officers
|
8
|
||
2.5
|
Conversion
of Shares
|
8
|
||
2.6
|
Exchange
of Shares for Merger Consideration
|
9
|
||
2.7
|
Allocation
of Merger Consideration
|
9
|
||
2.8
|
Buyer
Common Stock
|
10
|
||
2.9
|
Delivery
of Certificates and Cash
|
10
|
||
2.10
|
Earn-Out
|
10
|
||
2.11
|
The
Closing
|
11
|
||
2.12
|
Closing
Deliveries by the Stockholders and the Company
|
12
|
||
2.13
|
Closing
Deliveries by Parent and Buyer
|
13
|
||
ARTICLE
III REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
|
14
|
|||
3.1
|
Organization
and Qualification of the Company
|
14
|
||
3.2
|
Capitalization
|
15
|
||
3.3
|
Stock
Ownership by Stockholders
|
15
|
||
3.4
|
Authorization;
Enforceability
|
15
|
||
3.5
|
No
Conflict; Governmental Consents
|
16
|
||
3.6
|
Intentionally
Omitted
|
16
|
||
3.7
|
Taxes
|
16
|
||
3.8
|
Litigation;
Compliance with Laws
|
18
|
||
3.9
|
Transactions
with Affiliates
|
18
|
||
3.10
|
No
Brokers or Finders
|
19
|
||
3.11
|
Disclosure
|
19
|
||
ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF XXXXXXX XXXX
|
19
|
|||
4.1
|
No
Company Conflicts
|
19
|
||
4.2
|
Financial
Statements; Undisclosed Liabilities
|
19
|
||
4.3
|
Employee
Matters
|
20
|
||
4.4
|
Material
Contracts
|
20
|
||
4.5
|
No
Other Compensation
|
22
|
||
4.6
|
Real
Property
|
22
|
||
4.7
|
Intellectual
Property
|
22
|
||
4.8
|
Insurance
and Banking
|
22
|
||
4.9
|
Receivables
|
23
|
||
4.10
|
Benefit
Plans
|
23
|
||
4.11
|
Environmental
|
24
|
||
4.12
|
Questionable
Payments
|
24
|
||
4.13
|
Disclosure
|
24
|
i
ARTICLE
V REPRESENTATIONS AND WARRANTIES OF PARENT
|
25
|
|||
5.1
|
Organization
and Authority of Parent and Buyer
|
25
|
||
5.2
|
Capitalization
|
25
|
||
5.3
|
Sufficiency
of Funds
|
26
|
||
5.4
|
No
Conflict; Governmental Consents
|
26
|
||
5.5
|
Financial
Statements; Undisclosed Liabilities
|
26
|
||
5.6
|
SEC
Reporting
|
27
|
||
5.7
|
Officers
and Directors
|
27
|
||
5.8
|
Registration
Rights; Lock-up
|
28
|
||
5.9
|
No
Other Compensation
|
28
|
||
ARTICLE
VI ADDITIONAL AGREEMENTS
|
28
|
|||
6.1
|
Assumption
of Risk by Parent and Buyer; No Reliance
|
28
|
||
6.2
|
Notices
and Consents
|
29
|
||
6.3
|
Taking
of Necessary Action; Further Action
|
29
|
||
6.4
|
Stockholders’
Obligation to Close
|
29
|
||
6.5
|
Employment
Matters
|
30
|
||
6.6
|
Directors’
and Officers’ Indemnification and Insurance
|
30
|
||
6.7
|
Further
Assurances
|
31
|
||
6.8
|
Lease
|
31
|
||
6.9
|
Release
|
31
|
||
ARTICLE
VII TAX MATTERS
|
31
|
|||
7.1
|
Conveyance
Taxes
|
31
|
||
7.2
|
Pre-Closing
Income Tax Returns
|
31
|
||
7.3
|
Straddle
Period
|
32
|
||
7.4
|
Last
Day of Taxable Period
|
32
|
||
7.5
|
Tax
Cooperation
|
33
|
||
7.6
|
Required
Notification
|
33
|
||
7.7
|
Section
368(a) Reorganization; Indemnification
|
33
|
||
ARTICLE
VIII INDEMNIFICATION
|
34
|
|||
8.1
|
Obligations
of Stockholders
|
34
|
||
8.2
|
Obligations
of Parent
|
35
|
||
8.3
|
Procedure
|
36
|
||
8.4
|
Survival
|
37
|
||
8.5
|
Notice
by Indemnifying Party
|
37
|
||
8.6
|
Exclusive
Remedy
|
37
|
||
8.7
|
Mitigation
|
37
|
||
8.8
|
Consequential
and Other Damages
|
37
|
||
ARTICLE
IX GENERAL
|
38
|
|||
9.1
|
Amendments;
Waivers
|
38
|
||
9.2
|
Schedules;
Exhibits; Integration
|
38
|
||
9.3
|
Governing
Law
|
38
|
||
9.4
|
No
Assignment
|
38
|
||
9.5
|
Headings
|
38
|
ii
9.6
|
Counterparts
|
38
|
||
9.7
|
Publicity
and Reports
|
38
|
||
9.8
|
Parties
in Interest
|
39
|
||
9.9
|
Notices
|
39
|
||
9.10
|
Remedies;
Waiver
|
40
|
||
9.11
|
Attorney’s
Fees
|
40
|
||
9.12
|
Severability
|
40
|
||
9.13
|
Entire
Agreement
|
40
|
||
9.14
|
Time
is of the Essence
|
40
|
||
9.15
|
Arbitration
|
40
|
||
9.16
|
Expenses
|
41
|
||
9.17
|
Disclosures
|
41
|
iii
Exhibits
Exhibit
A Form
of
Certificate of Merger
Exhibit
B Form
of
Employment Agreement
Exhibit
C Form
of
Release
Exhibit
D Form
of
Non-Competition Agreement
Exhibit
E Form
of
Termination Agreement
Exhibit
F Form
of
Settlement Agreement
Exhibit
G Form
of
Lock-Up Agreement
Exhibit
H Form
of
Legal Opinion of Counsel for Parent
Exhibit
I Form
of
Shareholder Rights Letter
iv
This
Agreement and Plan of Merger is entered into as of August 31, 2007, by
and among
CUSTOMER ACQUISITION NETWORK HOLDINGS, INC., a Delaware corporation
(“Parent”);
CUSTOMER ACQUISITION NETWORK, INC. a Delaware corporation (“CAN”),
DESKTOP ACQUISITION SUB, INC., a Delaware corporation and wholly-owned
subsidiary of Parent (“Buyer”);
DESKTOP INTERACTIVE, INC., a Delaware corporation (the “Company”);
XXXXXXX XXXX, XXXXXXX XXXXXXX and XXXXXXX XXXXXXX, the holders of all of
the
capital stock of the Company (each individually a “Stockholder”
and
collectively, the “Stockholders”).
Parent, CAN, Buyer, Company and the Stockholders are each a “party”
and
together are “parties”
to
this
Agreement.
RECITALS
WHEREAS,
the Company owns and operates an Internet advertising business serving
Internet
advertising to website publishers including proprietary technology operated
under the name “Interclick” and the Company, Stockholders, and CAN have entered
into a Letter of Intent dated as of August 23, 2007 (the “LOI”)
contemplating the acquisition by CAN (or a successor) of the Company in
a
transaction intended to be tax-free;
WHEREAS,
the Stockholders own 100% of the issued and outstanding capital stock of
the
Company; and
WHEREAS,
the Boards of Directors of Parent, Buyer and the Company and the Stockholders
of
the Company and the stockholder of the Buyer have each approved the acquisition
of Company by merger of the Company with and into the Buyer, with the Buyer
surviving such merger, upon the terms and subject to the conditions set
forth in
this Agreement, whereby all of the issued and outstanding shares of the
capital
stock of the Company will be converted into the right to receive the Merger
Consideration (as defined herein); and
WHEREAS,
it is intended that, for federal income tax purposes, the transactions
contemplated by this Agreement shall qualify as a tax-free reorganization
under
the provisions of Section 368(a) of the Internal Revenue Code of 1986,
as
amended, and the regulations promulgated thereunder (the “Code”).
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises contained herein and
other
good and valuable consideration, the receipt and sufficiency of which is
hereby
acknowledged, and intending to be legally bound the parties agree as
follows:
ARTICLE
I
DEFINITIONS
For
all
purposes of this Agreement, except as otherwise expressly provided,
(a) the
terms
defined in this Article I have the meanings assigned to them in this Article
I
and include the plural as well as the singular,
1
(b) all
accounting terms not otherwise defined herein have the meanings assigned
under
GAAP,
(c) all
references in this Agreement to designated “Articles,” “Sections” and other
subdivisions are to the designated Articles, Sections and other subdivisions
of
the body of this Agreement,
(d) pronouns
of either gender or neuter shall include, as appropriate, the other pronoun
forms, and
(e) the
words
“herein,” “hereof” and “hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or
other
subdivision.
As
used
in this Agreement and the schedules delivered pursuant to this Agreement,
the
following definitions shall apply:
“AAA
Rules”
has the
meaning set forth in Section
9.15.
“Action”
means
any action, complaint, claim, charge, petition, investigation, suit or
other
proceeding, whether civil or criminal, in law or in equity, or before any
mediator, arbitrator or Governmental Entity.
“Affiliate”
means
with respect to any specified Person, any other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or
is under common control with, such specified Person.
“Agreement”
means
this Agreement and Plan of Merger, as amended or supplemented, together
with all
exhibits and schedules attached or incorporated by reference.
“Approval”
means
any approval, authorization, consent, qualification or registration, or
any
waiver of any of the foregoing, required to be obtained from, or any notice,
statement or other communication required to be filed with or delivered
to, any
Governmental Entity or any other Person.
“Business”
means
the business of the Company as conducted immediately prior to the Closing
Date,
and shall be deemed to include any of the following incidents of such business:
income, cash flow, operations, condition (financial or other), assets,
anticipated revenues, prospects, liabilities and personnel.
“Business
Day”
means
any day that is not a Saturday, a Sunday or other day on which banks are
required or authorized by law to be closed in New York, New York.
“Buyer”
has the
meaning set forth in the preamble to this Agreement.
2
“CAN”
has the
meaning set forth in the preamble to this Agreement.
“Cash
Portion of the Merger Consideration”
means
any cash payable to the Stockholders as Merger Consideration.
“Certificate
of Merger”
has the
meaning set forth in Section
2.2.
“Certificates”
has the
meaning set forth in Section
2.6.
“Claim”
has the
meaning set forth in Section
8.3.
“Claim
Notice”
has the
meaning set forth in Section
8.3.
“Closing”
has the
meaning set forth in Section 2.11.
“Closing
Date”
means
the date of the Closing as set forth in Section
2.11.
“Code”
has the
meaning set forth in the preamble to this Agreement.
“Common
Stock”
means
the common stock, par value $0.01 per share, of the Company.
“Company”
has the
meaning set forth in the preamble to this Agreement.
“Company
Financial Statements”
means
the (a) unaudited balance sheets of the Company as of December 31, 2006,
and the
related unaudited statements of income, changes in stockholders’ equity, and
cash flow for the fiscal year then ended; and (b) unaudited balance sheet
of the
Company as of June 30, 2007 (the “June
30, 2007 Balance Sheet”)
and
the related unaudited statement of income for the six (6) months then ended
and
annexed hereto on Schedule
4.2.
“Contract”
means
any agreement, contract, arrangement, bond, loan commitment, franchise,
indemnity, indenture, instrument, lease, license or understanding, whether
or
not in writing.
“December
31, 2006 Balance Sheet”
has the
meaning set forth in Section
4.2(b).
“DGCL”
has the
meaning set forth in Section
2.1.
“Earn-Out
Payment”
has the
meaning set forth in Section
2.10.
“Earn-Out
Period”
has the
meaning set forth in Section
2.10.
“Earn-Out
Target Payment”
means
$1,000,000.
“Effective
Time”
has the
meaning set forth in Section
2.2.
“Employee”
or
“Employees”
means
any individual who is (a) an employee of the Company immediately prior
to the
Closing Date and (b) employees of the Company on any authorized leave of
absence, including, without limitation, short- or long-term disability
leave,
worker’s compensation leave or vacation leave as of the Closing
Date.
3
“Employment
Agreement”
has the
meaning set forth in Section
2.12(b).
“Encumbrance”
means
any claim, charge, easement, encumbrance, lease, covenant, security interest,
lien, option, pledge, rights of others, or restriction (whether on voting,
sale,
transfer, disposition or otherwise), whether imposed by agreement,
understanding, law, equity or otherwise, except for any restrictions on
transfer
generally arising under any applicable federal or state securities
law.
“Environmental
Laws”
shall
mean all Laws relating to (a) the control of any potential pollutant or
protection of the air, water, land or protected species, (b) solid, gaseous
or
liquid waste generation, handling, treatment, storage, disposal or
transportation and (c) the regulation of or exposure to hazardous, toxic
or
other substances alleged to be harmful.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the SEC promulgated thereunder.
“GAAP”
means
generally accepted accounting principles in the United States, as in effect
from
time to time.
“Governmental
Entity”
means
any government or any agency, bureau, board, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government, whether federal, state or local, domestic or foreign.
“Gross
Margin”
has the
meaning set forth in Section
2.10.
“Hazardous
Materials”
means
any “hazardous substance,” “pollutant or contaminant,” and “petroleum” and
“natural gas liquids” as those terms are defined or used in section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, and
any
other material regulated under any Environmental Law because of its effect
or
potential effect on public health and the environment, including without
limitation, PCBs, lead paint, asbestos, urea formaldehyde, radioactive
materials
and wastes generated during the production of oil and gas.
“Indemnified
Directors and Officers”
has the
meaning set forth in Section
6.6(a).
“Indemnified
Party”
has the
meaning set forth in Section
8.3.
“Indemnifying
Party”
has the
meaning set forth in Section
8.3.
“Income
Taxes”
has the
meaning set forth in Section
7.2.
“Intellectual
Property”
means
all patents, trademarks, trade names, service marks, domain names, copyrights,
and any applications therefor, trade secrets, and computer software programs
or
applications that are necessary in the conduct of the Business as currently
conducted.
