AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AMONG ETHANEX ENERGY, INC. (f/k/a New Inverness Explorations, Inc.), ETHANEX NORTH AMERICA ACQUISITION CORP. AND ETHANEX ENERGY NORTH AMERICA, INC. September 1, 2006
EXHIBIT
2.1
AMONG
(f/k/a
New Inverness Explorations, Inc.),
ETHANEX
NORTH AMERICA ACQUISITION CORP.
AND
ETHANEX
ENERGY NORTH AMERICA, INC.
September
1, 2006
TABLE
OF
CONTENTS
|
ARTICLE
I
|
THE
MERGER
|
2
|
|
1.1
|
The
Merger
|
2
|
|
1.2
|
The
Closing
|
2
|
|
1.3
|
Actions
at the Closing
|
2
|
|
1.4
|
Additional
Actions
|
3
|
|
1.5
|
Conversion
of Company Securities
|
3
|
|
1.6
|
Dissenting
Shares
|
4
|
|
1.7
|
Fractional
Shares or Units
|
5
|
|
1.8
|
Options
and Warrants
|
5
|
|
1.9
|
Escrow
|
6
|
|
1.10
|
Certificate
of Incorporation and ByLaws
|
7
|
|
1.11
|
No
Further Rights
|
7
|
|
1.12
|
Closing
of Transfer Books
|
7
|
|
1.13
|
Post-Closing
Adjustment
|
7
|
|
1.14
|
Exemption
From Registration
|
8
|
|
ARTICLE
II
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
8
|
|
2.1
|
Organization,
Qualification and Corporate Power
|
8
|
|
2.2
|
Capitalization
|
9
|
|
2.3
|
Authorization
of Transaction
|
9
|
|
2.4
|
Noncontravention
|
10
|
|
2.5
|
Subsidiaries
|
11
|
|
2.6
|
Financial
Statements
|
12
|
|
2.7
|
Absence
of Certain Changes
|
12
|
|
2.8
|
Undisclosed
Liabilities
|
12
|
|
2.9
|
Tax
Matters
|
12
|
|
2.10
|
Assets
|
14
|
|
2.11
|
Owned
Real Property
|
14
|
|
2.12
|
Real
Property Leases
|
14
|
|
2.13
|
Contracts
|
15
|
|
2.14
|
Accounts
Receivable
|
16
|
|
2.15
|
Powers
of Attorney
|
16
|
-i-
|
2.16
|
Insurance
|
16
|
|
2.17
|
Litigation
|
17
|
|
2.18
|
Employees
|
17
|
|
2.19
|
Employee
Benefits
|
17
|
|
2.20
|
Environmental
Matters
|
20
|
|
2.21
|
Legal
Compliance
|
21
|
|
2.22
|
Customers
and Suppliers
|
21
|
|
2.23
|
Permits
|
21
|
|
2.24
|
Certain
Business Relationships With Affiliates
|
21
|
|
2.25
|
Brokers’
Fees
|
21
|
|
2.26
|
Books
and Records
|
22
|
|
2.27
|
Intellectual
Property
|
22
|
|
2.28
|
Disclosure
|
22
|
|
2.29
|
Duty
to Make Inquiry
|
23
|
|
2.30
|
Board
Actions
|
23
|
|
ARTICLE
III
|
REPRESENTATIONS
AND WARRANTIES OF THE PARENT AND THE ACQUISITION
SUBSIDIARY
|
23
|
|
3.1
|
Organization,
Qualification and Corporate Power
|
23
|
|
3.2
|
Capitalization
|
24
|
|
3.3
|
Authorization
of Transaction
|
24
|
|
3.4
|
Noncontravention
|
25
|
|
3.5
|
Subsidiaries
|
25
|
|
3.6
|
Exchange
Act Reports
|
26
|
|
3.7
|
Compliance
with Laws
|
26
|
|
3.8
|
Financial
Statements
|
27
|
|
3.9
|
Absence
of Certain Changes
|
27
|
|
3.10
|
Litigation
|
27
|
|
3.11
|
Undisclosed
Liabilities
|
27
|
|
3.12
|
Tax
Matters
|
28
|
|
3.13
|
Assets
|
29
|
|
3.14
|
Owned
Real Property
|
29
|
|
3.15
|
Real
Property Leases
|
29
|
-ii-
|
3.16
|
Contracts
|
30
|
|
3.17
|
Accounts
Receivable
|
31
|
|
3.18
|
Powers
of Attorney
|
31
|
|
3.19
|
Insurance
|
31
|
|
3.20
|
Warranties
|
32
|
|
3.21
|
Employees
|
32
|
|
3.22
|
Employee
Benefits
|
32
|
|
3.23
|
Environmental
Matters
|
34
|
|
3.24
|
Permits
|
35
|
|
3.25
|
Certain
Business Relationships With Affiliates
|
35
|
|
3.26
|
Tax-Free
Reorganization
|
35
|
|
3.27
|
Split-Off
|
37
|
|
3.28
|
Brokers’
Fees
|
37
|
|
3.29
|
Disclosure
|
37
|
|
3.30
|
Interested
Party Transactions
|
37
|
|
3.31
|
Duty
to Make Inquiry
|
37
|
|
3.32
|
Accountants
|
38
|
|
3.33
|
Minute
Books
|
38
|
|
3.34
|
Board
Action
|
38
|
|
ARTICLE
IV
|
COVENANTS
|
38
|
|
4.1
|
Closing
Efforts
|
38
|
|
4.2
|
Governmental
and Thirty Party Notices and Consents
|
38
|
|
4.3
|
Current
Report
|
39
|
|
4.4
|
Operation
of Business
|
39
|
|
4.5
|
Access
to Information
|
41
|
|
4.6
|
Operation
of Business
|
41
|
|
4.7
|
Access
to Information
|
43
|
|
4.8
|
Expenses
|
43
|
|
4.9
|
Indemnification
|
43
|
|
4.10
|
Listing
of Merger Shares
|
44
|
|
4.11
|
Stock
Split
|
44
|
|
4.12
|
Name
Change
|
44
|
-iii-
|
4.13
|
Split-Off
|
44
|
|
4.14
|
Stock
Option Plan
|
44
|
|
ARTICLE
V
|
CONDITIONS
TO CONSUMMATION OF MERGER
|
44
|
|
5.1
|
Conditions
to Each Party’s Obligations
|
44
|
|
5.2
|
Conditions
to Obligations of the Parent and the Acquisition
Subsidiary
|
44
|
|
5.3
|
Conditions
to Obligations of the Company
|
46
|
|
ARTICLE
VI
|
INDEMNIFICATION
|
47
|
|
6.1
|
Indemnification
by the Company Stockholders
|
47
|
|
6.2
|
Indemnification
by the Parent
|
48
|
|
6.3
|
Indemnification
Claims by the Parent
|
48
|
|
6.4
|
Survival
of Representations and Warranties
|
51
|
|
6.5
|
Limitations
on Parent’s Claims for Indemnification
|
51
|
|
ARTICLE
VII
|
DEFINITIONS
|
52
|
|
ARTICLE
VIII
|
TERMINATION
|
55
|
|
8.1
|
Termination
by Mutual Agreement
|
55
|
|
8.2
|
Termination
for Failure to Close
|
55
|
|
8.3
|
Termination
by Operation of Law
|
55
|
|
8.4
|
Termination
for Failure to Perform Covenants or Conditions
|
55
|
|
8.5
|
Effect
of Termination or Default; Remedies
|
56
|
|
8.6
|
Remedies;
Specific Performance
|
56
|
|
ARTICLE
IX
|
MISCELLANEOUS
|
56
|
|
9.1
|
Press
Releases and Announcements
|
56
|
|
9.2
|
No
Third Party Beneficiaries
|
56
|
|
9.3
|
Entire
Agreement
|
56
|
|
9.4
|
Succession
and Assignment
|
57
|
|
9.5
|
Counterparts
and Facsimile Signature
|
57
|
|
9.6
|
Headings
|
57
|
|
9.7
|
Notices
|
57
|
|
9.8
|
Governing
Law
|
58
|
|
9.9
|
Amendments
and Waivers
|
58
|
|
9.10
|
Severability
|
58
|
|
9.11
|
Submission
to Jurisdiction
|
58
|
|
9.12
|
Construction
|
59
|
-iv-
EXHIBITS
Exhibit
A Form
Split-Off Agreement
Exhibit
B Form
Escrow Agreement
Exhibit
C Opinion
of Counsel to the Company
Exhibit
D Opinion
of Counsel to the Parent and the Acquisition Subsidiary
-v-
AGREEMENT
AND PLAN OF MERGER
(this
“Agreement”), dated as of September 1, 2006, by and among Ethanex Energy, Inc.
(formerly known as New Inverness Explorations, Inc.), a Nevada corporation
(the
“Parent”), Ethanex North America Acquisition Corp., a Delaware corporation (the
“Acquisition Subsidiary”) and Ethanex Energy North America, Inc., a Delaware
corporation (the “Company”). The Parent, the Acquisition Subsidiary and the
Company are each a “Party” and referred to collectively herein as the
“Parties.”
WHEREAS,
this Agreement contemplates a merger of the Acquisition Subsidiary with and
into
the Company, with the Company remaining as the surviving entity after the merger
(the “Merger”), whereby the stockholders of the Company will receive common
stock of the Parent in exchange for their capital stock of the Company;
WHEREAS,
prior to the closing of the Merger, the Company shall complete a private
placement of units of securities (the “Company Units”) of the Company (the
“Private Placement Offering”) resulting in gross proceeds of up to $20,000,000,
for a purchase price per Company Unit of $1.00 (“PPO Price”) each Company Unit
consisting of (i) one (1) share of Class B Common Stock of the Company and
(ii)
a warrant to purchase one (1) share of Class B Common Stock of the Company
exercisable for a period of five (5) years at an exercise price of $1.50 per
share, which warrant shall be callable by the Company under certain
circumstances (the “Company Class B Warrants”).
WHEREAS,
on the effective date of the Merger, each share of the Company’s Class B Common
Stock will automatically convert into one share of the Parent’s common stock,
and each Company Class B Warrant will be exchanged for a warrant to purchase
shares of Parent Common Stock (“New Warrants”), each of which will entitle the
holder thereof to purchase one share of the Parent’s common stock for an
exercise price of $1.50 per share and on the same terms and conditions as the
Company Class B Warrants issued in the Private Placement Offering;
WHEREAS,
contemporaneously with the closing of the Merger, the Parent intends to
split-off its wholly owned subsidiary, New Inverness Leaseco, Inc., a Nevada
corporation (“Leaseco”), through the sale of all of the outstanding capital
stock of Leaseco (the “Split-Off”) upon the terms and conditions of a split-off
agreement by and among Parent, Xxxxxx Xxxxxxx (“Xxxxxxx”), Xxxx Xxxxxx
(“Xxxxxx”) (Xxxxxxx and Xxxxxx are collectively referred to as “Buyer”), the
Company and Leaseco, substantially in the form of Exhibit
A
attached
hereto (the “Split-Off Agreement”); and
WHEREAS,
Parent, Acquisition Subsidiary, and the Company desire that the Merger qualifies
as a “plan of reorganization” under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the “Code”) and not subject the holders of equity
securities of the Company to tax liability under the Code.