4
“IRS”
means
the United States Internal Revenue Service or any successor entity, and
to the
extent relevant, the United States Department of Treasury.
“Knowledge”
or
“Known”
shall
mean, with respect to a particular Stockholder, the actual knowledge (without
investigation) of such Stockholder.
“Law”
means
any constitutional provision, statute or other law, rule, regulation, or
interpretation of any Governmental Entity and any Order.
“Leased
Real Property”
has the
meaning set forth in Section
4.6.
“Loss”
means
any action, cost, damage, disbursement, expense, liability, loss, deficiency,
diminution in value, obligation, penalty or settlement of any kind or nature,
whether foreseeable or unforeseeable, including but not limited to, interest
or
other carrying costs, penalties, legal, accounting and other professional
fees
and expenses incurred in the investigation, collection, prosecution and
defense
of claims and amounts paid in settlement, that may be imposed on or otherwise
incurred or suffered by the specified Person.
“Margin
Target”
has the
meaning set forth in Section
2.10.
“Material
Adverse Effect”
means,
with respect to any Person, (i) a material adverse effect on the condition
(financial or otherwise), business, prospects, assets, liabilities, or
results
of operations of such Person; or (ii) a material adverse effect on the
ability
of such Person to consummate the transactions contemplated by this
Agreement.
“Material
Contract”
means,
any Contract deemed material by Section
4.4.
“Merger”
has the
meaning set forth in Section
2.1.
“Merger
Consideration”
has
the
meaning set forth in Section
2.5.
“Non-Competition
Agreement”
has the
meaning set forth in Section
2.12(j).
“Order”
means
any decree, injunction, judgment, order, ruling, assessment or writ of
any
Governmental Entity.
“Parent”
has the
meaning set forth in the preamble to this Agreement.
“Parent
Financial Statements”
has the
meaning set forth in Section
5.6.
“Parent
SEC Reports”
has the
meaning set forth in Section
5.5(a).
“Parent
Indemnified Party”
has the
meaning set forth in Section
8.1.
“Parent
Indemnifying Party”
has the
meaning set forth in Section
8.2.
5
“Parent
Shares”
shall
mean shares of common stock, par value $0.001 per share, of Parent (or
its
permitted successor) delivered to the Stockholders as part of the Merger
Consideration.
“Permit”
means
any license, permit, franchise, certificate of authority, or order, or
any
waiver of the foregoing, required to be issued by any Governmental
Entity.
“Person”
means an
association, a corporation, an individual, a partnership, a limited liability
company, a trust or any other entity or organization, including a Governmental
Entity.
“Pre-Closing
Income Tax Returns”
has the
meaning set forth in Section
7.2.
“Real
Property”
means
all real property and leased property owned or leased by the
Company.
“Reorganization”
has
the
meaning set forth in Section
7.7.
“Revenue
Target”
has the
meaning set forth in Section
2.10.
“SEC”
means
the United States Securities and Exchange Commission.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations of
the SEC
promulgated thereunder.
“Settlement
Agreement”
has the
meaning set forth in Section
2.12(o).
“Share”
and
“Shares”
has the
meaning set forth in Section
2.5
and
includes all options, warrants or other securities convertible into
shares.
“Shareholder
Rights Agreement”
has the
meaning set forth in Section
2.13(e).
“Stock
Representations”
has the
meaning set forth in Section
8.1(c).
“Stockholder”
and
“Stockholders”
has the
meaning set forth in the preamble to this Agreement.
“Stockholder
Indemnified Party”
has the
meaning set forth in Section
8.2.
“Stockholder
Indemnifying Party”
and
“Stockholder
Indemnifying Parties”
has the
meaning set forth in Section
7.1.
“Stock
Portion of the Merger Consideration”
means
that portion of the Merger Consideration that is evidenced by the Parent
Shares
issued to the Stockholders as set forth in Schedule
2.5.
“Stockholders
Agreement”
means
the Stockholders Agreement dated as of May 24, 2004 by and among each of
the
Company, Xxxxxxx Xxxx, Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxxx.
6
“Stock
Split”
means a
10.9583333333-for1 share forward stock split of the Common Stock of the
Parent
which was approved by the board of directors of the Parent on August 27,
2007.
“Straddle
Period”
has the
meaning set forth in Section
7.3.
“Subsidiary”
means,
with respect to any Person, (a) any corporation 50% or more of whose stock
of
any class or classes having by the terms thereof ordinary voting power
to elect
a majority of the directors of such corporation (irrespective of whether
or not
at the time stock of any class or classes of such corporation have or might
have
voting power by reason of the happening of any contingency) is at the time
owned
by such Person, directly or indirectly through Subsidiaries; and (b) any
partnership, limited liability company, association, joint venture, trust
or
other entity in which such Person, directly or indirectly through Subsidiaries,
is either a general partner, has a 50% or greater equity interest at the
time or
otherwise owns a controlling interest.
“Super
Revenue Target”
has the
meaning set forth in Section
2.10.
“Surviving
Entity”
has the
meaning set forth in Section
2.1.
“Tax”
(and,
with correlative meaning, “Taxes”)
means:
(i) any federal, state, local or foreign net income, gross income, gross
receipts, windfall profit, severance, property, production, sales, use,
license,
excise, franchise, escheat, employment, payroll, withholding, alternative
or
add-on minimum, ad valorem, value added, transfer, stamp, or environmental
tax,
or any other tax, custom, duty, governmental fee or other like assessment
or
charge of any kind whatsoever, together with any interest or penalty, addition
to tax or additional amount imposed by any governmental authority; and
(ii) any
liability of the Company for the payment of amounts with respect to payments
of
a type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation
of the
Company under any Tax Sharing Arrangement or Tax Indemnity
Agreement.
“Tax
Claim”
has the
meaning set forth in Section
7.6.
“Tax
Indemnity Agreement”
means
any written or unwritten agreement or arrangement pursuant to which the
Company
may be required to indemnify or reimburse another party for any liability
relating to Taxes.
“Tax
Return”
means
any return, report or similar statement required to be filed with respect
to any
Tax (including any attached schedules), including any information return,
claim
for refund, amended return or declaration of estimated Tax.
“Tax
Reorganization Indemnity Payment”
has the
meaning set forth in Section
7.7.
“Tax
Sharing Arrangement”
means
any written or unwritten agreement or arrangement for the allocation or
payment
of Tax liabilities or payment for Tax benefits with respect to a consolidated,
combined or unitary Tax Return which includes the Company.
7
“Termination
Agreement”
has the
meaning set forth in Section
2.12(m).
“Third
Party Intellectual Property Rights”
has the
meaning set forth in Section
4.7(b).
“Threshold”
has the
meaning set forth in Section
8.1(c).
ARTICLE
II
THE
MERGER
2.1 The
Merger.
At
the
Effective Time and upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware General Corporation Law
(the
“DGCL”), the Company shall be merged with and into Buyer (the “Merger”).
Following the Merger, Buyer shall continue as the surviving entity (the
“Surviving
Entity”)
and
the separate corporate existence of the Company shall cease. Parent,
as the sole
owner of Buyer, hereby approves the Merger and this Agreement.
2.2 Effective
Time.
Subject
to the terms and conditions set forth in this Agreement, on the Closing
Date, a
Certificate of Merger substantially in the form of Exhibit A (the “Certificate
of Merger”) shall be duly executed and acknowledged by Buyer and thereafter
delivered to the Secretary of State of Delaware for filing. The Merger
shall
become effective at such time as a properly executed copy of the Certificate
of
Merger is duly filed with the Secretary of State of Delaware or such
later time
as Parent and the Stockholders may agree upon and as set forth in the
Certificate of Merger (the time the Merger becomes effective being referred
to
herein as the “Effective Time”).
2.3 Effects
of the Merger.
The
Merger shall have the effects set forth in the DGCL. Without limiting
the
generality of the foregoing and subject thereto, at the Effective Time,
all the
properties, rights, privileges, powers and franchises of the Company
and Buyer
shall vest in the Surviving Entity, and all debts, liabilities and obligations
of the Company and Buyer shall become the debts, liabilities and obligations
of
the Surviving Entity.
2.4 Certificate
of Incorporation, Bylaws and Directors and Officers.
The
certificate of incorporation of the Company shall, without further action,
be
terminated, and the certificate of incorporation and bylaws of Buyer
in effect
at the Effective Time shall be the certificate of incorporation and bylaws
of
the Surviving Entity until amended in accordance with applicable law.
From and
after the Effective Time, until successors are duly elected or appointed
and
qualified in accordance with applicable law, the directors and the officers
of
Buyer at the Effective Time shall become the directors and the officers
of the
Surviving Entity and the officers and directors of the Company shall
cease to
act as such effective as of the Effective Time.
2.5 Conversion
of Shares.
At
the
Effective Time, by virtue of the Merger (and without any action on the
part of
Buyer or the Company), the shares of Common Stock (each a “Share”
and,
collectively, the “Shares”)
issued
and outstanding immediately prior to the Effective Time shall, collectively,
be
converted into the right to receive the Merger Consideration. The “Merger
Consideration” is the aggregate consideration set forth on Schedule
2.5
attached
hereto, which Merger Consideration is comprised of (i) the Cash Portion
of the
Merger Consideration, (ii) the Stock Portion of the Merger Consideration
and
(iii) the right to receive the Earn-Out Payment on the terms and conditions
set
forth in Section
2.10.
8
2.6 Exchange
of Shares for Merger Consideration.
At
the
Effective Time, each Share issued and outstanding immediately prior to
the
Effective Time shall no longer be outstanding and shall automatically
be
cancelled and retired and shall cease to exist, and each certificate
previously
evidencing any such Shares (the “Certificates”) shall thereafter represent the
right to receive only the applicable portion of the Merger Consideration.
2.7 Allocation
of Merger Consideration.
(a) Pursuant
to the agreement of the Stockholders, the Merger Consideration will be
paid to
the Stockholders on the Closing Date as follows:
(i) Xxxxxxx
Xxxxxxx shall receive (A) $2,333,333 of the Cash Portion of the Merger
Consideration and (B) 97,338 pre-Stock Split Parent Shares of the Stock
Portion
of the Merger Consideration (which shall entitle him to receive 1,066,667
Parent
Shares of the Stock Portion of the Merger Consideration after giving
effect to
the Stock Split);
(ii) Xxxxxxx
Xxxxxxx shall receive (A) $1,166,667 of the Cash Portion of the Merger
Consideration and (B) 48,669 pre-Stock Split Parent Shares of the Stock
Portion
of the Merger Consideration (which shall entitle him to receive 533,333
Parent
Shares of the Stock Portion of the Merger Consideration after giving
effect to
the Stock Split); and
(iii) Xxxxxxx
Xxxx shall receive (A) $500,000 of the Cash Portion of the Merger Consideration,
(B) 173,384 pre-Stock Split Parent Shares of the Stock Portion of the
Merger
Consideration (which shall entitle him to receive 1,900,000 Parent Shares
of the
Stock Portion of the Merger Consideration after giving effect to the
Stock
Split) and (C) the entire right to receive the Earn-Out Payment on the
terms and
conditions set forth in Section 2.10.
(b) The
allocation of the Merger Consideration set forth above shall be final
and
binding on all parties. Each party acknowledges that such allocation
of the
Merger Consideration will result in materially different risks and potential
benefits for the Stockholders with respect to liquidity, long-term capital
appreciation and investment risk, tax effects and otherwise, and each
Stockholder hereby waives and forever releases any claim that it now
has or
hereafter may have against any other party (including, without limitation,
the
Buyer, CAN and the Parent) in connection with or relating to the allocation
of
the Merger Consideration.
2.8 Buyer
Common Stock.
Each
share of Buyer common stock, par value $0.001 per share, held by Parent
immediately prior to the Effective Time will remain issued and outstanding
and
will be deemed to be a validly issued, outstanding and non-assessable
share of
the Surviving Entity.
9
2.9 Delivery
of Certificates and Cash.
(a) Delivery.
At the
Closing, each Stockholder shall deliver such Stockholder’s Certificate(s) to
Parent. Upon delivery by a Stockholder of a Certificate for cancellation
to
Parent, Parent shall deliver in exchange therefor payment of the applicable
portion of the Merger Consideration determined in accordance with Section
2.7,
with
any applicable portion of the Cash Portion of the Merger Consideration
to be
paid by wire transfer of immediately available funds to such account
as shall
have been designated by such Stockholder, and any applicable portion
of the
Stock Portion of the Merger Consideration to be paid by delivery of a
certificate representing that number of Parent Shares to which such Stockholder
shall have become entitled pursuant to the provisions of this Agreement.
Upon
delivery of the applicable portion of the Merger Consideration, the
Certificate(s) so surrendered by such Stockholder shall forthwith be
canceled.
If any cash is to be paid to a name other than that which the Certificate(s)
surrendered in exchange therefor is registered, or in the event of a
transfer of
ownership of Shares that is not registered in the transfer records of
the
Company, it shall be a condition of payment of the Merger Consideration
that the
Certificate so surrendered shall be properly endorsed or shall be otherwise
in
proper form for transfer and that the Person requesting such payment
shall have
paid any transfer and other taxes required by reason of the payment of
the
Merger Consideration to a Person other than the registered holder of
the
Certificate surrendered or shall have established to the satisfaction
of Parent
that such tax either has been paid or is not applicable. Parent reserves
the
right in its sole discretion to pay Merger Consideration only to the
Person
whose name is on the Certificate(s) surrendered in exchange therefor
and
registered on the transfer records of the Company.
(b) No
Further Transfers.
The
Merger Consideration paid upon the surrender of Shares in accordance
with the
terms hereof shall be deemed to have been paid in full satisfaction of
all
rights pertaining to such Shares. From and after the Effective Time,
there shall
be no further registration of transfers on the transfer books of the
Surviving
Entity of the Shares that were outstanding immediately prior to the Effective
Time.
(c) Certificates.
If any
Certificate shall have been lost, stolen or destroyed, upon the making
of an
affidavit of that fact by the person claiming such Certificate to be
lost,
stolen or destroyed and, if required by Parent, the posting by such person
of a
bond in such reasonable amount as Parent may direct as indemnity against
any
claim that may be made against it with respect to such Certificate, Parent
shall
deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect thereto.