NOW,
THEREFORE, in consideration of the representations, warranties and covenants
herein contained, and for other good and valuable consideration the receipt,
adequacy and sufficiency of which are hereby acknowledged, the Parties hereto,
intending legally to be bound, agree as follows:
-1-
ARTICLE
I
THE
MERGER
1.1 The
Merger.
Upon
and subject to the terms and conditions of this Agreement, the Acquisition
Subsidiary shall merge with and into the Company at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Acquisition Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the “Surviving
Corporation”). The “Effective Time” shall be the later to occur of the time at
which a certificate of merger (the “Certificate of Merger”) and other
appropriate or required documents prepared and executed in accordance with
the
Delaware General Corporation Law (the “GCL”) are filed with the Secretary of
State of Delaware. The Merger shall have the effects set forth in Section 259
of
the GCL.
1.2 The
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place at the offices of Gottbetter & Partners, LLP in New York, New
York commencing at 10:00 a.m. local time on September 1, 2006, or, if all of
the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, on such
mutually agreeable later date as soon as practicable (and in any event not
later
than three (3) business days) after the satisfaction or waiver of all conditions
(excluding the delivery of any documents to be delivered at the Closing by
any
of the Parties) set forth in Article V hereof (the “Closing Date”).
1.3 Actions
at the Closing.
At the
Closing:
(a) the
Company shall deliver to the Parent and the Acquisition Subsidiary the various
certificates, instruments and documents referred to in Section 5.2;
(b) the
Parent and the Acquisition Subsidiary shall deliver to the Company the various
certificates, instruments and documents referred to in Section 5.3;
(c) the
Surviving Corporation shall file with the Secretary of State of the State of
Delaware the Certificate of Merger;
(d) each
of
the stockholders of record of the Company immediately prior to the Effective
Time (collectively, the “Company Stockholders”) shall deliver to the Parent the
certificate(s) representing his, her or its Company Shares (as defined
below);
(e) the
Parent shall deliver certificates for the Initial Shares (as defined below)
to
each Company Class A Stockholder in accordance with Section 1.5;
-2-
(f) the
Parent shall deliver certificates for the shares of Parent Common Stock and
the
New Warrants (defined below), as applicable, to each Company Class B Stockholder
in accordance with Sections 1.5 and 1.8;
(g) the
Parent shall deliver to the Company (i) evidence that the Parent’s board of
directors is authorized to consist of five individuals, (ii) the resignations
of
all individuals who served as directors and/or officers of the Parent
immediately prior to the Closing Date, (iii) evidence of the appointment of
five
directors to serve immediately following the Closing Date, four of whom shall
have been designated by the Company and one of whom shall have been designated
by the Parent, and (v) evidence of the appointment of such executive officers
of
the Parent to serve immediately following the Closing Date as shall have been
designated by the Company; and
(h) the
Parent, Xxxxxx X. Xxxxx (the “Indemnification Representative”) and Gottbetter
& Partners, LLP (the “Escrow Agent”) shall execute and deliver the Escrow
Agreement in substantially the form attached hereto as Exhibit
B
(the
“Escrow Agreement”) and the Parent shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as defined below) being placed in escrow
on
the Closing Date pursuant to Section 1.9.
1.4 Additional
Actions.
If
at any
time after the Effective Time the Surviving Corporation shall consider or be
advised that any deeds, bills of sale, assignments or assurances or any other
acts or things are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, its right, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either the Company or Acquisition Subsidiary or (b)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors or their designees shall be authorized
(to
the fullest extent allowed under applicable law) to execute and deliver, in
the
name and on behalf of either the Company or Acquisition Subsidiary, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Company or Acquisition Subsidiary, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title
or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of the Company or Acquisition Subsidiary, as applicable,
and otherwise to carry out the purposes of this Agreement.
1.5 Conversion
of Company Securities.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
any Party or the holder of any of the following securities,
each
share of common stock, $0.01 par value per share, of the Company (the shares
of
Class A Common Stock and Class B Common Stock collectively referred to as the
“Company Shares”) issued and outstanding immediately prior to the Effective Time
(other than Company Shares owned beneficially by the Parent or the Acquisition
Subsidiary and Dissenting Shares (as defined below)) shall be converted into
and
represent the right to receive (subject to the provisions of Section 1.9) such
number of shares of common stock, $0.001 par value per share, of the Parent
(“Parent Common Stock”) as is set forth below:
-3-
(a) Each
share of the Class A Common Stock of the Company (“Company Class A Shares,” the
holders of such Company Class A Shares hereinafter referred to as the “Company
Class A Stockholders”) shall be converted into and represent the right to
receive such number of shares of Parent Common Stock as is equal to the Common
Conversion Ratio (as defined below).
An
aggregate of 26,000,000 shares
of
Parent Common Stock shall be issued to the Company Class A Stockholders in
connection with the Merger.
(b) The
“Common Conversion Ratio” shall be obtained by dividing (i)
26,000,000 shares
of
Parent Common Stock by (ii) the total number of outstanding Company Class A
Shares immediately prior to the Effective Time on a diluted basis after giving
effect to the exercise of all outstanding options (“Options”), warrants
(“Warrants”) and other rights to acquire Company Class A Shares.
Company
Class A Stockholders of record as of the Closing Date (the “Indemnifying
Stockholders”) shall be entitled to receive immediately 95%
of
the shares of Parent Common Stock into which their Company Class A Shares were
converted pursuant to this Section 1.5 (the “Initial Shares”); the
remaining 5% of
the
shares of Parent Common Stock into which their Company Class A Shares were
converted pursuant to this Section 1.5, rounded to the nearest whole number
(with 0.5 shares rounded upward to the nearest whole number) (the “Escrow
Shares”), shall be deposited in escrow pursuant to Section 1.9 and shall be held
and disposed of in accordance with the terms of the Escrow Agreement. The
Initial Shares and the Escrow Shares shall together be referred to herein as
the
“Merger Shares.”
(c) Each
share of the Class B Common Stock of the Company (“Company Class B Shares,” the
holders of such Company Class B Shares hereinafter referred to as the “Company
Class B Stockholders”) shall be converted into and represent the right to
receive one share of Parent Common Stock. An aggregate of up to 20,000,000
shares of Parent Common Stock shall be issued to the holders of the Company
Class B Shares in connection with the Merger.
(d) Each
issued and outstanding share of common stock, par value $0.001 per share, of
the
Acquisition Subsidiary shall be converted into one validly issued, fully paid
and nonassessable share of Surviving Corporation Common Stock.
1.6 Dissenting
Shares.
(a) For
purposes of this Agreement, “Dissenting Shares” means Company Shares held as of
the Effective Time by a Company Stockholder who has not voted such Company
Shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the GCL and not effectively withdrawn or
forfeited prior to the Effective Time. Dissenting Shares shall not be converted
into or represent the right to receive shares of Parent Common Stock unless
such
Company Stockholder’s right to appraisal shall have ceased in accordance with
Section 262 of the GCL. If such Company Stockholder has so forfeited or
withdrawn his, her or its right to appraisal of Dissenting Shares, then,
(i) as of the occurrence of such event, such holder’s Dissenting Shares
shall cease to be Dissenting Shares and shall be converted into
and
-4-
represent
the right to receive the shares of Parent Common Stock issuable in respect
of
such Company Shares pursuant to Section 1.5, and (ii) promptly
following the occurrence of such event, the Parent shall deliver to such Company
Stockholder, in accordance with Section 1.5, either: (x) a certificate
representing 95% of the Merger Shares (which shares shall be considered Initial
Shares for all purposes of this Agreement), if such holder was a Company Class
A
Stockholder, and deliver to the Escrow Agent a certificate representing the
remaining 5% of the Merger Shares (which shares shall be considered Escrow
Shares for all purposes of this Agreement); or (y) shares of Parent Common
Stock, if such holder was a Company Class B Stockholder.
(b) The
Company shall give the Parent prompt notice of any written demands for appraisal
of any Company Shares, withdrawals of such demands, and any other instruments
that relate to such demands received by the Company. The Company shall not,
except with the prior written consent of the Parent, make any payment with
respect to any demands for appraisal of Company Shares or offer to settle or
settle any such demands.
1.7 Fractional
Shares or Units.
No
certificates or scrip representing fractional Initial Shares or shares of Parent
Common Stock shall be issued to Company Stockholders on the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Company Shares converted into Merger Shares or shares of Parent
Common Stock, as the case may be, pursuant to Section 1.5 (“Certificates”) and
such Company Stockholders shall not be entitled to any voting rights, rights
to
receive any dividends or distributions or other rights as a stockholder of
the
Parent with respect to any fractional Initial Shares or fractional shares of
Parent Common Stock that would have otherwise been issued to such Company
Stockholders. In lieu of any fractional Initial Shares or fractional shares
of
Parent Common Stock that would have otherwise been issued, each former Company
Stockholder that would have been entitled to receive a fractional Initial Share
or a fractional share of Parent Common Stock shall, on proper surrender of
such
person’s Certificates, receive such whole number of Initial Shares or shares of
Parent Common Stock as is equal to the precise number of Initial Shares or
Parent Common Stock to which such Company Stockholder would be entitled, rounded
up or down to the nearest whole number (with a fractional interest equal to
0.5
rounded upward to the nearest whole number); provided that each such Company
Stockholder shall receive at least one Initial Share or share of Parent Common
Stock.
1.8 Options
and Warrants.
(a) As
of the
Effective Time, all Options to purchase Company Shares issued by the Company,
whether vested or unvested, shall be canceled and exchanged for options to
purchase shares of Parent Common Stock (“New Options”) without further action by
the holder thereof. The New Option shall constitute an option to acquire such
number of shares of Parent Common Stock as is equal to the number of Company
Shares subject to the unexercised portion of the Old Option multiplied by the
Common Conversion Ratio (with any fraction resulting from such multiplication
to
be rounded down to the nearest whole number). The exercise price
per
-5-
share
of
each New Option shall be equal to $1.00. The New Options shall be granted under
Parent’s 2006 Stock Option Plan (the “Parent Option Plan”) and that plan’s
terms, exercisability, vesting schedule, and status as an “incentive stock
option” under Section 422 of the Code, if applicable.
(b) As
of the
Effective Time, all Company Class B Warrants to purchase Company Class B Shares,
whether vested or unvested, shall be canceled and exchanged for New Warrants
without further action by the holder thereof. The New Warrant shall constitute
a
warrant to acquire such number of shares of Parent Common Stock as is equal
to
the number of Company Shares subject to the unexercised portion of the Company
Class B Warrant and shall be on the same terms and conditions as the Company
Class B Warrant. As such, the exercise price per share of each New Warrant
shall
be equal to $1.50.
(c) As
soon
as practicable after the Effective Time, the Parent or the Surviving Corporation
shall take appropriate actions to collect the Options and the agreements
evidencing the Options, and the Company Class B Warrants, which shall be deemed
to be canceled and shall entitle the holder to exchange the Options for New
Options, and the Company Class B Warrants for New Warrants in the
Parent.
(d) The
Parent shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon exercise
of
the New Options to be exchanged for Old Options and the New Warrants to be
exchanged for the Company Class B Warrants in accordance with this
Section 1.8.
(e) The
Company shall cause the termination, as of the Effective Time, of any and all
outstanding Warrants to purchase capital stock of the Company which remain
unexercised, other than any Company Class B Warrants issued in connection with
the Private Placement Offering.
1.9 Escrow.
On the
Closing Date, the Parent shall deliver to the Escrow Agent a certificate (issued
in the name of the Escrow Agent or its nominee) representing the Escrow Shares,
as described in Section 1.5, for the purpose of securing the
indemnification obligations of the Indemnifying Stockholders set forth in this
Agreement. The Escrow Shares shall be held by the Escrow Agent pursuant to
the
Escrow Agreement, in substantially the form set forth in Exhibit B attached
hereto. The Escrow Shares shall be held as a trust fund and shall not be subject
to any lien, attachment, trustee process or any other judicial process of any
creditor of any Party, and shall be held and disbursed solely for the purposes
and in accordance with the terms of the Escrow Agreement.
-6-
1.10 Certificate
of Incorporation and Bylaws.
(a) The
certificate of incorporation of the Company in effect immediately prior to
the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until duly amended or repealed.
(b) The
bylaws of the Company in effect immediately prior to the Effective Time shall
be
the bylaws of the Surviving Corporation until duly amended or
repealed.
1.11 No
Further Rights.
From
and after the Effective Time, no Company Shares shall be deemed to be
outstanding, and holders of Certificates shall cease to have any rights with
respect thereto, except as provided herein or by law.
1.12 Closing
of Transfer Books.
At the
Effective Time, the stock transfer books of the Company shall be closed and
no
transfer of Company Shares shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Parent or the Surviving Corporation,
they shall be cancelled and exchanged for Initial Shares or shares of Parent
Common Stock in accordance with Section 1.5, subject to Section 1.9
and to applicable law in the case of Dissenting Shares.
1.13 Post-Closing
Adjustment.
In the
event that, during the period commencing from the Closing Date and ending on
the
second anniversary of the Closing Date, the Company (or its controlling
stockholders immediately prior to the Merger) incurs any Loss with respect
to,
in connection with, or arising from any Parent Liabilities, then promptly
following the filing by the Parent with the Securities and Exchange Commission
(the “SEC”) of a quarterly report relating to the most recent completed quarter
for which such determination has been made, the Parent shall issue to the
Company Stockholders and/or their designees such number of shares of Parent
Common Stock as would result from dividing (x) the whole dollar amount
representing such Losses by (y) the PPO Price. The limit on the aggregate number
of shares of Parent Common Stock issuable under this Section 1.13 shall be
2,000,000 shares. As
used
in this Section 1.13: (a) “Loss” shall mean any and all costs and expenses,
including reasonable attorneys’ fees, court costs, reasonable accountants’ fees,
and damages and losses, net of any insurance proceeds actually received by
the
Party suffering the Loss with respect thereto; (b) “Claims” shall include, but
are not limited to, any claim, notice, suit, action, investigation, other
proceedings (whether actual or threatened); and (c) “Parent Liabilities” shall
mean all Claims against and liabilities, obligations or indebtedness of any
nature whatsoever of Leaseco, whenever accruing, and of the Parent, accruing
on
or before the Closing Date (whether primary, secondary, direct, indirect,
liquidated, unliquidated or contingent, matured or unmatured), including, but
not limited to (i) any breach by the Parent or the Acquisition Subsidiary of
any
of their respective representations or warranties set forth in Article III
herein, (ii) any litigation threatened, pending or for which a basis exists,
that has resulted or may result in the entry of judgment in damages or
otherwise
-7-
against
the Parent or any Parent Subsidiary (as defined in this Agreement); (iii) any
and all outstanding debts owed by the Parent or any Parent Subsidiary; (iv)
any
and all internal or employee related disputes, arbitrations or administrative
proceedings threatened, pending or otherwise outstanding, (v) any and all liens,
foreclosures, settlements, or other threatened, pending or otherwise outstanding
financial, legal or similar obligations of the Parent or any Parent Subsidiary,
(vi) any and all Taxes for which Parent or any of its direct or indirect assets
may be liable or subject, for any taxable period (or portion thereof) ending
on
or before the Closing Date, including, without limitation, any and all Taxes
resulting from or attributable to Parent’s ownership or operation of the Leaseco
assets, (vii) any and all Taxes for which Parent or its assets may be liable
or
subject (including, without limitation, the interests and assets of the
Surviving Entity and any Parent Subsidiary) as a consequence of Parent’s
acquisition, formation, capitalization, ownership, and Split-Off of Leaseco,
whether related to a taxable period (or portion thereof) ending on or after
the
Closing Date, and (vii) all fees and expenses incurred in connection with
effecting the adjustments contemplated by this Section 1.13, as such Parent
Liabilities are determined by the Parent’s independent auditors, on a quarterly
basis.
1.14 Exemption
From Registration.
Parent
and the Company intend that the shares of Parent Common Stock to be issued
pursuant to Section 1.5 hereof or upon exercise of Parent Options or New
Warrants granted pursuant to Section 1.8 hereof in each case in connection
with
the Merger will be issued in a transaction exempt from registration under the
Securities Act of 1933, as amended, (“Securities Act”) by reason of section 4(2)
of the Securities Act and/or Rule 506 of Regulation D promulgated by the SEC
thereunder.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Parent that the statements contained in
this Article II are true and correct, except as set forth in the disclosure
schedule provided by the Company to the Parent on the date hereof and accepted
in writing by the Parent (the “Disclosure Schedule”). The Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article II, and except to the extent that it
is clear from the context thereof that such disclosure also applies to any
other
paragraph, the disclosures in any paragraph of the Disclosure Schedule shall
qualify only the corresponding paragraph in this Article II. For
purposes of this Article II, the phrase “to the knowledge of the Company”
or any phrase of similar import shall be deemed to refer to the actual knowledge
of the executive officers of the Company, as well as any other knowledge which
such executive officers would have possessed had they made reasonable inquiry
with respect to the matter in question.
2.1 Organization,
Qualification and Corporate Power.
The
Company is a corporation duly
-8-
organized,
validly existing and in corporate and tax good standing under the laws of the
State of Delaware. The Company is duly qualified to conduct business and is
in
corporate and tax good standing under the laws of each jurisdiction in which
the
nature of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified or in good
standing, individually or in the aggregate, has not had and would not reasonably
be expected to have a Company Material Adverse Effect (as defined below). The
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished or made available to the Parent complete
and accurate copies of its certificate of incorporation and bylaws. The Company
is not in default under or in violation of any provision of its certificate
of
incorporation, as amended to date, or its bylaws, as amended to date. For
purposes of this Agreement, “Company Material Adverse Effect” means a material
adverse effect on the assets, business, condition (financial or otherwise),
results of operations or future prospects of the Company.
2.2 Capitalization.
The
authorized capital stock of the Company consists of 130,000,000 Company Shares
divided into two classes such that 70,000,000 shares are designated as Company
Class A Shares and 60,000,000 shares are designated as Company Class B Shares.
As of the date of this Agreement, 34,000,000 Company Class A Shares and
20,000,000 Company Class B Shares were issued and outstanding, with an
additional 20,000,000 Company Class B Shares reserved for issuance under the
Company Class B Warrants, and no Company Shares were held in the treasury of
the
Company. Section 2.2 of the Disclosure Schedule sets forth a complete and
accurate list of (i) all stockholders of the Company, indicating the number
and class of Company Shares held by each stockholder, (ii) all outstanding
Options and Warrants, indicating (A) the holder thereof, (B) the
number of Company Shares subject to each Option and Warrant, (C) the
exercise price, date of grant, vesting schedule and expiration date for each
Option or Warrant, and (D) any terms regarding the acceleration of vesting,
and (iii) all stock option plans and other stock or equity-related plans of
the Company. All of the issued and outstanding Company Shares, and all Company
Shares that may be issued upon exercise of Options or Warrants will be (upon
issuance in accordance with their terms), duly authorized, validly issued,
fully
paid, nonassessable and free of all preemptive rights. Other than the Options
and Warrants listed in Section 2.2 of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements to which the Company is
a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act,
or
sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or “drag-along”
rights) of any securities of the Company. To the knowledge of the Company,
there
are no agreements among other parties, to which the Company is not a party
and
by which it is not bound, with respect to the voting (including without
limitation voting trusts or proxies) or sale or transfer (including without
limitation agreements relating to rights of first refusal,
co-sale
-9-
rights
or
“drag-along” rights) of any securities of the Company. All of the issued and
outstanding Company Shares were issued in compliance with applicable federal
and
state securities laws.
2.3 Authorization
of Transaction.
The
Company has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
by the Company of this Agreement and, subject to the adoption of this Agreement
and the approval of the Merger by a majority of the votes represented by the
outstanding Company Shares entitled to vote on this Agreement and the Merger
(the “Requisite Company Stockholder Approval”), the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized
by
all necessary corporate action on the part of the Company. Without limiting
the
generality of the foregoing, the board of directors of the Company
(i) determined that the Merger is fair and in the best interests of the
Company and the Company Stockholders, (ii) adopted this Agreement in
accordance with the provisions of the GCL, and (iii) directed that this
Agreement and the Merger be submitted to the Company Stockholders for their
adoption and approval and resolved to recommend that the Company Stockholders
vote in favor of the adoption of this Agreement and the approval of the Merger.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
2.4 Noncontravention.
Subject
to the filing of the Certificate of Merger as required by the GCL, neither
the
execution and delivery by the Company of this Agreement, nor the consummation
by
the Company of the transactions contemplated hereby, will (a) conflict with
or violate any provision of the certificate of incorporation or bylaws of the
Company, as amended to date, bylaws or other organizational document of any
Subsidiary (as defined below), (b) require on the part of the Company or
any Subsidiary any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
“Governmental Entity”), except for such permits, authorizations, consents and
approvals for which the Company is obligated to use its Reasonable Best Efforts
to obtain pursuant to Section 4.2(a), (c) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of obligations under, create in any Party
the
right to terminate, modify or cancel, or require any notice, consent or waiver
under, any contract or instrument to which the Company or any Subsidiary is
a
party or by which the Company or any Subsidiary is bound or to which any of
their assets is subject, except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation in any contract or
instrument set forth in Section 2.4 of the Disclosure Schedule, for which the
Company is obligated to use its Reasonable Best Efforts to obtain waiver,
consent or approval pursuant to Section 4.2(b), (ii) any conflict, breach,
default, acceleration, termination, modification or cancellation which,
individually or in the aggregate, would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby or (iii) any notice, consent or waiver the absence of
which, individually or in the aggregate, would not have a Company
Material
-10-
Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby, (d) result in the imposition of any Security Interest
(as defined below) upon any assets of the Company or any Subsidiary or
(e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any Subsidiary or any of their properties
or assets. For purposes of this Agreement: “Security Interest” means any
mortgage, pledge, security interest, encumbrance, charge or other lien (whether
arising by contract or by operation of law), other than (i) mechanic’s,
materialmen’s, and similar liens, (ii) liens arising under worker’s
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course
of
Business (as defined below) of the Company and not material to the Company;
and
“Ordinary Course of Business” means the ordinary course of the Company’s
business, consistent with past custom and practice (including with respect
to
frequency and amount).