2.10 Earn-Out.
If,
following the Closing, a minimum average monthly gross revenue of $1.2
million
(the “Revenue
Target”)
during
the three-month period immediately preceding the 90-day anniversary of
the
Closing Date (the “Earn-Out
Period”)
at a
minimum 28% Gross Margin (as defined below)(the “Margin
Target”)
has
been earned from the operations of the Business, then Xxxxxxx Xxxx (being
the
Stockholder to whom the entire right to receive the Earn-Out Payment
(as defined
below) has been allocated pursuant to Section
2.7)
shall be
paid the Earn-Out Target Payment. If the Business during the Earn-Out
Period
fails to achieve the Revenue Target and the Margin Target, Xxxxxxx Xxxx
shall
receive the same percentage of the Earn-Out Target Payment as the actual
revenues achieved therefrom bears to the Revenue Target, provided that
the
average monthly revenues for the Earn-Out Period are not less than $750,000
and
the Margin Target is achieved with respect to such revenues. Notwithstanding
the
foregoing, the Earn-Out Target Payment shall be paid (i) in the event
that gross
revenues from the Business in the month of August 2007 is at least $1.5
million
and the Margin Target is met, (ii) in the event the gross revenues from
the
Business during any calendar month of the Earn-Out Period is at least
$1.5
million (the “Super
Revenue Target”)
and
the Margin Target is met or (iii) upon termination of Xxxxxxx Xxxx without
“cause” or resignation of Xxxxxxx Xxxx for “good reason” during the Earn-Out
Period (each as defined in the Xxxx Employment Agreement). The payment
made to
Xxxxxxx Xxxx under this Section 2.10 is sometimes hereinafter referred
to as the
“Earn-Out
Payment.”
For
the absence of doubt, only one Earn-Out Payment shall be payable. As
used herein
“Gross
Margin”
shall
mean advertising revenues minus publisher payments; provided, however,
as a
condition to the payment of the Earn-Out Payment pursuant to clause (i)
above
only, write-offs for bad debts shall not exceed 5% of revenues during
the
Earn-Out Period. Xxxxxxx Xxxx shall have the full authority to conduct
the
Business, including the management of day-to-day affairs thereof, during
the
Earn-Out Period in a manner consistent with the conduct of the Business
before
the closing; provided such Business is conducted in accordance with applicable
Laws. Within 15 days after the end of the Earn-Out Period, or, in the
event that
the Earn-Out Payment is earned in the month of August 2007 pursuant to
clause
(i) above, on or before September 17, 2007, the chief financial officer
of
Parent shall calculate and provide a written report to Xxxxxxx Xxxx disclosing
the actual results and the amount of the Revenue Target or Super Revenue
Target,
as appropriate, and Margin Target achieved, and pay any amount that is
due and
owing to Xxxxxxx Xxxx hereunder no later than 60 days after the end of
the
Earn-Out Period or, in the event that the Earn-Out Payment is earned
in the
month of August 2007 pursuant to clause (i) above, as follows: on October
1,
2007, an amount equal to $800,000 and the remainder of such Earn-Out
Payment
within 3 Business Days of the receipt by Parent or its Affiliates of
each
additional 5% (or, with respect to the final payment, such lesser percentage)
of
the Super Revenue Target realized until the receipt by Parent or its
Affiliates
of 95% of the Super Revenue Target, at which time remainder of the full
Earn-Out
Payment shall be paid within 3 Business Days. Unless written objection is
received by the Parent within 30 days the report of the CFO shall be
final and
binding on the parties, absent manifest error. All amounts and calculations
required shall in each case be determined in accordance with GAAP.
Notwithstanding the foregoing, the CEO or CFO may accelerate the Earn-Out
Payment to the extent that the Revenue Target has been achieved.
10
2.11 The
Closing.
Upon
the
terms and subject to the conditions of this Agreement, the transactions
contemplated by this Agreement shall take place at a closing (the “Closing”)
to be
held at the offices of Xxxxxx and Xxxxx, LLP, legal counsel to Parent
and Buyer,
located at 000 X. 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
contemporaneously with the execution of this Agreement, or at such other
place
or at such other time or on such other date as the Stockholders and Parent
may
mutually agree upon in writing, provided that all conditions to closing
have
been satisfied and closing deliveries required of the parties in this
Article II
have been delivered (the day on which the Closing takes place being the
“Closing
Date”).
The
Closing may, with the consent of all parties, take place by delivering
an
exchange of documents by facsimile transmission or electronic mail with
originals to follow by overnight mail service courier.
11
2.12 Closing
Deliveries by the Stockholders and the Company.
At
the
Closing, against delivery of, among other things, the Merger Consideration,
the
Stockholders shall deliver or cause to be delivered to Parent:
(a) the
Certificates in accordance with Section
2.6
or an
affidavit of loss and indemnity agreement with respect thereto;
(b) an
employment agreement with the Parent duly executed by Xxxxxxx Xxxx in
the form
attached hereto as Exhibit
B
(the
“Employment
Agreement”);
(c) a
non-foreign status certificate that would exempt the transactions contemplated
by this Agreement from withholding pursuant to the provisions of Sections
897
and 1445 of the Code and the Treasury Regulations promulgated
thereunder;
(d) all
minute books, seals and other records of the Company, provided that such
minute
books, seals and other records shall not be required to be received by
Parent
prior to the Closing;
(e) certificates
of the Secretary of State and the taxing authorities of the State of
Delaware
dated not more than five (5) days prior to the Closing Date, attesting
to the
incorporation and good standing of the Company as a corporation in its
jurisdiction of incorporation, and to the payment of all state taxes
due and
owing thereby;
(f) copies,
certified by the Secretary of State of Delaware, dated not more than
five (5)
days prior to the Closing Date, of the Certificate of Incorporation of
the
Company, and all amendments thereto;
(g) copies,
certified the by Secretary or Assistant Secretary of the Company as of
the
Closing Date, of the bylaws of the Company, and all amendments
thereto;
(h) a
copy,
certified as of the Closing Date by the Secretary or Assistant Secretary
of
Company, of the resolutions of the Board of Directors of Company authorizing
Company’s execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated herein, and the taking
of all such
other corporate action as shall have been required as a condition to,
or in
connection with the consummation of the contemplated transactions;
(i) a
release
duly executed by each Stockholder in the form of Exhibit C attached
hereto;
(j) a
Confidentiality, Non-Competition and Non-Solicitation Agreement by and
between
each of the Stockholders and Parent in the form of Exhibit D attached
hereto
(each a “Non-Competition Agreement”);
(k) resignations
of each of the officers and directors of the Company other than Xxxxxxx
Xxxx;
(l) [Intentionally
omitted];
12
(m) a
Termination Agreement by and between each of the Stockholders in the
form of
Exhibit E attached hereto (the “Termination
Agreement”);
(n) written
direction to the Company’s banks removing the officers of the Company and Xxxx
Hunting as an authorized signatory on the Company’s bank accounts and appointing
Xxxxx Xxxxxxxx as an authorized signatory;
(o) the
Settlement Agreement duly executed by the Company and eBizBrokers, Inc.
in the
form of Exhibit
F
attached
hereto (the “Settlement
Agreement”);
and
(p) the
Lock-Up Agreement in the Form of Exhibit
G
duly
executed by Xxxxxxx Xxxx.
2.13 Closing
Deliveries by Parent and Buyer.
At
the
Closing, against delivery of, among other things, the Certificates, Buyer
and
Parent shall deliver to the applicable Stockholders:
(a) except
as
otherwise set forth in Section
2.5
above,
the Merger Consideration;
(b) stock
certificates evidencing the pre-Stock Split Stock Portion of Merger
Consideration (entitling the holder to receive the post Stock Split Stock
Portion of the Merger Consideration upon submission to the transfer agent);
(c) a
legal
opinion from Xxxxxx and Xxxxx, LLP, legal counsel to Parent and Buyer,
addressed
to the Stockholders and dated the Closing Date, substantially in the
form of
Exhibit H;
(d) the
Xxxx
Employment Agreement duly executed by the Parent;
(e) that
certain Shareholder Rights Letter, dated the Closing Date by and among
the
Parent and each of the Stockholders and current officers and directors
of the
Parent, substantially in the form of Exhibit I (the “Shareholder Rights
Letter”), duly executed by the Parent;
(f) certificates
of the Secretary of State and the taxing authorities of the State of
Delaware
dated not more than five (5) days prior to the Closing Date, attesting
to the
incorporation and good standing of Parent as a corporation in its jurisdiction
of incorporation, and to the payment of all state taxes due and owing
thereby;
(g) a
copy,
certified as of the Closing Date by the Secretary or Assistant Secretary
of
Parent, of the bylaws of Parent and all amendments thereto and resolutions
of
the Board of Directors of Parent authorizing Parent’s execution, delivery and
performance of this Agreement, the consummation of the transactions contemplated
herein, and the taking of all such other corporate action as shall have
been
required as a condition to, or in connection with the consummation of
the
contemplated transactions;
13
(h) Certificates
of the Secretary of State and the taxing authorities of the State of
Delaware
dated not more than five (5) days prior to the Closing Date, attesting
to the
incorporation and good standing of Buyer as a corporation in its jurisdiction
of
incorporation, and to the payment of all state taxes due and owing
thereby;
(i) a
copy,
certified as of the Closing Date by the Secretary or Assistant Secretary
of
Buyer, of the resolutions of the Board of Directors of Buyer authorizing
Buyer’s
execution, delivery and performance of this Agreement, the consummation
of the
transactions contemplated herein, and the taking of all such other corporate
action as shall have been required as a condition to, or in connection
with the
consummation of the contemplated transactions;
(j) copies,
certified by the Secretary of State of Delaware, dated not more than
five (5)
days prior to the Closing Date, of the Certificate of Incorporation of
Buyer,
and all amendments thereto;
(k) copies,
certified the by Secretary or Assistant Secretary of Buyer as of the
Closing
Date, of the bylaws of Buyer, and all amendments thereto; and
(l) the
Certificate of Merger duly executed by Buyer.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF STOCKHOLDERS
Each
of
the Stockholders severally, and not jointly, hereby represents and warrants
as
of the date hereof to Buyer as follows (for the avoidance of doubt, no
Stockholder makes any representation or warranty herein with respect
to or on
behalf of any other Stockholder or regarding any other Stockholder’s Shares,
title to Shares, Knowledge, actions taken or actions omitted or in any
other
manner relating to any other Stockholder whatsoever):
3.1 Organization
and Qualification of the Company.
(a) The
Company is a corporation duly organized, validly existing and in good
standing
under the laws of the State of Delaware.
(b) The
Company has all necessary corporate power and authority to own, operate
or lease
the properties and assets now owned, operated or leased by it and to
carry on
the Business as it has been and is currently conducted; provided, however,
that
the Company is not in qualified as a foreign corporation in the State
of Florida
and is not in good standing in any jurisdiction other than the State
of
Delaware. The Company is duly licensed or qualified to do business and
is in
good standing in each jurisdiction in which the properties owned or leased
by it
or the operation of its business makes such licensing or qualification
necessary, except for the Commonwealth of Massachusetts, State of New
York and
State of Florida and except for other jurisdictions in which the failure
to be
so qualified to do business or in good standing shall not have a Material
Adverse Effect on the Company. Schedule
3.1
correctly lists with respect to the Company each jurisdiction in which
it is
qualified to do business as a foreign corporation, and its directors
and
executive officers. The Stockholders have delivered to Buyer complete
and
correct copies of the charter and bylaws of the Company as in effect
as of the
Closing Date. Notwithstanding anything to the contrary contained herein,
each of
Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxxx make the representations and warranties
set
forth in this Section
3.1(b)
solely
to their respective Knowledge.
14
(c) To
the
Knowledge of each of the Stockholders, the Company owns all assets and
rights
necessary to conduct the Business of the Company, as presently conducted.
3.2 Capitalization.
(a) The
authorized capital stock of the Company consists of 1,000,000 shares
of Common
Stock. As of the date hereof, 1,000,000 shares of Common Stock are issued
and
outstanding and each record owner of Shares and the number of Shares
held by
each record owner is set forth on Schedule
3.2.
Except
as set forth on Schedule
3.2,
there
are no shares of capital stock of the Company issued and outstanding.
All of the
Shares have been duly authorized and validly issued and are fully paid
and
non-assessable. None of the Shares was issued in violation of any preemptive
rights or is subject to any preemptive rights of any Person. All of the
Shares
have been issued and granted in all material respects in compliance with
applicable securities Laws and other requirements of Law. No legend or
other
reference to any Encumbrance appears upon any certificate representing
the
Shares, except for customary legends with respect to transfer restrictions
for
restricted securities under federal and state securities Laws.
(b) Except
as
set forth in the Stockholders Agreement, there are no outstanding options,
warrants, agreements, conversion rights, preemptive rights or other rights
to
subscribe for or purchase from any of the Stockholders or the Company
or any
contracts or commitments providing for the issuance of, or the granting
of
rights to acquire, (i) any capital stock or other ownership interests
of the
Company, including, but not limited to the Shares; or (ii) any securities
convertible into or exchangeable for any such capital stock or other
ownership
interests. There are no outstanding contractual obligations of any of
the
Stockholders or the Company to transfer, issue, repurchase, redeem or
otherwise
acquire any outstanding shares of capital stock or other ownership interests
of
the Company, including, but not limited to the Shares. Except as described
on
Schedule
3.2,
the
Company neither owns or has any contract, agreement or understanding
to acquire,
any equity securities or other securities of any Person or any direct
or
indirect equity or ownership interest in any other business. Each of
Xxxxxxx
Xxxxxxx and Xxxxxxx Xxxxxxx make the representations and warranties set
forth in
this Section 3.2(b) solely to their respective Knowledge.
3.3 Stock
Ownership by Stockholders.
Each
Stockholder has good title to, and is the sole record and beneficial
owner of,
the Shares shown as being owned by such Stockholder on Schedule
3.2
and the
Shares owned by such Stockholder are free and clear of any and all marital
property rights or other Encumbrances. Such Stockholder is not a party
to any
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any
of the
Shares owned by such Stockholder other than such which will terminate
upon the
consummation of the transactions contemplated by this Agreement.