2.5 Subsidiaries.
(a) Section 2.5
of the Disclosure Schedule sets forth: (i) the name of each Company
Subsidiary; (ii) the number and type of outstanding equity securities of
each Subsidiary and a list of the holders thereof; (iii) the jurisdiction
of organization of each Subsidiary; (iv) the names of the officers and
directors of each Company Subsidiary; and (v) the jurisdictions in which
each Company Subsidiary is qualified or holds licenses to do business as a
foreign corporation or other entity. For purposes of this Agreement, a
“Subsidiary” shall mean any corporation, partnership, joint venture or other
entity in which a Party has, directly or indirectly, an equity interest
representing 50% or more of the equity securities thereof or other equity
interests therein (collectively, the “Subsidiaries”)
(b) Each
Subsidiary is an entity duly organized, validly existing and in corporate and
tax good standing under the laws of the jurisdiction of its incorporation.
Each
Subsidiary is duly qualified to conduct business and is in corporate and tax
good standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires qualification
to do business, except where the failure to be so qualified or in good standing,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect. Each Subsidiary has all
requisite power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
delivered or made available to the Parent complete and accurate copies of the
charter, bylaws or other organizational documents of each Subsidiary. No
Subsidiary is in default under or in violation of any provision of its charter,
bylaws or other organizational documents. All of the issued and outstanding
equity securities of each Subsidiary are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. All equity securities of
each
Subsidiary that are held of record or owned beneficially by either the Company
or any Subsidiary are held or owned free and clear of any restrictions on
transfer (other than restrictions under the Securities Act and state securities
laws), claims, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights, agreements or commitments to which
the
-11-
Company
or any Subsidiary is a party or which are binding on any of them providing
for
the issuance, disposition or acquisition of any equity securities of any
Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. To the knowledge of the Company,
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any equity securities of any Subsidiary.
(c) Except
as
set forth in Section 2.5(c) of the Disclosure Schedule, the Company does not
control directly or indirectly or have any direct or indirect equity
participation or similar interest in any corporation, partnership, limited
liability company, joint venture, trust or other business association which
is
not a Subsidiary.
2.6 Financial
Statements.
The
Company was incorporated on May 31, 2006 (the “Organization Date”) and has not
prepared any financial statements.
2.7 Absence
of Certain Changes.
Since
the
Company’s Organization Date, (a) there has occurred no event or development
which, individually or in the aggregate, has had, or could reasonably be
expected to have in the future, a Company Material Adverse Effect, and
(b) neither the Company nor any Subsidiary has taken any of the actions set
forth in paragraphs (a) through (m) of Section 4.4.
2.8 Undisclosed
Liabilities.
None
of
the Company and its Subsidiaries has any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated and whether
due or to become due), except for (a) liabilities which have arisen since
the Company’s Organization Date in the Ordinary Course of Business and
(c) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by United States generally accepted accounting
principles (“GAAP”) to be reflected on a balance sheet.
2.9 Tax
Matters.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Taxes”
means all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government,
or
any agency thereof, or other political subdivision of the United States or
any
such government, and any interest, fines, penalties, assessments or additions
to
tax
-12-
resulting
from, attributable to or incurred in connection with any tax or any contest
or
dispute thereof.
(ii) “Tax
Returns” means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) Each
of
the Company and the Subsidiaries has filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. Neither the Company nor any Subsidiary is
or
has ever been a member of a group of corporations with which it has filed (or
been required to file) consolidated, combined or unitary Tax Returns, other
than
a group of which only the Company and the Subsidiaries are or were members.
Each
of the Company and the Subsidiaries has paid on a timely basis all Taxes that
were due and payable. Neither the Company nor any Subsidiary has any actual
or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Company or any Subsidiary during a prior period) other than the Company
and
the Subsidiaries. All Taxes that the Company or any Subsidiary is or was
required by law to withhold or collect have been duly withheld or collected
and,
to the extent required, have been paid to the proper Governmental
Entity.
(c) The
Company has delivered or made available to the Parent complete and accurate
copies of all federal income Tax Returns, examination reports and statements
of
deficiencies assessed against or agreed to by the Company or any Subsidiary
since the Organization Date. The federal income Tax Returns of the Company
and
each Subsidiary have been audited by the Internal Revenue Service or are closed
by the applicable statute of limitations for all taxable years through the
taxable year specified in Section 2.9(c) of the Disclosure Schedule. No
examination or audit of any Tax Return of the Company or any Subsidiary by
any
Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. Neither the Company nor any Subsidiary
has
been informed by any jurisdiction that the jurisdiction believes that the
Company or Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor any Subsidiary has waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(d) Neither
the Company nor any Subsidiary: (i) is a “consenting corporation” within
the meaning of Section 341(f) of the Code, and none of the assets of the
Company or the Subsidiaries are subject to an election under Section 341(f)
of the Code; (ii) has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code;
(iii) has made any payments, is obligated to make any payments, or is a
party to any agreement that could obligate it to make any payments that may
be
treated as an “excess parachute payment” under Section 280G of the Code;
(iv) has any actual or potential liability for any Taxes of any person
(other than the Company and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of federal, state, local, or
foreign law), or as a transferee or successor, by
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contract,
or otherwise; or (v) is or has been required to make a basis reduction
pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).
(e) None
of
the assets of the Company or any Subsidiary: (i) is property that is
required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is
“tax-exempt use property” within the meaning of Section 168(h) of the Code;
or (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
(f) Neither
the Company nor any Subsidiary has undergone a change in its method of
accounting resulting in an adjustment to its taxable income pursuant to
Section 481 of the Code.
(g) No
state
or federal “net operating loss” of the Company determined as of the Closing Date
is subject to limitation on its use pursuant to Section 382 of the Code or
comparable provisions of state law as a result of any “ownership change” within
the meaning of Section 382(g) of the Code or comparable provisions of any
state law occurring prior to the Closing Date.
2.10 Assets.
Each of
the Company and the Subsidiaries owns or leases all tangible assets necessary
for the conduct of its businesses as presently conducted and as presently
proposed to be conducted. Except as set forth in Section 2.10 of the Disclosure
Schedule, each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and is suitable for
the
purposes for which it presently is used. No asset of the Company or any
Subsidiary (tangible or intangible) is subject to any Security
Interest.
2.11 Owned
Real Property.
Neither
the Company nor any Subsidiary owns any real property, except as otherwise
listed in Section 2.11 of the Disclosure Schedule.
2.12 Real
Property Leases.
Section 2.12 of the Disclosure Schedule lists all real property leased or
subleased to or by the Company or any Subsidiary and lists the term of such
lease, any extension and expansion options, and the rent payable thereunder.
The
Company has delivered or made available to the Parent complete and accurate
copies of the leases and subleases listed in Section 2.12 of the Disclosure
Schedule. With respect to each lease and sublease listed in Section 2.12 of
the Disclosure Schedule:
(a) the
lease
or sublease is legal, valid, binding, enforceable and in full force and
effect;
-14-
(b) the
lease
or sublease will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing;
(c) neither
the Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Company, is threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a breach or default by the Company or any
Subsidiary or, to the knowledge of the Company, any other party under such
lease
or sublease;
(d) neither
the Company nor any Subsidiary has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
and
(e) to
the
knowledge of the Company, there is no Security Interest, easement, covenant
or
other restriction applicable to the real property subject to such lease, except
for recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Company or a Subsidiary of
the
property subject thereto.
2.13 Contracts.
(a) Section
2.13 of the Disclosure Schedule lists the following agreements (written or
oral)
to which the Company or any Subsidiary is a party as of the date of this
Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties providing for lease payments in excess of $25,000
per
annum or having a remaining term longer than 12 months;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $25,000, or (C) in which the Company or any Subsidiary has
granted manufacturing rights, “most favored nation” pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
(iii) any
agreement which, to the knowledge of the Company, establishes a partnership
or
joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more
-15-
than
$25,000 or under which it has imposed (or may impose) a Security Interest on
any
of its assets, tangible or intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any officer, director or stockholder of the Company or
any
affiliate, as defined in Rule 12b-2 under the Securities Exchange Act of
1934 (the “Exchange Act”), thereof (an “Affiliate”);
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Company Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Company or any Subsidiary
to indemnify any other party thereto (excluding indemnities contained in
agreements for the purchase, sale or license of products entered into in the
Ordinary Course of Business); and
(x) any
other
agreement (or group of related agreements) either involving more than $25,000
or
not entered into in the Ordinary Course of Business.
(b) The
Company has delivered or made available to the Parent a complete and accurate
copy of each agreement listed in Section 2.13 of the Disclosure Schedule.
With respect to each agreement so listed, and except as set forth in Section
2.13 of the Disclosure Schedule: (i) the agreement is legal, valid, binding
and enforceable and in full force and effect; (ii) the agreement will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof
as
in effect immediately prior to the Closing; and (iii) neither the Company
nor any Subsidiary nor, to the knowledge of the Company, any other party, is
in
breach or violation of, or default under, any such agreement, and no event
has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute
a
breach or default by the Company or any Subsidiary or, to the knowledge of
the
Company, any other party under such contract.
2.14 Accounts
Receivable.
The
Company has no accounts receivable.
2.15 Powers
of Attorney.
Except
as set forth in Section 2.15 of the Disclosure Schedule, there are no
outstanding powers of attorney executed on behalf of the Company or any
Subsidiary.
-16-
2.16 Insurance.
Section 2.16 of the Disclosure Schedule lists each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the Company or any
Subsidiary is a party. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Company and the Subsidiaries. There is no material
claim
pending under any such policy as to which coverage has been questioned, denied
or disputed by the underwriter of such policy. All premiums due and payable
under all such policies have been paid, neither the Company nor any Subsidiary
may be liable for retroactive premiums or similar payments, and the Company
and
the Subsidiaries are otherwise in compliance in all material respects with
the
terms of such policies. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any such policy.
Each such policy will continue to be enforceable and in full force and effect
immediately following the Effective Time in accordance with the terms thereof
as
in effect immediately prior to the Effective Time.
2.17 Litigation. As
of the
date of this Agreement, there is no action, suit, proceeding, claim, arbitration
or investigation before any Governmental Entity or before any arbitrator (a
“Legal Proceeding”) which is pending or has been threatened in writing against
the Company or any Subsidiary which (a) seeks either damages in excess of
$25,000 or equitable relief or (b) if determined adversely to the Company
or such Subsidiary, could have, individually or in the aggregate, a Company
Material Adverse Effect.
2.18 Employees.
(a) Section
2.18 of the Disclosure Schedule contains a list of all employees of the Company
and each Subsidiary whose annual rate of compensation exceeds $50,000 per
year,
along with the position and the annual rate of compensation of each such person.
Section 2.18 of the Disclosure Schedule contains a list of all employees of
the
Company or any Subsidiary who are a party to a non-competition agreement with
the Company or any Subsidiary; copies of such agreements have previously been
delivered to the Parent. To the knowledge of the Company, no key employee or
group of employees has any plans to terminate employment with the Company or
any
Subsidiary.
(b) Neither
the Company nor any Subsidiary is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. To
the
knowledge of the Company, no organizational effort has been made or threatened,
either currently or within the past two years, by or on behalf of any labor
union with respect to employees of the Company or any Subsidiary. To the
knowledge of the Company there are no circumstances or facts which could
individually or collectively give rise to a suit based on discrimination of
any
kind.
-17-
2.19 Employee
Benefits.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Employee
Benefit Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) “ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
(iii) “ERISA
Affiliate” means any entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in Section 414(b)
of the Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the Company
or a Subsidiary.
(b) Section 2.19(b)
of the Disclosure Schedule contains a complete and accurate list of all Employee
Benefit Plans maintained, or contributed to, by the Company, any Subsidiary
or
any ERISA Affiliate. Complete and accurate copies of (i) all Employee
Benefit Plans which have been reduced to writing, (ii) written summaries of
all unwritten Employee Benefit Plans, (iii) all related trust agreements,
insurance contracts and summary plan descriptions, and (iv) all annual
reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all
plan financial statements for the last five plan years for each Employee Benefit
Plan, have been delivered or made available to the Parent. Each Employee Benefit
Plan has been administered in all material respects in accordance with its
terms
and each of the Company, the Subsidiaries and the ERISA Affiliates has in all
material respects met its obligations with respect to such Employee Benefit
Plan
and has made all required contributions thereto. The Company, each Subsidiary,
each ERISA Affiliate and each Employee Benefit Plan are in compliance in all
material respects with the currently applicable provisions of ERISA and the
Code
and the regulations thereunder (including without limitation Section 4980 B
of the Code, Subtitle K, Chapter 100 of the Code and Sections 601
through 608 and Section 701 et seq. of ERISA). All filings and reports as
to each Employee Benefit Plan required to have been submitted to the Internal
Revenue Service or to the United States Department of Labor have been duly
submitted.
(c) To
the
knowledge of the Company, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans
and
-18-
proceedings
with respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material
liability.
(d) All
the
Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date
of
its most recent determination letter or application therefor in any respect,
and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required
to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been
tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(e) Neither
the Company, any Subsidiary, nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(f) At
no
time has the Company, any Subsidiary or any ERISA Affiliate been obligated
to
contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are
no unfunded obligations under any Employee Benefit Plan providing benefits
after
termination of employment to any employee of the Company or any Subsidiary
(or
to any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state law. The assets
of each Employee Benefit Plan which is funded are reported at their fair market
value on the books and records of such Employee Benefit Plan.
(h) No
act or
omission has occurred and no condition exists with respect to any Employee
Benefit Plan maintained by the Company, any Subsidiary or any ERISA Affiliate
that would subject the Company, any Subsidiary or any ERISA Affiliate to (i)
any
material fine, penalty, tax or liability of any kind imposed under ERISA or
the
Code or (ii) any contractual indemnification or contribution obligation
protecting any fiduciary, insurer or service provider with respect to any
Employee Benefit Plan.
(i) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(j) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Company
at
any time without liability to the Company as a result thereof and no
Employee
-19-
Benefit
Plan, plan documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Employee Benefit
Plan.
(k) Section
2.19(k) of the Disclosure Schedule discloses each: (i) agreement with any
stockholder, director, executive officer or other key employee of the Company
or
any Subsidiary (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
the
Company or any Subsidiary of the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Company or any Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of
such person’s “parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Company or any Subsidiary, including
without limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan or Employee
Benefit Plan, any of the benefits of which will be increased, or the vesting
of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. The accruals for vacation, sickness and disability expenses
are accounted for on the Company Balance Sheet and are adequate and properly
reflect the expenses associated therewith in accordance with generally accepted
accounting principles.
2.20 Environmental
Matters.
(a) Each
of
the Company and the Subsidiaries has complied with all applicable Environmental
Laws (as defined below), except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. There is no pending or,
to
the knowledge of the Company, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or investigation, inquiry
or information request by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary, except for litigation, notices
of
violations, formal administrative proceedings or investigations, inquiries
or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
For
purposes of this Agreement, “Environmental Law” means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage,
disposal, generation and transportation of industrial, toxic or hazardous
materials or substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous materials or substances, or solid or hazardous waste, including
without limitation emissions, discharges, injections, spills, escapes or dumping
of pollutants, contaminants or chemicals;
-20-
(v) the
protection of wild life, marine life and wetlands, including without limitation
all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles;
(vii) health and safety of employees and other persons; and
(viii) manufacturing, processing, using, distributing, treating, storing,
disposing, transporting or handling of materials regulated under any law as
pollutants, contaminants, toxic or hazardous materials or substances or oil
or
petroleum products or solid or hazardous waste. As used above, the terms
“release” and “environment” shall have the meaning set forth in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as
amended (“CERCLA”).
(b) Set
forth
in Section 2.20(b) of the Disclosure Schedule is a list of all documents
(whether in hard copy or electronic form) that contain any environmental
reports, investigations and audits relating to premises currently or previously
owned or operated by the Company or a Subsidiary (whether conducted by or on
behalf of the Company or a Subsidiary or a third party, and whether done at
the
initiative of the Company or a Subsidiary or directed by a Governmental Entity
or other third party) which were issued or conducted during the past five years
and which the Company has possession of or access to. A complete and accurate
copy of each such document has been provided to the Parent.
(c) To
the
knowledge of the Company there is no material environmental liability with
respect to any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any
Subsidiary.
2.21 Legal
Compliance.
Each of
the Company and the Subsidiaries, and the conduct and operations of their
respective businesses, are in compliance with each applicable law (including
rules and regulations thereunder) of any federal, state, local or foreign
government, or any Governmental Entity, except for any violations or defaults
that, individually or in the aggregate, have not had and would not reasonably
be
expected to have a Company Material Adverse Effect.
2.22 Customers
and Suppliers.
Section 2.22 of the Disclosure Schedule sets forth a list of each customer
that accounted for more than 5% of the consolidated revenues of the Company
since the Organization Date and the amount of revenues accounted for by such
customer during such period. No such customer has notified the Company in
writing within the past year that it will stop buying services from the Company
or any Subsidiary.
2.23 Permits.
Section
2.23 of the Disclosure Schedule sets forth a list of all permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
(including without limitation those issued or required under Environmental
Laws
and those relating to the occupancy or use of owned or leased real property)
(“Permits”) issued to or held by the Company or any Subsidiary. Such listed
Permits are the only Permits that are required for the Company and the
Subsidiaries to conduct their respective businesses as presently conducted
except for those the absence of which,
-21-
individually
or in the aggregate, have not had and would not reasonably be expected to have
a
Company Material Adverse Effect. Each such Permit is in full force and effect
and, to the knowledge of the Company, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration. Each such Permit will continue in full force
and effect immediately following the Closing.
2.24 Certain
Business Relationships With Affiliates.
Except
as listed in Section 2.24 of the Disclosure Schedule, no Affiliate of the
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary,
(b) has any claim or cause of action against the Company or any Subsidiary,
or (c) owes any money to, or is owed any money by, the Company or any
Subsidiary. Section 2.24 of the Disclosure Schedule describes any
transactions involving the receipt or payment in excess of $25,000 in any fiscal
year between the Company or a Subsidiary and any Affiliate thereof which have
occurred or existed since the Organization Date, other than employment
agreements.
2.25 Brokers’
Fees.
Neither
the Company nor any Subsidiary has any liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement, except as listed in Section 2.25 of the
Disclosure Schedule.
2.26 Books
and Records.
The
minute books and other similar records of the Company and each Subsidiary
contain complete and accurate records of all actions taken at any meetings
of
the Company’s or such Subsidiary’s stockholders, board of directors or any
committees thereof and of all written consents executed in lieu of the holding
of any such meetings. The books and records of the Company and each Subsidiary
accurately reflect in all material respects the assets, liabilities, business,
financial condition and results of operations of the Company or such Subsidiary
and have been maintained in accordance with good business and bookkeeping
practices.
2.27 Intellectual
Property.
Each
of
the Company and the Subsidiaries owns or has the right to use all Intellectual
Property (as defined below) necessary (i) to use, manufacture, market and
distribute the products manufactured, marketed, sold or licensed, and to provide
the services provided, by the Company or the Subsidiaries to other parties
(together, the “Customer Deliverables”) and (ii) to operate the internal
systems of the Company or the Subsidiaries that are material to its business
or
operations, including, without limitation, computer hardware systems, software
applications and embedded systems (the “Internal Systems”; the Intellectual
Property owned by or licensed to the Company or the Subsidiaries and
incorporated in or underlying the Customer Deliverables or the Internal Systems
is referred to herein as the “Company Intellectual Property”). Each item of
Company Intellectual Property will be owned or available for use by the
Surviving Corporation immediately following the Closing on substantially
identical terms and conditions as it was immediately prior to the Closing.
The
Company or the appropriate Subsidiary has taken all
-22-
reasonable
measures to protect the proprietary nature of each item of Company Intellectual
Property. To the knowledge of the Company, (a) no other person or entity has
any
rights to any of the Company Intellectual Property owned by the Company or
a
Subsidiary except pursuant to agreements or licenses entered into by the Company
and such person in the ordinary course, and (b) no other person or entity is
infringing, violating or misappropriating any of the Company Intellectual
Property. For purposes of this Agreement, “Intellectual Property” means all (i)
patents and patent applications, (ii) copyrights and registrations thereof,
(iii) computer software, data and documentation, (iv) trade secrets and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(v) trademarks, service marks, trade names, domain names and applications and
registrations therefor and (vi) other proprietary rights relating to any of
the
foregoing.
2.28 Disclosure.
No
representation or warranty by the Company contained in this Agreement, and
no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf
of
the Company pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in
order to make the statements herein or therein not misleading. The Company
has
disclosed to the Parent all material information relating to the business of
the
Company or any Subsidiary or the transactions contemplated by this
Agreement.
2.29 Duty
to Make Inquiry.
To the
extent that any of the representations or warranties in this Article II are
qualified by “knowledge” or “belief,” the Company represents and warrants that
it has made due and reasonable inquiry and investigation concerning the matters
to which such representations and warranties relate, including, but not limited
to, diligent inquiry by its directors, officers and key personnel.
2.30 Board
Actions.
The
Company’s board of directors (a) has unanimously determined that the Merger is
fair and in the best interests of the Company Stockholders and is on terms
that
are fair to the Company Stockholders and has recommended the Merger to the
Company Stockholders, and (b) shall submit the Merger and this Agreement to
the
vote and approval of the Company Stockholders or the approval of the Company
Stockholders by written consent.
-23-
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE PARENT
AND
THE ACQUISITION SUBSIDIARY
Each
of
the Parent and the Acquisition Subsidiary represents and warrants to the Company
that the statements contained in this Article III are true and correct,
except as set forth in the Parent Disclosure Schedule provided by the Parent
and
the Acquisition Subsidiary to the Company on the date hereof and accepted in
writing by the Parent (the “Parent Disclosure Schedule”). The Parent Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III, and except to the extent
that it is clear from the context thereof that such disclosure also applies
to
any other paragraph, the disclosures in any paragraph of the Parent Disclosure
Schedule shall qualify only the corresponding paragraph in this Article
III. For
purposes of this Article III, the phrase “to the knowledge of the Parent”
or any phrase of similar import shall be deemed to refer to the actual knowledge
of the executive officers of the Parent, as well as any other knowledge which
such executive officers would have possessed had they made reasonable inquiry
with respect to the matter in question.
3.1 Organization,
Qualification and Corporate Power.
The
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and the Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws
of the state of Delaware. The Parent is duly qualified to conduct business
and
is in corporate and tax good standing under the laws of each jurisdiction in
which the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified or
in
good standing would not have a Parent Material Adverse Effect (as defined
below). The Parent has all requisite corporate power and authority to carry
on
the businesses in which it is engaged and to own and use the properties owned
and used by it. The Parent has furnished or made available to the Company
complete and accurate copies of its certificate of incorporation and bylaws.