3.4 Authorization;
Enforceability.
The
execution, delivery and performance of this Agreement by each Stockholder
and
the Company and the consummation by each Stockholder and the Company
of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of such Stockholder and all requisite corporate action
on the
part of the Company. This Agreement has been duly executed and delivered
by each
Stockholder and the Company, and assuming due authorization, execution
and
delivery by Buyer and Parent, this Agreement constitutes a valid and
binding
obligation of such Stockholder and the Company enforceable against such
Stockholder and the Company in accordance with its terms, except to the
extent
that the enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws, or by equitable principles
relating
to the rights of creditors generally.
15
3.5 No
Conflict; Governmental Consents.
The
execution, delivery and performance of this Agreement by such Stockholder
and
the Company do not and will not (i) violate, conflict with or result in the
breach of any provision of the charter or by-laws of the Company, (ii)
except as
set forth in Schedule
3.5,
conflict with or violate in any material respect any Law or Order applicable
to
such Stockholder or, to the Knowledge of such Stockholder, the Company,
or (iii)
except as set forth in Schedule
3.5,
conflict with, result in any breach of, constitute a default (or event
which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or
result in
the creation of any Encumbrance on any of the Shares owned by such Stockholder
or on any of the other assets or properties of such Stockholder pursuant
to, any
note, bond, mortgage, indenture, license, permit, lease, sublease or
other
Contract to which such Stockholder is a party or by which any of the
Shares
owned by such Stockholder or any of such other assets or properties is
bound or
affected. The execution, delivery and performance of this Agreement by
such
Stockholder and, to the Knowledge of such Stockholder, the Company, do
not and
will not require any Approval or Order of any Governmental Entity.
3.6 Intentionally
Omitted.
3.7 Taxes.
Except
as
set forth in Schedule
3.7
(with
subsection references corresponding to those set forth below):
(a) All
Tax
Returns required to be filed by or with respect to the Company have been
timely
filed (other than the New York S election for fiscal 2006, which was
filed
late), and all such Tax Returns are complete and correct in all material
respects. The Company has paid (or there has been paid on its behalf)
all Taxes,
whether shown on any Tax Returns, that are due from or with respect to
it for
the periods covered by such Tax Returns and has made all required estimated
payments of Tax sufficient to avoid any penalties for underpayment;
(b) To
the
Knowledge of the Stockholders, no claim has ever been made by an authority
in a
jurisdiction where the Company does not file a Tax Return that the Company
may
be subject to taxation in that jurisdiction and no basis exists for any
such
claim. There is no proposed assessment and no audit, examination, suit,
investigation or similar proceeding pending, proposed or threatened with
respect
to Taxes of the Company and, to the Knowledge of the Stockholders, no
basis
exists therefor;
16
(c) There
are
no outstanding waivers extending the statutory period of limitation relating
to
the payment of Taxes due from the Company which are expected to be outstanding
as of the Closing Date;
(d) There
were no Sharing Arrangements or Tax Indemnity Agreements relating to
the Company
in existence prior to the Closing Date;
(e) There
are
no Encumbrances for Taxes upon the assets of the Company except Encumbrances
relating to current Taxes not yet due and payable;
(f) No
power
of attorney granted by or with respect to the Company relating to Taxes
is
currently in force;
(g) To
the
Knowledge of the Stockholders, no closing agreement pursuant to Section
7121 of
the Code or any similar provision of any state, local or foreign law
has been
entered into by or with respect to the Company which could reasonably
be
expected to have an effect on the Company’s liability for or reporting of Taxes
in any period ending after the Closing Date;
(h) All
Taxes
which the Company is required by Law to withhold or to collect for payment
have
been duly withheld and collected, and have been paid or accrued, reserved
against and added on the books of the Company. The Company has complied
with all
information reporting and backup withholding requirements, including
maintenance
of required records with respect thereto, in connection with amounts
owing to
any employee, independent contractor, creditor, stockholder or other
third
party;
(i) The
Company is and since the date of its formation has been an S corporation
for
federal and state tax purposes. The Company has not been a member of
any Company
Group;
(j) Since
January 1, 2007, the Company has not prepared or filed any Tax Return
inconsistent with past practice or, on any such Tax Return, taken any
position,
made any election, or adopted any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar
Tax Returns
in prior periods (including, without limitation, such inconsistent positions,
elections or methods which would have the effect of deferring income
to periods
after the Closing Date or accelerating deductions to periods on or prior
to the
Closing Date);
(k) None
of
the assets or properties of the Company is an asset or property that
is or will
be required to be treated as being tax exempt use property within the
meaning of
Section 168(h)(1) of the Code;
(l) There
is
no contract or arrangement, plan or agreement by or with Company covering
any
Person as to which payment or vesting thereunder (including any payment
or
vesting as a result of the transactions contemplated by this Agreement),
could
give rise to the payment of any amount that would not be deductible by
the
Company by reason of Sections 280G or 162(m) of the Code or an excise
tax to the
beneficiary of such payment or vesting pursuant to Section 4999 of the
Code;
17
(m) No
Tax
rulings have been requested by the Company;
(n) The
Company has not had a change in accounting method occurring in or made
for a
period ending on or prior to the Closing Date which results in a deferred
reporting on income from such transaction or from such change in accounting
method. The Stockholders have delivered to Parent (i) a schedule of the
filing
dates of all Tax Returns required to be filed by the Company, and (ii)
a list of
the countries, states, territories and jurisdictions (whether foreign
or
domestic) to which any Tax is properly payable by the Company. The Company
has
retained all supporting and backup papers, receipts, spreadsheets and
other
information necessary for (i) the preparation of all Tax Returns that
have not
yet been filed, and (ii) the defense of all Tax audits involving taxable
periods
either ending on or during the six (6) years prior to the Closing Date
or from
which there are unutilized net operating losses, capital losses or investment
tax credit carryovers. The Company has not been party to a “listed transaction”
as defined in Treasury Regulation 1.6011-4(b)(2). The Company has disclosed
on
its U.S. federal income Tax Returns all positions taken therein that
could give
rise to a substantial understatement of federal income Tax within the
meaning of
IRC Section 6662; and
(o) The
Company has not been a party to any distribution occurring during the
last two
years in which the parties to such distribution treated the distribution
as one
to which Section 355 of the Code is applicable.
3.8 Litigation;
Compliance with Laws.
(a) Except
as
set forth on Schedule
3.8,
to the
Knowledge of such Stockholder, there is no Action pending or threatened
against
or affecting any of the Company, or any of its assets.
(b) Except
as
disclosed on Schedule
3.8,
neither
the Stockholders nor the Company is (i) to the Knowledge of such Stockholder,
in
violation of any applicable Law or (ii) to the Knowledge of such Stockholder,
subject to or in default with respect to any Order to which any of them,
or any
of their respective properties or assets (owned or used), is subject.
To the
Knowledge of such Stockholder, at all times since June 1, 2004, the Company
has
been in compliance with each Law that is or was applicable to it or to
the
conduct or operation of the Business or the ownership or use of any of
its
Assets.
(c) Except
as
provided in Schedule
3.8,
to the
Knowledge of each Stockholder, such Stockholder has not received either
as an
individual or as a representative of the Company, at any time since June
1,
2004, any notice or other communication (whether oral or written) from
any
Governmental Entity or any other Person regarding (i) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Law
or (ii)
any actual, alleged, possible, or potential obligation on the part of
the
Company to undertake, or to bear all or any portion of the cost of, any
remedial
action of any nature.
3.9 Transactions
with Affiliates.
To
the
Knowledge of the Stockholders, except (i) for employment and benefit
arrangements, (ii) arrangements on arm’s length terms in the ordinary course of
business and (iii) agreements set forth on Schedule
3.9,
no
director, officer or Affiliate of the Company or, to the Knowledge of
such
Stockholder, any Person with whom any such director, officer or Affiliate
has
any direct or indirect relation by blood, marriage or adoption, or any
entity in
which any such director, officer or Affiliate owns any beneficial interest
(other than a publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than one
percent
(1%) of the stock of which is beneficially owned by all such Persons),
has any
interest in (a) any Contract with the Company or relating to the Business,
including any Contract for or relating to indebtedness of the Company;
or (b)
any property, including Intellectual Property and Real Property, used
or
currently intended to be used in, the Business.
18
3.10 No
Brokers or Finders.
Except
for eBizBrokers, Inc., no agent, broker, finder, or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of any
of the
Stockholders, the Company, or any of their respective Affiliates, in
connection
with the negotiation, execution or performance of this Agreement or the
transactions contemplated by this Agreement, is or will be entitled to
any
brokerage or finder’s or similar fee or other commission as a result of this
Agreement or such transactions. Each of Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxxx
make
this representation solely to their respective Knowledge.
3.11 Disclosure.
To
the
Knowledge of such Stockholder, the representations made by such Stockholder
in
this Agreement and the schedules furnished contemporaneously herewith
(taken as
a whole) do not contain any untrue statement of a material fact or omit
to state
a material fact necessary to make such representations, in light of the
circumstances in which they were made, not misleading.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF XXXXXXX XXXX
Xxxxxxx
Xxxx hereby represents and warrants as of the date hereof to Buyer, solely
to
his Knowledge, as follows:
4.1 No
Company Conflicts.
Except
as
set forth in Schedule
4.1,
the
execution, delivery and performance of this Agreement by the Company
does not
and will not conflict with, result in any breach of, constitute a default
(or
event which with the giving of notice or lapse of time, or both, would
become a
default) under, require any consent under, or give to others any rights
of
termination, amendment, acceleration, suspension, revocation or cancellation
of,
or result in the creation of any Encumbrance on any of the assets or
properties
of the Company pursuant to, any note, bond, mortgage, indenture, license,
permit, lease, sublease or other Contract to which the Company is a party
or by
which any of assets or properties of the Company are bound or affected,
except
as would not reasonably expected to result in a Material Adverse Effect
on the
Company.
4.2 Financial
Statements; Undisclosed Liabilities.
(a) Annexed
hereto as Schedule
4.2
are
true, correct and complete copies of the Company Financial Statements
and the
June 30, 2007 Balance Sheet. The Company Financial Statements and the
June 30,
2007 Balance Sheet have been prepared in accordance with the books and
records
of the Company and present fairly in all material respects the results
of
operations and cash flows of the Company for the respective periods covered,
and
the balance sheets present fairly in all material respects the financial
condition of the Company as of their respective dates, except in each
instance
where the failure to so present would not reasonably expected to result
in a
Material Adverse Effect on the Company.
19
(b) Except
as
set forth in Schedule
4.2,
the
Company has no liabilities or obligations of any nature (whether known
or
unknown and whether absolute, accrued, contingent, or otherwise), except
for
liabilities or obligations reflected or reserved against the December
31, 2006
balance sheet of the Company (the “December
31, 2006 Balance Sheet”),
a
copy of which is annexed hereto in Schedule
4.2,
or set
forth on the June 30, 2007 Balance Sheet, current liabilities incurred
in the
ordinary course of business and consistent with past practice since the
date of
the June 30, 2007 Balance Sheet or as set forth on the June 30, 2007
Balance
Sheet and liabilities that would not be reasonably expected to result
in a
Material Adverse Effect on the Company.
4.3 Employee
Matters.
The
Company has not entered into any collective bargaining agreements. Schedule
4.3
sets
forth a list of all current Employees of the Company. No employee is
subject to
an employment agreement.
4.4 Material
Contracts.
The
following shall be deemed to be Material Contracts and identified on
Schedule
4.4:
(a) any
Contract, other than Contracts entered into with customers of the Company
in the
ordinary course of business for the furnishing of services to or by the
Company
or otherwise related to the Business under the terms of which the Company:
(A)
is likely to pay or otherwise give consideration of more than $50,000
in the
aggregate during the calendar year ended December 31, 2006, (B) is likely
to pay
or otherwise give consideration of more than $50,000 in the aggregate
over the
remaining term of such Contract or (C) cannot be canceled by the Company
without
penalty or further payment and without more than thirty (30) days’
notice;
(b) any
Contract, other than Contracts entered into with customers of the Company
in the
ordinary course of business and the Real Property Lease, that represents
a
contract upon which the Business is substantially dependent or which
is
otherwise material to the Business;
(c) any
Contract that limits or restricts the ability of Company to compete or
otherwise
to conduct its Business in any manner or place;
(d) any
Contract for the employment, severance or retention of any director,
officer,
employee, agent, stockholder, consultant or advisor or any other Contract
with
any director, officer, employee, agent, stockholder, consultant or advisor
that
does not provide for termination at will by the Company without further
cost or
liability to the Company as of or at any time after the date of this
Agreement;
(e) any
Contract in the nature of a profit sharing, bonus, stock option, stock
purchase,
pension, deferred compensation or retirement or severance providing benefits
to
any Person or former director, officer, employee, agent, Stockholder,
consultant
or advisor or such Persons’ dependents, beneficiaries or heirs;
20
(f) any
Contract in an amount exceeding $50,000 or with a value exceeding $50,000
in the
nature of an indenture, mortgage, promissory note, loan or credit agreement
or
other Contract relating to the borrowing of money or a line of credit
by or from
the Company or to the direct or indirect guaranty or assumption by the
Company
of obligations of others;
(g) any
Contract for capital expenditures in an amount exceeding $50,000 in any
individual case or in the aggregate;
(h) any
Contract that is a joint venture, partnership, or other agreement (however
named) involving a sharing of profits, losses, costs, or liabilities
involving
an amount exceeding $50,000 individually or in the aggregate;
(i) any
Contracts, other than the Real Property Lease, that are leases, rental
or
occupancy agreements, licenses, installments and conditional sale agreements,
and other agreements affecting the ownership of, leasing of, title to,
use of,
or any leasehold or other interest in, any real or personal property
(except
personal property leases and installment and conditional sales agreements
having
a value per item or aggregate payments of less than $50,000 and with
terms of
less than one (1) year);
(j) any
Contracts that are licensing agreements or other agreements with respect
to
patents, trademarks, copyrights, or other Intellectual Property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property;
(k) any
Contracts in an amount exceeding or with a value exceeding $50,000 to
which the
Company is a party with any Governmental Entity;
(l) any
Contracts between or among the Company and any of the Stockholders or
any
Affiliate of any of the Stockholders; and
(m) any
Contract with provisions relating to the testing, discovery, removal,
remediation or disposal of any Hazardous Material.