For
purposes of this Agreement, “Parent Material Adverse Effect” means a material
adverse effect on the assets, business, condition (financial or otherwise),
results of operations or future prospects of the Parent and its subsidiaries,
taken as a whole.
3.2 Capitalization.
The
authorized capital stock of the Parent consists of (a) 300,000,000 shares of
Parent Common Stock, of which 24,000,000 shares were issued and outstanding
as
of the date of this Agreement, after giving effect to a five for one forward
stock split in the form of a stock dividend (the “Stock Split”) to shareholders
of record on August 7, 2006 and (b) 10,000,000 shares of preferred stock, $0.001
par value per share, of which no shares were issued and outstanding as of the
date of this Agreement. The Parent Common Stock is presently eligible for
quotation and trading on the NASD Over-the-Counter Bulletin Board (the “OTCBB”)
in all 00 xxxxxx xx xxx Xxxxxx Xxxxxx. All
of
the issued and outstanding shares of Parent Common Stock are duly authorized,
validly
-24-
issued,
fully paid, nonassessable and free of all preemptive rights. There are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Parent is a party or which are binding upon the Parent providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Parent. There are no agreements to which the Parent is
a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act,
or
sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or “drag-along”
rights) of any securities of the Parent. To the knowledge of the Parent, there
are no agreements among other parties, to which the Parent is not a party and
by
which it is not bound, with respect to the voting (including without limitation
voting trusts or proxies) or sale or transfer (including without limitation
agreements relating to rights of first refusal, co-sale rights or “drag-along”
rights) of any securities of the Parent. All of the issued and outstanding
shares of Parent Common Stock were issued in compliance with applicable federal
and state securities laws. The 26,000,000 Merger
Shares and up to 20,000,000 shares of Parent Common Stock to be issued at the
Closing pursuant to Section 1.5 hereof, when issued and delivered in accordance
with the terms hereof and of the Certificate of Merger, shall be duly and
validly issued, fully paid and nonassessable and free of all preemptive rights.
Immediately prior to the Effective Time, after giving effect to (i) the
surrender of 10,000,000 shares of Parent Common Stock by two former officers
of
the Parent (the “Share Contribution”) in connection with the Split-Off and (ii)
the Stock Split, there will be 14,000,000 shares of Parent Common Stock issued
and outstanding.
3.3 Authorization
of Transaction.
Each
of
the Parent and the Acquisition Subsidiary has all requisite power and authority
to execute and deliver this Agreement and (in the case of the Parent) the Escrow
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery by the Parent and the Acquisition Subsidiary of this Agreement
and
(in the case of the Parent) the Split-Off Agreement, and the agreements
contemplated hereby and thereby (collectively, the “Transaction Documentation”)
and the consummation by the Parent and the Acquisition Subsidiary of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Parent and
Acquisition Subsidiary, respectively. This Agreement has been duly and validly
executed and delivered by the Parent and the Acquisition Subsidiary and
constitutes a valid and binding obligation of the Parent and the Acquisition
Subsidiary, enforceable against them in accordance with its terms.
3.4 Noncontravention.
Subject
to compliance with the applicable requirements of the Securities Act and any
applicable state securities laws, the Exchange Act, the regulations of the
OTCBB
and the filing of the Certificate of Merger as required by the GCL, neither
the
execution and delivery by the Parent or the Acquisition Subsidiary of this
Agreement or the Transaction Documentation , nor the consummation by the Parent
or the Acquisition Subsidiary of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the certificate
of incorporation or bylaws of the Parent or the Acquisition Subsidiary,
(b) require on the part of
-25-
the
Parent or the Acquisition Subsidiary any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result
in breach of, constitute (with or without due notice or lapse of time or both)
a
default under, result in the acceleration of obligations under, create in any
Party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Parent or the
Acquisition Subsidiary is a party or by which either is bound or to which any
of
their assets are subject, except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not
adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not adversely
affect the consummation of the transactions contemplated hereby, or
(d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent or the Acquisition Subsidiary or any of
their properties or assets.
3.5 Subsidiaries.
(a) Parent
has no Subsidiaries other than the Acquisition Subsidiary and Leaseco. Each
of
the Acquisition Subsidiary and Leaseco is a corporation duly organized, validly
existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. The Acquisition Subsidiary was formed solely
to effectuate the Merger, Leaseco was formed solely to effectuate the Split-Off,
and neither of them have conducted any business operations since its
organization. The Parent has delivered or made available to the Company complete
and accurate copies of the charter, bylaws or other organizational documents
of
the Acquisition Subsidiary. The Acquisition Subsidiary has no assets other
than
minimal paid-in capital, it has no liabilities or other obligations, and it
is
not in default under or in violation of any provision of its charter, bylaws
or
other organizational documents. All of the issued and outstanding shares of
capital stock of the Acquisition Subsidiary are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. All shares of the
Acquisition Subsidiary are owned by Parent free and clear of any restrictions
on
transfer (other than restrictions under the Securities Act and state securities
laws), claims, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Parent or
the
Acquisition Subsidiary is a party or which are binding on any of them providing
for the issuance, disposition or acquisition of any capital stock of any Parent
Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to the Acquisition Subsidiary. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of any capital stock of the Acquisition Subsidiary.
(b) At
all
times from November 4, 2004, which was the date of incorporation of the Parent,
through the date of this Agreement, the business and operations of the Parent
have been conducted exclusively through Parent.
3.6 Exchange
Act Reports.
The
Parent has furnished or made available to the Company complete and accurate
copies, as amended or supplemented, of its (a) Registration Statement on
Form SB-2 containing audited
-26-
financial
statements for period November 4, 2004 (inception) through July 31, 2005, as
filed with the SEC, (b) Quarterly Report on Form 10-QSB for the quarterly period
ended April 30, 2006 and (c) all other reports filed by the Parent under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act
with the SEC since December 14, 2005 (such reports are collectively referred
to
herein as the “Parent Reports”). The Parent Reports constitute all of the
documents required to be filed by the Parent under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from
November 18, 2005 through
the date of this Agreement. The Parent Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder when filed. As of their respective dates, the Parent Reports did
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
in
light of the circumstances under which they were made, not
misleading.
3.7 Compliance
with Laws.
Each of
the Parent and its Subsidiaries:
(a) and
the
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for
any
violations or defaults that, individually or in the aggregate, have not had
and
would not reasonably be expected to have a Parent Material Adverse
Effect;
(b) has
complied with all federal and state securities laws and regulations, including
being current in all of its reporting obligations under such federal and state
securities laws and regulations;
(c) has
not,
and the past and present officers, directors and Affiliates of the Parent have
not, been the subject of, nor does any officer or director of the Parent have
any reason to believe that Parent or any of its officers, directors or
Affiliates will be the subject of, any civil or criminal proceeding or
investigation by any federal or state agency alleging a violation of securities
laws;
(d) has
not
been the subject of any voluntary or involuntary bankruptcy proceeding, nor
has
it been a party to any material litigation;
(e) has
not,
and the past and present officers, directors and Affiliates have not, been
the
subject of, nor does any officer or director of the Parent have any reason
to
believe that the Parent or any of its officers, directors or affiliates will
be
the subject of, any civil, criminal or administrative investigation or
proceeding brought by any federal or state agency having regulatory authority
over such entity or person;
(f) does
not
and will not on the Closing, have any liabilities, contingent or otherwise,
including but not limited to notes payable and accounts payable, and is not
a
party to any executory agreements; and
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(g) is
not a
“blank check company” as such term is defined by Rule 419 of the Securities
Act.
3.8 Financial
Statements.
The
audited financial statements and unaudited interim financial statements of
the
Parent included in the Parent Reports (collectively, the “Parent Financial
Statements”) (i) complied as to form in all material respects with applicable
accounting requirements and, as appropriate, the published rules and regulations
of the SEC with respect thereto when filed, (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case
of
quarterly financial statements, as permitted by Form 10-QSB under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Parent as of the respective dates thereof
and
for the periods referred to therein, and (iv) are consistent with the books
and
records of the Parent.
3.9 Absence
of Certain Changes.
Since
the date of the balance sheet contained in the most recent Parent Report, there
has occurred no event or development which, individually or in the aggregate,
has had, or could reasonably be expected to have in the future, a Parent
Material Adverse Effect.
3.10 Litigation.
Except
as disclosed in the Parent Reports, as of the date of this Agreement, there
is
no Legal Proceeding which is pending or, to the Parent’s knowledge, threatened
against the Parent or any subsidiary of the Parent which, if determined
adversely to the Parent or such subsidiary, could have, individually or in
the
aggregate, a Parent Material Adverse Effect or which in any manner challenges
or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.
3.11 Undisclosed
Liabilities.
None of
the Parent and its Subsidiaries has any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated and whether
due or to become due), except for (a) liabilities shown on the balance
sheet contained in the most recent Parent Report, (b) liabilities which
have arisen since the date of the balance sheet contained in the most recent
Parent Report in the Ordinary Course of Business and (c) contractual and
other liabilities incurred in the Ordinary Course of Business which are not
required by GAAP to be reflected on a balance sheet.
3.12 Tax
Matters.
(a) Each
of
the Parent and the Subsidiaries has filed on a timely basis all Tax Returns
that
it was required to file, and all such Tax Returns were complete and accurate
in
all material respects. Neither the Parent nor any Subsidiary is or has ever
been
a member of a group of corporations with which it has filed (or been required
to
file) consolidated, combined or unitary Tax Returns, other than a group of
which
only the Parent and the Subsidiaries are or were members. Each of the Parent
and
the Subsidiaries has paid on a timely basis all Taxes that were due and payable.
The unpaid Taxes of the Parent and the Subsidiaries for tax periods through
the
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date
of
the balance sheet contained in the most recent Parent Report do not exceed
the
accruals and reserves for Taxes (excluding accruals and reserves for deferred
Taxes established to reflect timing differences between book and Tax income)
set
forth on such balance sheet. Neither the Parent nor any Subsidiary has any
actual or potential liability for any Tax obligation of any taxpayer (including
without limitation any affiliated group of corporations or other entities that
included the Parent or any Subsidiary during a prior period) other than the
Parent and the Subsidiaries. All Taxes that the Parent or any Subsidiary is
or
was required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental
Entity.
(b) The
Parent has delivered or made available to the Company complete and accurate
copies of all federal income Tax Returns, examination reports and statements
of
deficiencies assessed against or agreed to by the Parent or any Subsidiary
since
July 31, 2005. The federal income Tax Returns of the Parent and each Subsidiary
have been audited by the Internal Revenue Service or are closed by the
applicable statute of limitations for all taxable years through the taxable
year
specified in Section 3.12(b) of the Parent Disclosure Schedule. No
examination or audit of any Tax Return of the Parent or any Subsidiary by any
Governmental Entity is currently in progress or, to the knowledge of the Parent,
threatened or contemplated. Neither the Parent nor any Subsidiary has been
informed by any jurisdiction that the jurisdiction believes that the Parent
or
Subsidiary was required to file any Tax Return that was not filed. Neither
the
Parent nor any Subsidiary has waived any statute of limitations with respect
to
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency.
(c) Neither
the Parent nor any Subsidiary: (i) is a “consenting corporation” within the
meaning of Section 341(f) of the Code, and none of the assets of the Parent
or the Subsidiaries are subject to an election under Section 341(f) of the
Code; (ii) has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as
an
“excess parachute payment” under Section 280G of the Code; (iv) has
any actual or potential liability for any Taxes of any person (other than the
Parent and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or
any similar provision of federal, state, local, or foreign law), or as a
transferee or successor, by contract, or otherwise; or (v) is or has been
required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).
(d) None
of
the assets of the Parent or any Subsidiary: (i) is property that is
required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is
“tax-exempt use property” within the meaning of Section 168(h) of the Code;
or (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
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(e) Neither
the Parent nor any Subsidiary has undergone a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481 of
the Code.
(f) No
state
or federal “net operating loss” of the Parent determined as of the Closing Date
is subject to limitation on its use pursuant to Section 382 of the Code or
comparable provisions of state law as a result of any “ownership change” within
the meaning of Section 382(g) of the Code or comparable provisions of any
state law occurring prior to the Closing Date.
3.13 Assets.
Each of
the Parent and the Subsidiaries owns or leases all tangible assets necessary
for
the conduct of its businesses as presently conducted and as presently proposed
to be conducted. Each such tangible asset is free from material defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. No asset of the Parent or
any
Subsidiary (tangible or intangible) is subject to any Security
Interest.
3.14 Owned
Real Property.
Neither
the Parent nor any Subsidiary owns any real property.
3.15 Real
Property Leases.
Section
3.15 of the Parent Disclosure Schedule lists all real property leased or
subleased to or by the Parent or any Subsidiary and lists the term of such
lease, any extension and expansion options, and the rent payable thereunder.
The
Parent has delivered or made available to the Company complete and accurate
copies of the leases and subleases listed in Section 3.15 of the Parent
Disclosure Schedule. With respect to each lease and sublease listed in
Section 3.15 of the Parent Disclosure Schedule:
(a) the
lease
or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease
or sublease will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing;
(c) neither
the Parent nor any Subsidiary nor, to the knowledge of the Parent, any other
party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Parent, is threatened, which, after the giving of notice, with lapse of time,
or
otherwise, would constitute a breach or default by the Parent or any Subsidiary
or, to the knowledge of the Parent, any other party under such lease or
sublease;
(d) neither
the Parent nor any Subsidiary has assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
and
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(e) the
Parent is not aware of any Security Interest, easement, covenant or other
restriction applicable to the real property subject to such lease, except for
recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Parent or a Subsidiary of the
property subject thereto.
3.16 Contracts.
(a) Section
3.16 of the Parent Disclosure Schedule lists the following agreements (written
or oral) to which the Parent or any Subsidiary is a party as of the date of
this
Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $5,000, or (C) in which the Parent or any Subsidiary has
granted manufacturing rights, “most favored nation” pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
(iii) any
agreement establishing a partnership or joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $5,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any officer, director or stockholder of the Parent or any
Affiliate thereof;
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Parent Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Parent or any Subsidiary
to indemnify any other party thereto (excluding indemnities
-31-
contained
in agreements for the purchase, sale or license of products entered into in
the
Ordinary Course of Business); and
(x) any
other
agreement (or group of related agreements) either involving more than $5,000
or
not entered into in the Ordinary Course of Business.
(b) The
Parent has delivered or made available to the Company a complete and accurate
copy of each agreement listed in Section 3.16 of the Parent Disclosure
Schedule. With respect to each agreement so listed: (i) the agreement is
legal, valid, binding and enforceable and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing
in
accordance with the terms thereof as in effect immediately prior to the Closing;
and (iii) neither the Parent nor any Subsidiary nor, to the knowledge of
the Parent, any other party, is in breach or violation of, or default under,
any
such agreement, and no event has occurred, is pending or, to the knowledge
of
the Parent, is threatened, which, after the giving of notice, with lapse of
time, or otherwise, would constitute a breach or default by the Parent or any
Subsidiary or, to the knowledge of the Parent, any other party under such
contract.
3.17 Accounts
Receivable.
All
accounts receivable of the Parent and the Subsidiaries reflected on the Parent
Reports are valid receivables subject to no setoffs or counterclaims and are
current and collectible (within 90 days after the date on which it first became
due and payable), net of the applicable reserve for bad debts on the balance
sheet contained in the most recent Parent Report. All accounts receivable
reflected in the financial or accounting records of the Parent that have arisen
since the date of the balance sheet contained in the most recent Parent Report
are valid receivables subject to no setoffs or counterclaims and are collectible
(within 90 days after the date on which it first became due and payable), net
of
a reserve for bad debts in an amount proportionate to the reserve shown on
the
balance sheet contained in the most recent Parent Report.
3.18 Powers
of Attorney.
There
are no outstanding powers of attorney executed on behalf of the Parent or any
Subsidiary.
3.19 Insurance.
Section 3.19 of the Parent Disclosure Schedule lists each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the Parent or any Subsidiary
is a party. Such insurance policies are of the type and in amounts customarily
carried by organizations conducting businesses or owning assets similar to
those
of the Parent and the Subsidiaries. There is no material claim pending under
any
such policy as to which coverage has been questioned, denied or disputed by
the
underwriter of such policy. All premiums due and payable under all such policies
have been paid, neither the Parent nor any Subsidiary may be liable for
retroactive premiums or similar payments, and the Parent and the Subsidiaries
are otherwise in compliance in all material respects with the terms of such
policies. The Parent has
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no
knowledge of any threatened termination of, or material premium increase with
respect to, any such policy. Each such policy will continue to be enforceable
and in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect immediately prior to the
Closing.
3.20 Warranties.
No
service sold or delivered by the Parent or any Subsidiary is subject to any
guaranty, warranty, right of credit or other indemnity other than the applicable
standard terms and conditions of sale of the Parent or the appropriate
Subsidiary, which are set forth in Section 3.20 of the Parent Disclosure
Schedule.
3.21 Employees.
(a) Section
3.21 of the Parent Disclosure Schedule contains a list of all employees of
the
Parent and each Subsidiary whose annual rate of compensation exceeds $50,000
per
year, along with the position and the annual rate of compensation of each such
person. Each current or past employee of the Parent or any Subsidiary has
entered into a confidentiality/assignment of inventions agreement with the
Parent or such Subsidiary, a copy or form of which has previously been delivered
to the Company. Section 3.21 of the Parent Disclosure Schedule contains a list
of all employees of the Parent or any Subsidiary who are a party to a
non-competition agreement with the Parent or any Subsidiary; copies of such
agreements have previously been delivered to the Company. To the knowledge
of
the Parent, no key employee or group of employees has any plans to terminate
employment with the Parent or any Subsidiary.
(b) Neither
the Parent nor any Subsidiary is a party to or bound by any collective
bargaining agreement, nor have any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Parent has no knowledge of any organizational effort made or threatened, either
currently or within the past two years, by or on behalf of any labor union
with
respect to employees of the Parent or any Subsidiary.
3.22 Employee
Benefits.
(a) Section 3.22(a)
of the Parent Disclosure Schedule contains a complete and accurate list of
all
Employee Benefit Plans maintained, or contributed to, by the Parent, any
Subsidiary or any ERISA Affiliate. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans)
all plan financial statements for the last five plan years for each Employee
Benefit Plan, have been delivered or made available to the Parent. Each Employee
Benefit Plan has been administered in all material respects in accordance with
its terms and each of the Parent, the Subsidiaries and the ERISA Affiliates
has
in all material respects met its obligations with respect to such Employee
Benefit Plan and has made all required contributions thereto. The Parent,
each
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Subsidiary,
each ERISA Affiliate and each Employee Benefit Plan are in compliance in all
material respects with the currently applicable provisions of ERISA and the
Code
and the regulations thereunder (including without limitation Section 4980 B
of the Code, Subtitle K, Chapter 100 of the Code and Sections 601
through 608 and Section 701 et seq. of ERISA). All filings and reports as
to each Employee Benefit Plan required to have been submitted to the Internal
Revenue Service or to the United States Department of Labor have been duly
submitted.
(b) To
the
knowledge of the Parent, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All
the
Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date
of
its most recent determination letter or application therefor in any respect,
and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required
to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been
tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(d) Neither
the Parent, any Subsidiary, nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At
no
time has the Parent, any Subsidiary or any ERISA Affiliate been obligated to
contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(f) There
are
no unfunded obligations under any Employee Benefit Plan providing benefits
after
termination of employment to any employee of the Parent or any Subsidiary (or
to
any beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state law. The assets
of each Employee Benefit Plan which is funded are reported at their fair market
value on the books and records of such Employee Benefit Plan.
(g) No
act or
omission has occurred and no condition exists with respect to any Employee
Benefit Plan maintained by the Parent, any Subsidiary or any ERISA Affiliate
that would subject the Parent, any Subsidiary or any ERISA Affiliate to (i)
any
material fine, penalty,
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tax
or
liability of any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer
or
service provider with respect to any Employee Benefit Plan.
(h) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(i) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Parent
at
any time without liability to the Parent as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or
other
written communication distributed generally to employees by its terms prohibits
the Parent from amending or terminating any such Employee Benefit
Plan.
(j) Section
3.22(j) of the Parent Disclosure Schedule discloses each: (i) agreement
with any stockholder, director, executive officer or other key employee of
the
Parent or any Subsidiary (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Parent or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other
benefits after the termination of employment of such director, executive officer
or key employee; (ii) agreement, plan or arrangement under which any person
may receive payments from the Parent or any Subsidiary that may be subject
to
the tax imposed by Section 4999 of the Code or included in the
determination of such person’s “parachute payment” under Section 280G of
the Code; and (iii) agreement or plan binding the Parent or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of
any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness and
disability expenses are accounted for on the Most Recent Balance Sheet and
are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
3.23 Environmental
Matters.
(a) Each
of
the Parent and the Subsidiaries has complied with all applicable Environmental
Laws, except for violations of Environmental Laws that, individually or in
the
aggregate, have not had and would not reasonably be expected to have a Parent
Material Adverse Effect. There is no pending or, to the knowledge of the Parent,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request
by
any Governmental Entity, relating to any Environmental Law involving the Parent
or any Subsidiary, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information requests
that, individually
-35-
or
in the
aggregate, have not had and would not reasonably be expected to have a Parent
Material Adverse Effect.
(b) Set
forth
in Section 3.23(b) of the Parent Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Parent or a Subsidiary (whether conducted
by or on behalf of the Parent or a Subsidiary or a third party, and whether
done
at the initiative of the Parent or a Subsidiary or directed by a Governmental
Entity or other third party) which were issued or conducted during the past
five
years and which the Parent has possession of or access to. A complete and
accurate copy of each such document has been provided to the
Parent.
(c) The
Parent is not aware of any material environmental liability of any solid or
hazardous waste transporter or treatment, storage or disposal facility that
has
been used by the Parent or any Subsidiary.
3.24 Permits.
Section
3.24 of the Parent Disclosure Schedule sets forth a list of all permits,
licenses, registrations, certificates, orders or approvals from any Governmental
Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) (“Parent Permits”) issued to or held by the Parent or any
Subsidiary. Such listed Permits are the only Parent Permits that are required
for the Parent and the Subsidiaries to conduct their respective businesses
as
presently conducted except for those the absence of which, individually or
in
the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect. Each such Parent Permit is in full force and
effect and, to the knowledge of the Parent, no suspension or cancellation of
such Parent Permit is threatened and there is no basis for believing that such
Parent Permit will not be renewable upon expiration. Each such Parent Permit
will continue in full force and effect immediately following the
Closing.