With
the
exception of contracts with customers of the Company, true and complete
copies
of the Contracts appearing on Schedule
4.4,
including all amendments and supplements, have been delivered to Parent.
Each
Material Contract is valid and legally binding and the Company has materially
performed all its obligations thereunder to the extent that such obligations
to
perform have accrued. Except as set forth on Schedule
4.4,
no
breach or default, alleged breach or default, or event which would (with
the
passage of time, notice or both) constitute a breach or default thereunder
by
the Company or any other party or obligor with respect thereto, has occurred
or
as a result of this Agreement or performance thereof will occur. Consummation
of
the transactions contemplated by this Agreement will not (and will not
give any
person a right to) terminate or modify any rights of, or accelerate or
augment
any obligation of, the Company under any of those agreements to the extent
such
termination, modification, acceleration or augmentation could be reasonably
expected to have a Material Adverse Effect on the Company.
21
4.5 No
Other Compensation.
Except
for the Employment Agreement, there are no compensatory arrangements
with, or
other arrangements relating to the payment of cash, equity or other value
to,
Xxxxxxx Xxxx, whether in connection with services rendered or otherwise,
between
Xxxxxxx Xxxx and any of Parent, Buyer, CAN or any of their respective
affiliates.
4.6 Real
Property.
(a) Other
than the Real Property Lease with respect to Real Property located at
000 Xxxx
Xxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx (the “Leased Real Property”), the Company
neither owns nor leases any Real Property. The Company has delivered
or made
available to the Parent or its Affiliates a copy of the Real Property
Lease.
(b) The
Leased Real Property is in good condition, except for ordinary wear and
tear,
and constitutes all the Real Property necessary in the conduct of the
Company’s
Business as it is currently conducted as of the date hereof.
4.7 Intellectual
Property.
(a) The
Company owns, or is licensed or otherwise possesses legally enforceable
rights
to use, all Intellectual Property that is necessary in the operation
of the
Business as currently conducted. None of the Stockholders, directly or
indirectly, owns or possesses any right or claim to or in, any Intellectual
Property that is used in the Business as currently conducted.
(b) There
is
no unauthorized use, infringement or misappropriation of any Intellectual
Property rights, or any third party patents, trademarks or copyrights,
including
software (collectively, the “Third
Party Intellectual Property Rights”),
by
the Company that would reasonably be expected to result in a Material
Adverse
Effect.
(c) The
Company is not in material breach of any license or other agreement relating
to
the Intellectual Property of the Company or any Third Party Intellectual
Property Rights.
(d) Within
the last three (3) years, the Company (i) has not been a party to, or
been
notified in writing of, any suit, action or proceeding that involves
a claim of
infringement or violation of any Third Party Intellectual Property Rights;
and
(ii) has not brought any action, suit or proceeding for infringement
of
Intellectual Property or breach of any license agreement involving Intellectual
Property against any third party.
4.8 Insurance
and Banking.
(a) The
Company and its assets are insured in such amounts, against such Losses
and with
such insurers as are prudent when considered in light of the nature of
the
Business. True, correct and complete copies of all such insurance policies
of
the company in effect on the date hereof have been delivered to the Parent
or
its Affiliates.
(b) Schedule
4.8(b)
sets
forth an accurate list of each bank, trust company, savings institution
or other
financial institution with which the Company has an account or safe deposit
box
and the names and identification of all persons authorized to draw thereon
or to
have access thereto, and sets forth the names of each person holding
powers of
attorney or agency authority from the Company and a summary of the terms
thereof.
22
4.9 Receivables.
All
receivables of the Company reflected on the June 30, 2007 Balance Sheet
and on
the books and records of the Company as of the date hereof (including
“work in
process” inventory and accrued and unbilled revenues) represent or will
represent valid receivables arising in the ordinary course of business
and no
agreement for deduction, free goods or services, discount or other deferred
price or adjustment has been made by the Company with respect to any
such
receivables outside the ordinary course of business. The Company has
delivered
to CAN or Buyer a complete and accurate aging list of all receivables
of the
Company.
4.10 Benefit
Plans.
(a) Schedule
4.10(a)
contains
an accurate and complete list of all of the employee benefit plans (within
the
meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974,
as amended (“ERISA”))
which
the Company sponsors, maintains or contributes to or is required to contribute
to or has any material liability (contingent or otherwise) for the benefit
of
present or former employees of the Company (the “Company’s
Employee Benefit Plan(s)”).
Copies of all of the Company’s Employee Benefit Plans have been provided to
Parent or its Affiliates. None of Company’s Employee Benefit Plans is, and
within the 6-year period immediately preceding the Closing Date the Company
has
not contribute, been required to contribute to or had any liability with
respect
to any “employee benefit plan” (within the meaning of Section 3(3) of ERISA)
which is subject to Title IV of ERISA or Code Section 412. None of Company’s
Employee Benefit Plans is a Multiple Employer Plan or Multiemployer Plan
under
Code Section 413(c) or 414(f).
(b) With
respect to the Company’s Employee Benefit Plans, the Company will have made, on
or before the Closing Date, all payments (including premium payments
with
respect to insurance policies) required to be made by them on or before
the
Closing Date and will have accrued as of the Closing Date all payments
(including premium payments with respect to insurance policies) due but
not yet
payable as of the Closing Date, except where the failure to make such
payments
or accruals would not reasonably be expected to result in a Material
Adverse
Effect on the Company.
(c) All
of
the Company’s Employee Benefit Plans are, and have been, operated in compliance
with their provisions and with all applicable Laws, except where the
failure to
so operate would not reasonably be expected to result in a Material Adverse
Effect on the Company.
(d) There
are
no pending, or to the Company’s Knowledge, threatened Actions by or on behalf of
any of the Company’s Employee Benefit Plans by any person covered thereby (other
than ordinary claims for benefits submitted by participants or beneficiaries)
or
any Governmental Entity or agency.
(e) There
are
no other corporations or trades or businesses (whether or not incorporated)
which, within the six (6) year period immediately preceding the Closing
Date,
were treated as a “single employer” within the meaning of Section 414(b), (c),
(m) or (o) of the Code with the Company.
23
(f) Each
of
the Company’s Employee Benefit Plans that is intended to be “qualified” within
the meaning of Section 401(a) of the Code is either maintained pursuant
to a
standardized prototype plan document approved by the IRS, or else has
received a
favorable determination letter from the IRS and is qualified in form
and
operation under Section 401(a) of the Code, and each trust for each such
plan is
exempt from federal income tax under Section 501(a) of the Code, and
no event
has occurred or circumstance exists that gives rise to disqualification
or loss
of tax-exempt status of any of the Company’s Employee Benefit Plans or such
trusts.
(g) Neither
Company nor any of its Subsidiaries maintains or is obligated to provide
benefits under any life, medical or health plan (other than as an incidental
benefit under an employee benefit plan which is intended to be qualified
under
Section 401(a) of the Code) which provides benefits to retirees or other
terminated employees other than benefit continuation rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or
other
applicable Law. None of the Company’s Employee Benefit Plans is a “multiple
employer welfare arrangement” within the meaning of Section 3(40) of
ERISA.
4.11 Environmental.
(a) The
Company and its assets are being operated in compliance with all Environmental
Laws.
(b) None
of
the Company, any Stockholder or any employee of the Company has used,
stored,
disposed of, released or managed (whether by act or omission) any Hazardous
Materials in a manner that could be expected to result in the owner or
operator
of the Assets and the Company incurring any liability or expense that
would
reasonably be expected to result in a Material Adverse Effect on the
Company.
(c) The
Company has not received any written notice from any Governmental Entity
that
the Company is in violation of any Environmental Laws in connection with
its
operation of the Company and its assets.
(d) The
Company is not subject to any pending or threatened Action involving
a demand
for damages, injunctive relief, penalties or other potential liability
with
respect to violation of any Environmental Laws or Hazardous
Materials.
4.12 Questionable
Payments.
None
of
the Stockholders, the Company or any director, officer, or employee of
the
Company has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity,
or made
any direct or indirect unlawful payments to government officials or employees
from corporate funds, or established or maintained any unlawful or unrecorded
funds.
4.13 Disclosure.
To
his
Knowledge, this Agreement and the schedules furnished contemporaneously
herewith
(taken as a whole) do not contain any untrue statement of a material
fact or
omit to state a material fact necessary to make the statements contained
therein
or herein, in light of the circumstances in which they were made, not
misleading.
24
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF PARENT
Parent,
Buyer and CAN jointly and severally represent and warrant to the Stockholders
and agrees as follows:
5.1 Organization
and Authority of Parent and Buyer.
(a) Parent
is
a corporation duly organized, validly existing and in good standing under
the
laws of the State of Delaware and the execution, delivery and performance
of
this Agreement by the Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by all requisite action
on the
part of Parent. The Parent Shares to be issued to the Stockholders as
part of
the Merger Consideration have been duly authorized by all necessary corporate
action on the part of Parent and, upon receipt of the Shares from the
Stockholders, will be validly issued, fully paid and non-assessable.
This
Agreement has been duly executed and delivered by Parent, and assuming
due
authorization, execution and delivery by the Stockholders, the Company
and
Buyer, this Agreement constitutes a valid and binding obligation of Parent
enforceable against Parent in accordance with its terms, except to the
extent
that the enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws, or by equitable principles
relating
to the rights of creditors generally.
(b) The
Stock
Split has been duly authorized by all requisite action on the part of
Parent in
accordance with its certificate of incorporation and bylaws and the applicable
provisions of the DGCL.
(c) Buyer
is
a corporation duly organized, validly existing and in good standing under
the
laws of the State of Delaware and the execution, delivery and performance
of
this Agreement by the Buyer and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by all requisite action
on the
part of Buyer. This Agreement has been duly executed and delivered by
Buyer, and
assuming due authorization, execution and delivery by the Stockholders,
the
Company and the Parent, this Agreement constitutes a valid and binding
obligation of Buyer enforceable against Buyer in accordance with its
terms,
except to the extent that the enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws, or by equitable
principles relating to the rights of creditors generally.
5.2 Capitalization.
(a) The
authorized capital stock of the Parent consists of 140,000,000 shares
of common
stock and 10,000,000 shares of preferred stock. As of the date hereof,
after
giving effect to the Merger and the consummation of the transactions
contemplated hereby, and after giving effect to the Stock Split, the
capitalization of the Parent will be as set forth on Schedule
5.2
hereof.
No shares of preferred stock are issued and outstanding. All of the shares
of
Parent common stock have been duly authorized and validly issued and
are fully
paid and non-assessable. None of the Parent shares was issued in violation
of
any preemptive rights or is subject to any preemptive rights of any Person.
No
legend or other reference to any Encumbrance appears upon any certificate
representing the Stock Portion of the Merger Consideration, except for
customary
legends with respect to transfer restrictions for restricted securities
under
federal and Delaware securities Law.
25
(b) Except
as
set forth on Schedule
5.2
hereof,
there are no outstanding options, warrants, agreements, conversion rights,
preemptive rights or other rights to subscribe for or purchase from the
Parent,
or any plans, contracts or commitments providing for the issuance of,
or the
granting of rights to acquire, (i) any capital stock or other ownership
interests of the Parent, including, but not limited to the Parent shares;
or
(ii) any securities convertible into or exchangeable for any such capital
stock
or other ownership interests. There are no outstanding contractual obligations
or plans of the Parent to transfer, issue, repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests
of
the Parent.
5.3 Sufficiency
of Funds.
The
Parent and Buyer have cash on hand, and during the Earn-Out Period, will
continue to have cash on hand, in an amount sufficient to consummate
the
transaction described in this Agreement and pay the Merger Consideration,
including the Earn-Out Payment, if any.
5.4 No
Conflict; Governmental Consents.
(a) The
execution, delivery and performance of this Agreement by the Parent and
Buyer
does not and will not (i) violate, conflict with or result in the breach
of any
provision of the charter or by-laws of the Parent or Buyer, (ii) conflict
with
or violate in any material respect any Law or Order applicable to any
of the
Parent or Buyer, or (iii) conflict with, result in any breach of, constitute
a
default (or event which with the giving of notice or lapse of time, or
both,
would become a default) under, require any consent under, or give to
others any
rights of termination, amendment, acceleration, suspension, revocation
or
cancellation of, or result in the creation of any Encumbrance on any
of the
assets or properties of the Parent or Buyer pursuant to, any note, bond,
mortgage, indenture, license, permit, lease, sublease or other Contract
to which
the Parent or Buyer is a party or by which any of its assets or properties
is
bound or affected, except as would not reasonably expected to result
in a
Material Adverse Effect on the Parent or Buyer.
(b) The
execution, delivery and performance of this Agreement by the Parent does
not and
will not require any Approval or Order of any Governmental Entity.
5.5 Financial
Statements; Undisclosed Liabilities.
(a) To
the
knowledge of the Parent, the financial statements of the Parent included
in the
Parent SEC Reports (the “Parent Financial Statements”) have been prepared in
accordance with the books and records of the Parent and present fairly
in all
material respects the results of operations and cash flows of the Parent
for the
respective periods covered, and the balance sheets present fairly in
all
material respects the financial condition of the Parent as of their respective
dates, except in each instance where the failure to so present would
not
reasonably be expected to result in a Material Adverse Effect on the
Parent.
26
(b) To
the
knowledge of the Parent, the Parent has no liabilities or obligations
of any
nature (whether known or unknown and whether absolute, accrued, contingent,
or
otherwise), except for liabilities or obligations reflected or reserved
against
on the May 31, 2007 balance sheet of the Parent, current liabilities
incurred in
the ordinary course of business and consistent with past practice since
the date
of such balance sheet and liabilities that would not be reasonably expected
to
result in a Material Adverse Effect on the Parent.
5.6 SEC
Reporting.
To
the
Knowledge of Parent, Parent has filed all forms, reports, statements,
certifications and other documents (including all exhibits, amendments
and
supplements thereto) required to be filed by it with the SEC pursuant
to the
Exchange Act (all such forms, reports, statements, certificates and other
documents, together with any amendments thereto, collectively, the “Parent
SEC Reports”),
each
of which, including any Parent Financial Statements or schedules included
therein, as finally amended prior to the date of this Agreement and has
complied
as to form in all material respects with the applicable requirements
of the
Exchange Act as of the date filed with the SEC. None of the Parent’s
subsidiaries is required to file periodic reports with the SEC. To the
knowledge
of the Parent, none of the Parent SEC Reports contained, when filed with
the SEC
or, if amended, as of the date of such amendment, any untrue statement
of a
material fact or omitted to state a material fact required to be stated
or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. To the knowledge of the Parent, no investigation by the SEC
with
respect to the Parent or any of its subsidiaries is pending or
threatened.
5.7 Officers
and Directors.
To
the
Parent’s knowledge, none of the officers or directors of Parent or any of its
subsidiaries: (i) has been convicted of any felony or misdemeanor or
named as a
subject of a criminal proceeding within the past ten (10) years (excluding
traffic violations and other minor offenses but including in connection
with the
purchase or sale of any security, involving the making of a false filing
with
the SEC, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment adviser);
(ii) is
subject to any order, judgment, or decree of any court of competent jurisdiction
temporarily or preliminarily enjoining or restraining, or is subject
to any
order, judgment, or decree of any court of competent jurisdiction, entered
within the past five (5) years, permanently enjoining or restraining
such person
from engaging in or continuing any conduct or practice in connection
with the
purchase or sale of any security, involving the making of a false filing
with
the SEC, or arising out of the conduct of the business of an underwriter,
broker, dealer, municipal securities dealer, or investment adviser; (iii)
is
subject to an order of the SEC entered pursuant to Sections 15(b), 15B(a),
or
15B(c) of the Exchange Act, or Section 203(e) or (f) of the Investment
Advisers
Act of 1940; (iv) is suspended or expelled from membership in, or suspended
or
barred from association with a member of, a national securities exchange
registered under Section 6 of the Exchange Act or a national securities
association registered under Section 15A of the Exchange Act for any
act or
omission to act constituting conduct inconsistent with just and equitable
principles of trade; or (v) is subject to a United States Postal Service
false
representation order entered under 39 U.S.C. Section 3005 within the
past five
(5) years or is subject to a restraining order or preliminary injunction
entered
under 39 U.S.C. Section 3007 with respect to conduct alleged to have
violated 39
U.S.C. Section 3005.
27
5.8 Registration
Rights; Lock-up.
Other
than registration rights granted to the Stockholders pursuant to the
Shareholder
Rights Letter and shares of stock registered pursuant to the Parent’s SB-2
registration statement originally filed by the Parent on March 8, 2007,
as
amended, Parent is not under any obligation to register under the Securities
Act
any of its currently outstanding securities, or any securities issuable
upon
exercise or conversion of its currently outstanding securities, and all
securities held by the current officers and directors of the Parent that
are
held by the current officers and directors of the Parent are subject
to a
lock-up or market standoff agreement of not less than 12 months following
the
initial registration thereof under the Securities Act.
5.9 No
Other Compensation.Except
for the Employment Agreement and Non-Compete Agreement, there are no
compensatory arrangements with, or other arrangements relating to the
payment of
cash, equity or other value to, Xxxxxxx Xxxx, whether in connection with
services rendered or otherwise, between Xxxxxxx Xxxx and any of Parent,
Buyer,
CAN or any of their respective affiliates.
ARTICLE
VI
ADDITIONAL
AGREEMENTS
6.1 Assumption
of Risk by Parent and Buyer; No Reliance.
(a) Each
of
Parent and Buyer, on behalf of themselves and their respective officers,
directors, stockholders and affiliates hereby acknowledge and agree that:
(i) it
has had sufficient opportunity to conduct and has conducted a thorough
due
diligence investigation of the Company prior to the date hereof, including
an
evaluation of the historical financial performance of the Company and
any
projected financial information; (ii) the representations and warranties
set
forth in Article III and Article IV are, subject to the limited recourse
set
forth in Articles VII and VIII, for informational purposes only, and,
except as
set forth in Articles VII and VIII, shall not give rise to any Claim
in any
manner (including, without limitation, breach of contract); and (iii)
it is
sophisticated in business transactions of the nature contemplated by
this
Agreement and understands the risks of engaging in a such a transaction
with
limited representations and warranties made by the Stockholders and limited
recourse for breach thereof.
(b) Each
of
Parent and Buyer, on behalf of themselves and their respective officers,
directors, stockholders and affiliates hereby acknowledge and agree that:
(i)
neither the Company nor any of the Stockholders or their respective Affiliates
or representatives has made or makes any representation or warranty,
express or
implied, relating to the Company, its Subsidiaries, the Business or the
Company’s properties or assets or otherwise except for those representations
and
warranties expressly set forth in Article III or Article IV; (ii) Xxxxxxx
Xxxx
is the only Stockholder with knowledge of the day-to-day operation and
management of the Company and Business and (iii) each of Xxxxxxx Xxxxxxx
and
Xxxxxxx Xxxxxxx are not involved in and have no knowledge of the day-to-day
operation of the Company and Business.
(c) Without
limiting the generality of the foregoing, other than as set forth in
Articles
III and IV of this Agreement, neither the Stockholders nor any of their
respective Affiliates or representatives has made or makes any representation
or
warranty to Buyer with respect to any information contained in (i) the
information made available to Parent or Buyer or their respective officers,
directors, stockholders or Affiliates by Xxxxxxx Xxxx or at the direction
of
Xxxxxxx Xxxx, whether at the Company’s principal place of business, the mails,
electronically or otherwise, (ii) any other document or information,
whether
written or oral, delivered to, presented to or discussed with Parent
or Buyer or
their respective officers, directors, stockholders or Affiliates or (iii)
oral
presentations or oral information conveyed by Xxxxxxx Xxxx to Parent
or Buyer or
their respective officers, directors, stockholders or Affiliates, in
each case
including historical financial information, estimates and projections
regarding
future revenues, expenses, results of operations or other financial matters,
information concerning customers and suppliers and legal, employee benefits,
environmental and other operational matters, and no statement contained
or
referenced therein shall be deemed a representation or warranty hereunder
or
otherwise. Notwithstanding anything to the contrary set forth in this
Section
6.1(c), nothing herein shall preclude the Parent or Buyer from initiating
a
Claim against any Stockholder for fraud (including, without limitation,
fraud
based on intentional or willful misstatement or omission with respect
to any
information of the nature referred to in clauses (i), (ii) and (iii)
above).
28
(d) No
Person
has been authorized by any Stockholder to make any representation or
warranty
relating to the Company, the Business or its assets or properties or
otherwise
in connection with the Merger, and if made, such statement must not be
relied
upon as having been authorized by the Company or the Stockholders.
6.2 Notices
and Consents.
Each
of
the Stockholders and Parent agree that, in the event any Approval necessary
to
preserve for the Business or the Company any right or benefit under any
Contract
to which the Company is a party, is not obtained prior to the Closing,
the
Stockholders will, subsequent to the Closing, on the reasonable request
of
Parent and at Parent’s sole cost and expense, cooperate with the Surviving
Entity, Parent and their Subsidiaries in attempting to obtain such Approval
as
promptly thereafter as practicable.
6.3 Taking
of Necessary Action; Further Action.
If,
at
any time after the Closing Date, any further action is necessary or desirable
to
carry out the purposes of this Agreement and to vest the Surviving Entity
with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company, the officers and directors of the
Surviving Entity are fully authorized in the name of the Surviving Entity
or
otherwise to take and will take, all such actions at Parent’s
expense.
6.4 Stockholders’
Obligation to Close.
The
Stockholders’ obligation to close the transaction set forth in this Agreement is
expressly made subject to the satisfaction of the following conditions:
(a) Parent
shall be a publicly-reporting company whose shares of common stock, including
the common stock included as Stock Portion of the Merger Consideration,
shall be
quoted on the OTC bulletin board.
(b) At
the
Closing, Buyer will have available to it, and shall contribute to the
Surviving
Entity, a an amount in cash equal to $1.0 million, such amount to be
available
to the Surviving Entity for general working capital purposes, and such
amount
shall not be distributed by dividend or otherwise and shall continue
to be
available to the Surviving Entity as working capital during the Earn-Out
Period.
29
6.5 Employment
Matters.
Parent
and Buyer acknowledge that all employees of the Company before the Closing
will
remain employees of the Surviving Entity after the Closing, and that
and any all
expense and liability related to the employment and/or termination of
such
employees after the Closing will be borne solely by Parent and Buyer.
The
Surviving Entity will make available for discretionary bonuses to be
awarded in
the discretion of its Board of Directors, on the recommendation of Xxxxxxx
Xxxx,
a minimum of $200,000 for all employees that continue in the employ of
the
Surviving Entity, vesting on such terms and subject to such conditions
as
Xxxxxxx Xxxx shall reasonably recommend.
6.6 Directors’
and Officers’ Indemnification and Insurance.
(a) Parent
shall, or shall cause the Surviving Entity to, fulfill and honor the
obligations
of the Company to the Company’s Stockholders in their capacity as officers and
directors (the “Indemnified
Directors and Officers”)
pursuant to the terms of the Company’s Certificate of Incorporation and By-Laws,
each as in effect as of the date of this Agreement.
(b) This
Section 6.6 (i) shall survive the consummation of the Merger, (ii) is
intended
to benefit the Indemnified Directors and Officers and their heirs and
(iii) is
in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such Person may have against Parent, the Surviving
Entity or CAN first arising after the Closing Date by contract or otherwise.
This Section 6.6 shall not be terminated or modified in such a manner
as to
adversely affect the rights of any Indemnified Director and Officer under
this
Section 6.6 without the consent of such affected Indemnified Director
and
Officer.
(c) If
Parent
or the Surviving Entity or any of its successors or assigns shall
(i) consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or (ii)
transfer
all or substantially all of its properties and assets to any Person,
then, in
each such case, proper provisions shall be made so that the successors
and
assigns of Parent or the Surviving Entity, as applicable, assume all
of the
obligations of Parent and the Surviving Entity set forth in this Section
6.6.
(d) As
of the
Effective Time, Parent or the Surviving Entity (with the election being
at
Parent’s option) shall have purchased and shall maintain in full force and
effect for a period of six (6) years after the Closing Date (or, if any
claim is
asserted or made within such six-year period, Parent shall ensure that
such
insurance remains in effect until final disposition of such claim) a
directors’
and officers’ liability insurance policy or policies from one or more reputable
carriers and shall use commercially reasonable efforts to provide each
Indemnified Director and Officer coverage for events occurring prior
to the
Effective Time (including acts or omissions relating to the approval
of this
Agreement and consummation of the transactions contemplated hereby) in
the
amount of at least $5 million and otherwise on terms and conditions reasonable
and customary for companies comparable to Parent. Nothing herein shall
require
the Parent to provide insurance for any Indemnified Director and Officer
with
insurance coverage for any action by any such Indemnified Director and
Officer
constituting fraud (including fraud based on intentional or willful misstatement
or omission) in connection with the transactions contemplated
hereby.
30
6.7 Further
Assurances.
The
Company, Parent, Buyer and the Stockholders shall provide reasonable
cooperation
to each other and their professional auditors with respect to any audit,
legal
or tax inquiries or procedures following the Closing Date including,
without
limitation, in order to permit Parent to have prepared, at its sole cost
and
expense, audited financial statements as required for filing with the
Securities
and Exchange Commission.
6.8 Lease.
Parent,
Buyer and the Surviving Entity shall use their commercially reasonable
efforts
to cause Xxxxxxx Xxxx to be released from his personal guarantee of the
Real
Property Lease as promptly as possible following the Closing.
6.9 Release.
Each
of
Parent, Buyer and CAN does hereby release, cancel, forgive and forever
discharge
the Stockholders and each of their heirs, successors and assigns from
all
actions, claims, demands, damages, obligations, liabilities, controversies
and
executions, of any kind or nature whatsoever, whether known or unknown,
whether
suspect or not, which have arisen, or may have arisen, or shall arise
by reason
of being (or becoming as a result of the Merger) a stockholder or affiliated
entity of the Company or the Surviving Entity from the first day of the
world
through and including the Closing Date, and does specially waive any
claim or
right to assert any cause of action or alleged cause of action or claim
or
demand which has, through oversight or error intentionally or unintentionally
or
through a mistake, been omitted from this Section
6.9.
Notwithstanding the foregoing, nothing herein shall be construed as to
limit in
any manner the right or ability of Parent, Buyer or CAN to enforce the
Merger
Agreement or any other document, instrument or agreement entered into
in
connection with the transactions contemplated thereby or to pursue a
claim based
on fraud (including fraud based on intentional or willful misstatement
or
omission) committed by a Stockholder.
ARTICLE
VII
TAX
MATTERS
7.1 Conveyance
Taxes.
Parent
and Buyer shall pay and be solely responsible for any transfer or gains,
sales,
use, transfer, value added, stock transfer, and stamp taxes, any transfer,
recording, registration, and other fees, and any similar Taxes which
become
payable in connection with the transactions contemplated by this Agreement,
and
shall file such applications and documents as shall permit any such Tax
to be
assessed and paid on or prior to the Closing Date in accordance with
any
available pre sale filing procedure. Each party hereto shall execute
and deliver
all instruments and certificates necessary to enable the other party
or parties
to comply with the foregoing.
7.2 Pre-Closing
Income Tax Returns.
The
Stockholders shall timely prepare or cause to be prepared all Tax Returns
of the
Company relating to Taxes imposed on net income (“Income
Taxes”)
for
all periods ending on or prior to the Closing Date and the income on
which is
taxable to the Stockholders as a result of the Company's status as an
S
corporation under Section 1361 of the Code or a similar provision of
state or
local Law (“Pre-Closing
Income Tax Returns”).
The
cost of preparing all Pre-Closing Income Tax Returns shall be paid by
the
Stockholders. All such Pre-Closing Income Tax Returns shall be prepared
and
filed in a manner consistent with the past practice of the Company unless
otherwise required by applicable Law. The Stockholders, the Buyer and
the Parent
will cooperate in good faith in connection with the exchange of information
necessary for the preparation of all Pre-Closing Income Tax Returns.
The
Stockholders shall submit each of the Pre-Closing Income Tax Returns
to the
Buyer for review at least thirty (30) days prior to the due date for
the filing
of such Pre-Closing Income Tax Return (taking into account any extensions).
The
Buyer shall have the right to review and comment on each Pre-Closing
Income Tax
Return prior to the filing of such Pre-Closing Income Tax Return; provided,
that
if the Stockholders shall fail to submit any Pre-Closing Income Tax Return
to
the Buyer in accordance with this Section 7.2, the Buyer shall have the
right to
prepare and file such Pre-Closing Income Tax Return. The Stockholders
and the
Buyer agree to consult and resolve in good faith any issues and comments
arising
as a result of the review of each Pre-Closing Income Tax Return; provided,
however, that in the event the parties are unable to agree on a resolution
of
any disputed item at least fifteen (15) days before the due date of any
such
return, then, upon providing a written opinion of an AmLaw 200 nationally
recognized law firm mutually acceptable to the Buyer and the Stockholders,
which
firm may include counsel to the Stockholders, that the position the Stockholders
wish to take on such Pre-Closing Income Tax Return has a realistic possibility
of success in a court with jurisdiction, (or, if any such standard is
higher
than the “realistic possibility of success” standard, the minimum standard
required under the Code and the Treasury Regulations promulgated thereunder
(or
any corresponding provision of state or local law) required to avoid
any
penalties with respect to such position), then such Pre-Closing Income
Tax
Return shall be filed, as prepared by the Stockholders with the appropriate
governmental agency. Otherwise the Pre-Closing Income Tax Return shall
be
changed as requested by the Buyer.
31
7.3 Straddle
Period.
The
Parent and Buyer shall timely prepare or cause to be prepared and file
or cause
to be filed any Tax Returns of the Company required to be filed by the
Company
with respect to a period beginning before the Closing Date and ending
after the
Closing Date (a “Straddle
Period”)
relating to Taxes a portion of which is owed by the Company and the Stockholders
with respect to any pre-closing tax period or portion thereof (“Straddle
Period Returns”).
All
Straddle Period Returns shall be prepared and filed in a manner consistent
with
the past practice of the Company unless otherwise required by applicable
Law.
The Stockholders shall have the right to review and comment on each Straddle
Period Return prior to the filing of such return. The Stockholders and
the Buyer
agree to consult and resolve in good faith any issues and comments arising
as a
result of the review of each Straddle Period Return, and mutually to
consent to
filing as promptly as possible to each Straddle Period Return.
7.4 Last
Day of Taxable Period.
If
the
Company is permitted under any applicable federal, state or local income
tax Law
to treat the Closing Date as the last day of a taxable period of the
Company,
the Stockholders and the Parent and Buyer shall treat (and cause their
respective Affiliates to treat) the Closing Date as the last day of such
taxable
period (i.e., a deemed closing of the books for Tax purposes). For all
purposes
under this Agreement, in the case of Taxes that are payable with respect
to any
Straddle Period, the portion of any such Tax that is allocable to the
portion of
the period ending on the close of the Closing Date shall be, in the case
of
Taxes that are based upon or related to income or receipts, be equal
to the
amount which would be payable if the taxable year ended on the Closing
Date.
32
7.5 Tax
Cooperation.
The
Stockholders and the Buyer shall, upon written request of the other,
(i) each
provide the other with such assistance as may be reasonably requested
by any of
them in connection with the preparation of any Tax Return, audit, or
other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes or such returns, (ii) each retain and
provide
the other with any records or other information that may be relevant
to such Tax
Returns, audit or examination, proceeding, or determination, and (iii)
each
provide the other with any final determination of any such audit or examination,
proceeding, or determination that affects any amount required to be shown
on any
such Tax Returns. Without limiting the generality of the foregoing, the
Buyer
shall retain until the applicable statues of limitations (including any
extensions) have expired, copies of all Pre-Closing Tax Returns and Straddle
Period Returns, supporting work schedules, and other records or information
that
may be relevant to such returns, and shall not destroy or otherwise dispose
of
any such records without first providing the Stockholders with a reasonable
opportunity to review and copy the same. Each party shall bear its own
expenses
in complying with the foregoing provisions.
7.6 Required
Notifications.
The Buyer shall promptly notify the Stockholders in writing upon receipt
by the
Buyer or any of its Affiliates of notice of any audits, examinations,
adjustments or assessments relating to Taxes with respect to any Pre-Closing
Income Tax Returns and any Straddle Period Returns, and with respect
to amounts
which would be paid by the Stockholders or for which any of the Buyer
or its
Affiliates may be entitled to receive indemnity under this Agreement
(each, a
“Tax
Claim”).
The
Stockholders, in their sole discretion, may contest such Tax Claim in
any
permissible forum and shall otherwise have the sole right at their sole
expense
to direct, control and settle any administrative or judicial proceedings
relating to such Tax Claim, provided that the Stockholders (i) notify
the Buyer
in writing within twenty (20) days (or if a response to such Tax Claim
is
required within thirty (30) days and the Internal Revenue Service (or
any other
applicable state or local tax authority) refuses to grant an extension
of at
least ten (10) days, fifteen (15) days; provided that the Buyer shall
be
required to use reasonable efforts to obtain such an extension) of the
Buyer's
notification of the Stockholders of such Tax Claim of their intent to
exercise
their right to direct, control, and settle such Tax Claim, (ii) the Buyer
shall
be entitled to participate at its sole expense in such administrative
or
judicial proceedings and (iii) to the extent any settlement of any such
proceeding is reasonably expected to increase any Tax to the Buyer or
its
Affiliates in respect of any Tax not indemnified under this Agreement
by the
Stockholders at the time of such settlement, the Stockholders may not
settle any
such proceeding without the prior written consent of the Buyer.
7.7 Section
368(a) Reorganization; Indemnification.
The
parties hereby agree to report the Merger as a reorganization pursuant
to
Section 368(a)(1)(A) of the Code and any applicable similar state or
local Law
provisions (a “Reorganization”),
to
file all such forms and statements that are required or appropriate in
furtherance thereof, or in connection therewith, to report the value
of the
Parent Shares at $1.00 per share in any such filings, and to take no
action on,
prior or subsequent to, the Closing Date that is reasonably likely to
cause the
Merger to fail to so qualify. The Parent, Buyer and CAN, jointly and
severally,
hereby agree to and do hereby indemnify, defend and hold harmless each
of the
Stockholders from and against any and all Taxes payable by such Stockholders
or
the Company to the extent attributable to the failure of the Merger to
qualify
as a Reorganization, together with any and all professional and other
out-of-pocket costs or fees incurred in connection with any administrative
or
judicial proceeding to establish the status of the Merger as a Reorganization
and the characterization of any gain with respect thereto, whether such
Taxes
are attributable to recognized gain on receipt of the Parent Shares,
characterization of any income taxable to the Stockholders as ordinary
or short
term capital gain income as opposed to long term capital gain income,
or
otherwise (the “Tax
Reorganization Indemnity Payment”),
which
Tax Reorganization Indemnity Payment shall be grossed up, by assuming
the
highest combined marginal federal and applicable state and local Tax
rates, to
include any and all Taxes payable in respect of any such indemnification
payment; provided that this indemnification shall not apply to any Stockholder
to the extent any amount otherwise subject to indemnification is caused
by such
Stockholders' breach regarding reporting the Merger as a Reorganization
as set
forth in this Section
7.7.
For the
avoidance of doubt, the Parent’s, Buyer’s and CAN’s indemnification obligations
pursuant to this Section
7.7
shall
apply in the event the Merger is disqualified as a Reorganization as
a result of
or relating to, among other reasons, any sale of the Parent Shares issued
to
Xxxxxxx Xxxxxxx and Xxxxxxx Xxxxxxx to a third party purchaser immediately
following the Merger or to any subsequent action or inaction by such
third party
purchaser. The procedures pertaining to indemnification set forth in
Section 8.3
shall apply to the indemnification contemplated by this Section 7.7;
provided,
however, that a Claim for indemnification pursuant to this Section 7.7
may be
made at any time prior to the expiration of the applicable statute of
limitations (which survival period, for the avoidance of doubt, shall
be at
least as long as the expiration of the statute of limitations with respect
to
the filing of the final Tax Return of the Company).
33
ARTICLE
VIII
INDEMNIFICATION
8.1 Obligations
of Stockholders.
(a) Indemnification
by Stockholders.
Subject
to the limitations set forth this Section
8.1
and
otherwise in this Article VIII, each Stockholder (each a “Stockholder
Indemnifying Party”
and
collectively, the “Stockholder
Indemnifying Parties”),
severally, and not jointly, agree to indemnify and hold harmless Parent,
the
Surviving Entity and their respective directors, officers and Affiliates
and
their successors and assigns (each a “Parent
Indemnified Party”)
from
and against any and all Losses of the Parent Indemnified Parties, to
the extent
directly or indirectly resulting or arising from or based upon:
(i) breach
of
any representation or warranty set forth in Article III; and
(ii) all
Taxes
to the extent resulting from or relating to the ownership, management
or use of
and the operation of the Business prior to and including the Closing
Date.
For
the
avoidance of doubt, each Stockholder is liable hereunder only with respect
to
the breach of his respective representations.
(b) Indemnification
by Xxxxxxx Xxxx.
Subject
to the limitations set forth in this Section 8.1 and otherwise in this
Article
VIII, Xxxxxxx Xxxx agrees to indemnify and hold harmless the Parent Indemnified
Parties from and against any and all Losses of the Parent Indemnified
Parties,
to the extent directly or indirectly resulting or arising from or based
upon
breach of any representation or warranty set forth in Article IV.
34
(c) Limitations
on Liability.
The
obligations of the Stockholders under this Section 8.1 shall be subject
to the
following limitations:
(i) The
Stockholders shall not have any liability to any Parent Indemnified Party
with
respect to Losses arising out of any of the matters referred to in Section
8.1(a),
until
such time as the amount of all such liability shall collectively exceed
$50,000
(the “Threshold”), whereupon the Losses exceeding the Threshold shall be payable
by the Stockholders;
(ii) Xxxxxxx
Xxxx shall not have any liability to any Parent Indemnified Party with
respect
to Losses arising out of any of the matters referred to in Section
8.1(b),
until
such time as the amount of all such liability shall collectively exceed
the
Threshold, whereupon the Losses exceeding the Threshold shall be payable
by
Xxxxxxx Xxxx.
(iii) The
maximum aggregate amount of Losses for which the Stockholders shall be
liable
pursuant to Sections
8.1(a)
and
8.1(b),
except
for a breach of the representations and warranties contained in Sections
3.2 and
3.3 (collectively, the “Stock
Representations”)
and
Section
3.7(i)
(including any liability resulting from the New York S Corporation election
for
fiscal 2006 having been filed late), collectively, is one thousand dollars
($1,000), provided, however, that a Stockholder’s liability for Losses resulting
from his own fraud (including fraud based on intentional or willful misstatement
or omission), shall be limited to, in the case of Xxxxxxx Xxxx, the amount
of
Merger Consideration actually received by such Stockholder, in the case
of
Xxxxxxx Xxxxxxx, $3,133,333, and in the case of Xxxxxxx Xxxxxxx, $1,566,667
(it
being understood that no Stockholder shall be liable for fraud (including
fraud
based on intentional or willful misstatement or omission) of another
Stockholder). The maximum aggregate amount of Losses for which a Stockholder
shall be liable in connection with a breach of Stock Representation shall
be
equal to the amount of Merger Consideration actually received by such
breaching
Stockholder.
(iv) In
no
event shall the Stockholders’ aggregate liability to any Indemnified Party under
Section
8.1
exceed
the after tax amount of such Claim and all Claims shall be net of any
insurance
proceeds reasonably expected to be received in respect of Losses subject
to such
Claim. The Parent Indemnified Parties shall use all reasonable efforts
to
collect any amounts available under applicable insurance policies with
respect
to Losses subject to a Claim.
8.2 Obligations
of Parent.
Parent,
Buyer and the Surviving Entity (collectively, the “Parent
Indemnifying Parties”)
agree
to indemnify and hold harmless each of the Stockholders and their respective
agents, representatives and Affiliates and their successors and assigns
(each a
“Stockholder
Indemnified Party”)
from
and against any and all Losses of the Stockholder Indemnified Parties,
directly
or indirectly, as a result of, or based upon or arising from:
(a) the
ownership, management and operation of the Company, the Surviving Entity
and the
Business whether before, on or after the Closing Date, except (a) to
the extent
any such Losses are subject to indemnification by the Stockholders pursuant
to
Section
8.1
or (b)
to the extent any such Losses are the result of fraud committed by a
Stockholder, in which case, the Parent Indemnifying Parties shall be
obligated
to indemnify the Stockholders pursuant to this Section
8.2
other
than any Stockholder who committed such fraud; and
35
(b) Buyer
shall not have any liability to any Stockholder Indemnified Party with
respect
to Losses arising out of any of the matters referred to in Section
8.2,
until
such time as the amount of all such liability shall collectively exceed
the
Threshold, whereupon the Losses exceeding the Threshold shall be payable
by
Buyer. Also, in no event shall Buyer’s aggregate liability under Section
8.2
exceed
the after-tax amount of such Claims.
8.3 Procedure.
A
Stockholder Indemnified Party or a Parent Indemnified Party (each, an
“Indemnified
Party”)
shall
give the Parent Indemnifying Party or Stockholder Indemnifying Party
(each, an
“Indemnifying
Party”),
as
applicable, notice (a “Claim
Notice”)
of any
matter which an Indemnified Party has determined has given or could reasonably
give rise to a right of indemnification under this Agreement (a “Claim”),
within forty-five (45) days of such determination; provided, however,
that any
failure of the Indemnified Party to provide such Claim Notice shall not
release
the Indemnifying Party from any of its obligations under this Article
VIII
except to the extent the Indemnifying Party is materially prejudiced
by such
failure and shall not relieve the Indemnifying Party from any other obligation
or liability that it may have to any Indemnified Party otherwise than
under this
Article VIII except to the extent the Indemnifying Party is materially
prejudiced by such failure. Upon receipt of the Claim Notice, the Indemnifying
Party shall be entitled to assume and control the defense of such Claim
at its
expense if it gives notice of its intention to do so to the Indemnified
Party
within ten (10) Business Days of the receipt of such Claim Notice from
the
Indemnified Party; provided, however, that (i) Indemnified Party must
approve of
the selection of legal counsel by Indemnifying Party, which approval
shall not
be unreasonably withheld, delayed or conditioned and (ii) if there exists
or is
reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of the Indemnified Party, in its reasonable
discretion, for the same counsel to represent both the Indemnified Party
and the
Indemnifying Party, then the Indemnified Party shall be entitled to retain
its
own counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of the Indemnifying Party. In the
event the
Indemnifying Party exercises the right to undertake any such defense
against any
such Claim as provided above, the Indemnified Party shall cooperate with
the
Indemnifying Party in such defense and make available to the Indemnifying
Party,
at the Indemnifying Party’s expense, all witnesses, pertinent records, materials
and information in the Indemnified Party’s possession or under the Indemnified
Party’s control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or
indirectly,
conducting the defense against any such Claim, the Indemnifying Party
shall
cooperate with the Indemnified Party in such defense and make available
to the
Indemnified Party, at the Indemnifying Party’s expense, all such witnesses,
records, materials and information in the Indemnifying Party’s possession or
under the Indemnifying Party’s control relating thereto as is reasonably
required by the Indemnified Party. No such Claim may be settled by the
Indemnifying Party without the prior written consent of the Indemnified
Party,
which consent shall not be unreasonably withheld, delayed or conditioned
so long
as (a) there is no payment or other consideration required of the Indemnified
Party and (b) such settlement does not require or otherwise involve any
restrictions on the conduct of business by the Indemnified Party.
36
8.4 Survival.
(a) The
representations and warranties of the Stockholders and Parent contained
in this
Agreement, including the Exhibits and the Schedules to this Agreement,
shall
survive the Closing until the first (1st) anniversary of the Closing
Date. An
Indemnifying Party is not required to make any indemnification payment
hereunder
unless a Claim is delivered to the Indemnifying Party on or before 5:00
p.m. ET
of the one year anniversary of the Closing Date, except with respect
to Claims
of fraud committed by the Indemnifying Party.
(b) Any
matter as to which a Claim has been asserted by a Claim Notice to the
other
party that is pending or unresolved at the end of any applicable limitation
period shall continue to be covered by this Article VIII notwithstanding
any
applicable statute of limitations (which the parties hereby waive) until
such
matter is finally terminated or otherwise resolved by the parties under
this
Agreement or by a final, nonappealable judgment of a court of competent
jurisdiction and any amounts payable hereunder are finally determined
and paid.
8.5 Notice
by Indemnifying Party.
The
Indemnifying Party agrees to notify the Indemnified Party of any liabilities,
claims or misrepresentations, breaches or other matters covered by this
Article
VIII upon discovery or receipt of notice thereof (other than such claims
from
the Indemnified Party).
8.6 Exclusive
Remedy.
Other
than rights to equitable relief, to the extent available under applicable
law,
each of the parties acknowledges and agrees that the sole and exclusive
remedy
for any Losses arising from Claims described in Sections
8.1
and
8.2
or any
other Claims of every nature arising in any manner in connection with
this
Agreement or any other document, agreement or instrument entered into
in
connection herewith, or the transactions contemplated hereby or thereby,
shall
be indemnification in accordance with this Article VIII; provided, however,
that
nothing in this Section
8.6
shall
limit the rights of the parties under the Non-Competition Agreements,
the
Release, the Employment Agreement or the Shareholder Rights Letter.
8.7 Mitigation.
Prior
to
the resolution of any Claim for indemnification under this Agreement,
the
Indemnified Party shall utilize all commercially reasonable efforts,
consistent
with normal past practices and policies and good commercial practice,
to
mitigate such Losses.
8.8 Consequential
and Other Damages.
No
party
shall be liable for any lost profits or consequential, special, punitive,
indirect or incidental Losses or damages in connection with this
Agreement.
37
ARTICLE
IX
GENERAL
9.1 Amendments;
Waivers.
This
Agreement and any schedule or exhibit attached hereto may be amended
only by
agreement in writing of all parties. No waiver of any provision nor consent
to
any exception to the terms of this Agreement or any agreement contemplated
hereby shall be effective unless in writing and signed by the party to
be bound
and then only to the specific purpose, extent and instance so provided.
9.2 Schedules;
Exhibits; Integration.
Each
schedule and exhibit delivered pursuant to the terms of this Agreement
shall be
in writing and shall constitute a part of this Agreement, although schedules
need not be attached to each copy of this Agreement. This Agreement,
together
with such schedules and exhibits, constitutes the entire agreement among
the
parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection therewith,
including,
without limitation, the Letter of Intent entered into between CAN and
the
Stockholders.
9.3 Governing
Law.
This
Agreement, the legal relations between the parties and any Action, whether
contractual or non-contractual, instituted by any party with respect
to matters
arising under or in connection with this Agreement, including but not
limited to
the negotiation, execution, interpretation, coverage, scope, performance,
breach, termination, validity, or enforceability of this Agreement, shall
be
governed by and construed in accordance with the internal laws of the
State of
New York without reference to principles of conflicts of laws.
9.4 No
Assignment.
Neither
this Agreement nor any rights or obligations under it are assignable
without the
express written consent of the Stockholders and Parent, provided, however,
that
CAN may assign its rights under the LOI to enter into this Agreement
to Parent
and Parent’s wholly-owned merger subsidiary for the purpose of the issuance of
the Stock Portion of the Merger Consideration by Parent and to qualify
the
transaction as tax-free under the Code and does hereby assign to the
Parent and
Buyer its rights thereunder.
9.5 Headings.
The
descriptive headings of the Articles, Sections and subsections of this
Agreement
are for convenience only and do not constitute a part of this
Agreement.
9.6 Counterparts.
This
Agreement and any amendment hereto or any other agreement (or document)
delivered pursuant hereto may be executed in one or more counterparts
and by
different parties in separate counterparts. All of such counterparts
shall
constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts
have
been signed by each party and delivered to the other party.
9.7 Publicity
and Reports.
The
Stockholders and Parent shall coordinate all publicity relating to the
transactions contemplated by this Agreement and, except as required by
Law, no
party shall issue any press release, publicity statement or other public
notice
relating to this Agreement, or the transactions contemplated by this
Agreement,
without obtaining the prior consent of each of the Stockholders and Parent.
38
9.8 Parties
in Interest.
This
Agreement shall be binding upon and inure to the benefit of each party,
and
nothing in this Agreement, express or implied, is intended to confer
upon any
other person any rights or remedies of any nature whatsoever under or
by reason
of this Agreement. Nothing in this Agreement is intended to relieve or
discharge
the obligation of any third person to any party to this Agreement.
9.9 Notices.
Any
notice or other communication hereunder must be given in writing and
(a)
delivered in person, (b) transmitted by facsimile or (c) mailed by certified
mail, postage prepaid, return receipt requested as follows:
If
to Parent, addressed to:
|
|
000
X. Xxx Xxxx Xxxx., Xxxxx 0000
Xx.
Xxxxxxxxxx, XX 00000
Attention:
Xxxxx Xxxxxxxx, Chief Financial Officer
Facsimile:(000)
000-0000
|
|
With
a copy to:
|
|
Xxxxxx
and Xxxxx, LLP
000
X. 00xx Xxxxxx, Xxxxx 0000
Xxx
Xxxx, XX 00000
Attention:
Xxxxxx X. Xxxxxx, Esq.
Facsimile:
(000) 000-0000
|
|
If
to Stockholders, addressed to:
|
|
Xxxxxxx
Xxxx
000
Xxxx 00xx Xxxxxx, Xxx. 00X
Xxx
Xxxx, XX 00000
Facsimile:
(000) 000-0000
|
|
With
a copy to:
|
|
Blank
Rome LLP
Xxx
Xxxxx Xxxxxx
Xxxxxxxxxxxx,
XX 00000
Attention:
Xxxxxx X. Spaniel, Jr., Esq.
Facsimile:
(000) 000-0000
|
|
Xxxxxxx
Xxxxxxx
0000
Xxxxxx Xxxxxx Xx.
Xxxxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
|
|
Xxxxxxx
Xxxxxxx
0000
Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxxx,
Xxxx 00000
Facsimile:
(000) 000-0000
|
|
GTC
Law Group LLP and Affiliates
00
Xxxxx Xxxxxx
Xxxxxx,
XX 00000
Attention:
Xxxx X. Xxxxxxx, Esq.
Facsimile:
(000) 000-0000
|
39
or
to
such other address or to such other person as either party shall have
last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by facsimile, when transmitted
to
the applicable number so specified in (or pursuant to) this Section
8.9
and an
appropriate answerback is received, (ii) if given by mail, three (3)
days after
such communication is deposited in the mails by certified mail, return
receipt
requested, with postage prepaid and addressed as aforesaid or (iii) if
given by
any other means, when actually delivered at such address.
9.10 Remedies;
Waiver.
To
the
extent permitted by Law, all rights and remedies existing under this
Agreement
are cumulative to and not exclusive of, any rights or remedies otherwise
available under applicable Law. No failure on the part of any party to
exercise
or delay in exercising any right hereunder shall be deemed a waiver thereof,
nor
shall any single or partial exercise preclude any further or other exercise
of
such or any other right.
9.11 Attorney’s
Fees.
In
the
event of any Action by any party to enforce against another party a right
or
claim, the prevailing party shall be entitled to reasonable attorney’s fees,
costs and expenses incurred in such Action. Attorney’s fees incurred in
enforcing any judgment in respect of this Agreement are recoverable as
a
separate item.
9.12 Severability.
If
any
provision of this Agreement is determined to be invalid, illegal or
unenforceable by any Governmental Entity, the remaining provisions of
this
Agreement to the extent permitted by Law shall remain in full force and
effect;
provided that the essential terms and conditions of this Agreement for
all
parties remain valid, binding and enforceable. In event of any such
determination, the parties agree to negotiate in good faith to modify
this
Agreement to fulfill as closely as possible the original intents and
purposes
hereof. To the extent permitted by Law, the parties hereby to the same
extent
waive any provision of Law that renders any provision hereof prohibited
or
unenforceable in any respect.
9.13 Entire
Agreement.
This
Agreement constitutes and includes that entire agreement of the parties
with
reference to the subject matter hereof and supersedes all prior agreements
and
understandings relating to the subject matter hereof. No promise or
representation of any kind has been made to any of the parties to this
Agreement
by any other party or parties to this Agreement or anyone acting for
any of such
parties, except as is expressly stated in this Agreement.
9.14 Time
is of the Essence.
Time
is
of the essence in interpreting and enforcing this Agreement.
9.15 Arbitration.
Any
controversy or claim arising out of or relating to this Agreement, or
the breach
thereof, shall be resolved by binding arbitration administered by the
American
Arbitration Association under its Commercial Arbitration Rules in effect
on the
date of this Agreement (herein the “AAA
Rules”),
and
judgment on the award rendered by the arbitrator may be entered in any
court
having jurisdiction thereof. The arbitrator shall be selected pursuant
to the
AAA Rules and shall be a neutral and impartial lawyer with excellent
academic
and professional credentials (i) who is or has been practicing law for
at least
fifteen (15) years, specializing in general commercial litigation or
general
corporate and commercial matters and (ii) who has both training and experience
as an arbitrator and is generally available to serve as an arbitrator.
The
arbitration shall be governed by the arbitration law of the Federal Arbitration
Act and shall be held in New York, New York.
40
9.16 Expenses.
All
fees
incurred by any party hereto shall be paid by such party, except that
Parent
shall pay simultaneously with the Closing (i) all legal fees incurred
by the
Company and the Stockholders on August 8, 2007 and all subsequent legal
fees of
such parties relating to finalizing the LOI, which such fees amount to
$10,619
in the aggregate, (ii) an amount equal to $105,715 of the Stockholder’s legal
fees incurred in connection with the transactions contemplated hereby
and (iii)
all fees payable to eBizBrokers Inc. in the amount of $120,000.
9.17 Disclosures.
Each
exception stated in the Schedules attached hereto shall be deemed to
be
disclosed under any Section of Article III or Article IV specifically
identified
therein and any other Section or Sections to which such disclosure relates.
[Remainder
of Page Left Intentionally Blank]
41
IN
WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be
executed by its duly authorized officers as of the day and year first
above
written.
PARENT:
|
||
|
|
|
By: | /s/ Xxxxxxx Xxxxxxx | |
Name: Xxxxxxx
Xxxxxxx
Title: President
and CEO
|
CAN:
CUSTOMER
ACQUISITION NETWORK, INC.
|
||
|
|
|
By: | /s/ Xxxxxxx Xxxxxxx | |
Name: Xxxxxxx
Xxxxxxx
Title: President
and CEO
|
BUYER:
DESKTOP
ACQUISITION SUB, INC.
|
||
|
|
|
By: | /s/ Xxxxxxx Xxxxxxx | |
Name: Xxxxxxx
Xxxxxxx
Title: President
|
COMPANY:
DESKTOP
INTERACTIVE, INC.
|
||
|
|
|
By: | /s/ Xxxxxxx Xxxx | |
Name: Xxxxxxx
Xxxx
Title: President
|
STOCKHOLDERS: | ||
/s/ Xxxxxxx Xxxx | ||
|
/s/ Xxxxxxx Xxxxxxx | ||
XXXXXXX
XXXXXXX
|
/s/ Xxxxxxx Xxxxxxx | ||
XXXXXXX
XXXXXXX
|
EXHIBIT
A
Form
of Certificate of Merger
EXHIBIT
B
Form
of Employment Agreement
EXHIBIT
C
Form
of Release
EXHIBIT
D
Form
of Non-Competition Agreement
EXHIBIT
E
Form
of Termination Agreement
EXHIBIT
F
Form
of Settlement Agreement
EXHIBIT
G
Lock-Up
Agreement
EXHIBIT
H
Form
of Legal Opinion of Counsel for Parent
EXHIBIT
I
Form
of Shareholder Rights Letter