3.25 Certain
Business Relationships With Affiliates.
No
Affiliate of the Parent or of any Subsidiary (a) owns any property or
right, tangible or intangible, which is used in the business of the Parent
or
any Subsidiary, (b) has any claim or cause of action against the Parent or
any Subsidiary, or (c) owes any money to, or is owed any money by, the
Parent or any Subsidiary. Section 3.25 of the Parent Disclosure Schedule
describes any transactions involving the receipt or payment in excess of $5,000
in any fiscal year between the Parent or a Subsidiary and any Affiliate thereof
which have occurred or existed since the beginning of the time period covered
by
the Parent Financial Statements, other than employment agreements.
3.26 Tax-Free
Reorganization.
(a) The
Parent (i) is not an “investment company” as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present
plan or intention to liquidate the Surviving Corporation or to merge the
Surviving Corporation with or into any other corporation
-36-
or
entity, or to sell or otherwise dispose of the stock of the Surviving
Corporation which Parent will acquire in the Merger, or to cause the Surviving
Corporation to sell or otherwise dispose of its assets, all except in the
ordinary course of business or if such liquidation, merger, disposition is
described in Section 368(a)(2)(C) or Treasury Regulation
Section 1.368-2(d)(4) or Section 1368-2(k); and (iii) has no
present plan or intention, following the Merger, to issue any additional shares
of stock of the Surviving Corporation or to create any new class of stock of
the
Surviving Corporation.
(b) The
Acquisition Subsidiary is a wholly-owned subsidiary of the Parent, formed solely
for the purpose of engaging in the Merger, and will carry on no business prior
to the Merger.
(c) Immediately
prior to the Merger, the Parent will be in control of Acquisition Subsidiary
within the meaning of Section 368(c) of the Code.
(d) Immediately
following the Merger, the Surviving Corporation will hold at least 90% of the
fair market value of the net assets and at least 70% of the fair market value
of
the gross assets held by the Company immediately prior to the Merger (for
purposes of this representation, amounts used by the Company to pay
reorganization expenses, if any, will be included as assets of the Company
held
immediately prior to the Merger).
(e) The
Parent has no present plan or intention to reacquire any of the Merger
Shares.
(f) The
Acquisition Subsidiary will have no liabilities assumed by the Surviving
Corporation and will not transfer to the Surviving Corporation any assets
subject to liabilities in the Merger.
(g) Following
the Merger, the Surviving Corporation will continue the Company’s historic
business or use a significant portion of the Company’s historic business assets
in a business as required by Section 368 of the Code and the Treasury
Regulations promulgated thereunder.
(h) The Split-Off
Agreement will constitute a legally binding obligation between Parent and
Buyer prior to the Effective Time; immediately following consummation
of the Merger, Parent will distribute the stock of Leaseco to Buyer in
cancellation of the Purchase Price Shares (as such term is defined in the
Split-Off Agreement); no property other than the capital stock of
Leaseco will be distributed by Parent to Buyer in connection with
or following the Merger; upon execution of the Split-Off Agreement, Buyer
will have no right to sell or transfer the Purchased Shares to any person
without Parent's prior written consent, and Parent will not consent (nor
will it permit others to consent) to any such sale or transfer; upon execution
of the Split-Off Agreement, there will be no other plan, arrangement,
agreement, contract, intention, or understanding, whether written or verbal
and
whether or not enforceable in law or equity, that
would permit Buyer to vote the Purchased
Shares or receive any property or other
-37-
distributions
from Parent with respect to the Purchased Shares other than the
capital stock of Leaseco.
3.27 Split-Off
.
As
of the
Effective Time, the Parent will have discontinued all of its business operations
which it conducted prior to the Effective Time by closing the transactions
contemplated by the Split-Off Agreement. Upon the closing of the transactions
contemplated by the Split-Off Agreement, the Parent will have no material
liabilities, contingent or otherwise in any way related to its pre-Effective
Time business operations.
3.28 Brokers’
Fees.
Except
as set forth on Section 3.28 of the Parent Disclosure Schedule, neither the
Parent nor the Acquisition Subsidiary has any liability or obligation to pay
any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.29 Disclosure.
No
representation or warranty by the Parent contained in this Agreement or in
any
of the Transaction Documentation, and no statement contained in the any
document, certificate or other instrument delivered or to be delivered by or
on
behalf of the Parent pursuant to this Agreement or therein, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
or
will be made, in order to make the statements herein or therein not
misleading.
The
Parent has disclosed to the Company all material information relating to the
business of the Parent or any Subsidiary or the transactions contemplated by
this Agreement.
3.30 Interested
Party Transactions.
Except
for the Split-Off Agreement, to the knowledge of the Parent, no officer,
director or stockholder of Parent or any “affiliate” (as such term is defined in
Rule 12b-2 under the Exchange Act) or “associate” (as such term is defined
in Rule 405 under the Securities Act) of any such person has had, either
directly or indirectly, (a) an interest in any person that (i) furnishes or
sells services or products that are furnished or sold or are proposed to be
furnished or sold by Parent or any Parent Subsidiary or (ii) purchases from
or
sells or furnishes to Parent or any Parent Subsidiary any goods or services,
or
(b) a beneficial interest in any contract or agreement to which Parent or any
Parent Subsidiary is a party or by which it may be bound or affected. Neither
Parent or any Parent Subsidiary has extended or maintained credit, arranged
for
the extension of credit, or renewed an extension of credit, in the form of
a
personal loan to or for any director or executive officer (or equivalent
thereof) of the Parent or any Parent Subsidiary.
3.31 Duty
to Make Inquiry.
To the
extent that any of the representations or warranties in this Article III are
qualified by “knowledge” or “belief,” Parent represents and warrants that it has
made due and reasonable inquiry and investigation concerning the matters to
which such representations and warranties relate, including, but not limited
to,
diligent inquiry by its directors, officers and key personnel.
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3.32 Accountants.
Xxxxx
Winter Xxxxxxxxx & Co., LLP
are and
has been throughout the periods covered by such financial statements (a) a
registered public accounting firm (as defined in Section 2(a)(12) of the
Xxxxxxxx-Xxxxx Act of 2002, (b) “independent” with respect to Parent within the
meaning of Regulation S-X and (c) in compliance with subsections (g) through
(l)
of Section 10A of the Exchange Act and the related rules of the Commission
and
the Public Company Accounting Oversight Board. Schedule 3.32 lists all non-audit
services performed by Xxxxx Winter Xxxxxxxxx & Co., LLP for Parent and/or
any Subsidiary since November 4, 2004. None of the reports of Xxxxx Winter
Xxxxxxxxx & Co., LLP on the financial statements of Parent for either of the
past two fiscal years contained an adverse opinion or a disclaimer of opinion,
or was qualified as to uncertainty, audit scope, or accounting principles.
During Parent’s two most recent fiscal years and the subsequent interim periods,
there were no disagreements with Xxxxx Winter Xxxxxxxxx & Co., LLP on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedures. None of the reportable events listed in Item
304(a)(1)(iv) of Regulation S-B occurred with respect to Xxxxx Winter Xxxxxxxxx
& Co., LLP.
3.33 Minute
Books.
The
minute books, if any, of Parent and each Subsidiary contain, in all material
respects, a complete and accurate summary of all meetings of directors and
stockholders or actions by written resolutions since the time of organization
of
each such corporation through the date of this Agreement, and reflect all
transactions referred to in such minutes and resolutions accurately, except
for
omissions which are not material. Parent has provided true and complete copies
of all such minute books, if any, to the Company’s representatives.
3.34 Board
Action.
The
Parent’s Board of Directors (a) has unanimously determined that the Merger is
advisable and in the best interests of the Parent’s stockholders and is on terms
that are fair to such Parent stockholders and (b) has caused the Parent, in
its
capacity as the sole stockholder of the Acquisition Subsidiary, and the Board
of
Directors of the Acquisition Subsidiary, to approve the Merger and this
Agreement by written consent.
ARTICLE
IV
COVENANTS
4.1 Closing
Efforts.
Each of
the Parties shall use its best efforts, to the extent commercially reasonable
(“Reasonable Best Efforts”), to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement, including without limitation using its Reasonable Best Efforts to
ensure that (i) its representations and warranties remain true and correct
in all material respects through the Closing Date and (ii) the conditions
to the obligations of the other Parties to consummate the Merger are
satisfied.
4.2 Governmental
and Third-Party Notices and Consents.
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(a) Each
Party shall use its Reasonable Best Efforts to obtain, at its expense, all
waivers, permits, consents, approvals or other authorizations from Governmental
Entities, and to effect all registrations, filings and notices with or to
Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The
Company shall use its Reasonable Best Efforts to obtain, at its expense, all
such waivers, consents or approvals from third parties, and to give all such
notices to third parties, as are required to be listed in Section 2.4 of
the Disclosure Schedule.
4.3 Current
Report.
As soon
as reasonably practicable after the execution of this Agreement, the Parties
shall prepare a current report on Form 8-K relating to this Agreement and the
transactions contemplated hereby (the “Current Report”). Each of the Company and
Parent shall use its reasonable efforts to cause the Current Report to be filed
with the SEC within four business days of the execution of this Agreement and
to
otherwise comply with all requirements of applicable federal and state
securities laws. Further, the Parties shall prepare and file with the SEC an
amendment to the Current Report within four business days after the Closing
Date, if such Current Report was filed before the Closing Date.
4.4 Operation
of Business.
Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and
in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees
and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company shall not (and shall cause
each Subsidiary not to), without the written consent of the Parent:
(a) issue
or
sell, or redeem or repurchase, any stock or other securities of the Company
or
any Warrants, Options or other rights to acquire any such stock or other
securities except in connection with the Private Placement Offering or pursuant
to the conversion or exercise of convertible securities or Options or Warrants
outstanding on the date hereof, or amend any of the terms of (including without
limitation the vesting of) any such convertible securities or Options or
Warrants;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or
pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
-40-
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to,
or
investments in, any other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay
any
bonus or other benefit to its directors, officers or employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets
in
the Ordinary Course of Business;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its
charter, by-laws or other organizational documents;
(i) change
in
any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute
a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any
action or fail to take any action permitted by this Agreement with the knowledge
that such action or failure to take action would result in (i) any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue or (ii) any of the conditions to the Merger set forth in
Article V not being satisfied; or
(m) agree
in
writing or otherwise to take any of the foregoing actions.
4.5 Access
to Information.
(a) The
Company shall (and shall cause each Subsidiary to) permit representatives of
the
Parent to have full access (at all reasonable times, and in a manner so
as
-41-
not
to
interfere with the normal business operations of the Company and the
Subsidiaries) to all premises, properties, financial and accounting records,
contracts, other records and documents, and personnel, of or pertaining to
the
Company and each Subsidiary.
(b) Each
of
the Parent and the Acquisition Subsidiary (i) shall treat and hold as
confidential any Company Confidential Information (as defined below),
(ii) shall not use any of the Company Confidential Information except in
connection with this Agreement, and (iii) if this Agreement is terminated
for any reason whatsoever, shall return to the Company all tangible embodiments
(and all copies) thereof which are in its possession. For purposes of this
Agreement, “Company Confidential Information” means any confidential or
proprietary information of the Company or any Subsidiary that is furnished
in
writing to the Parent or the Acquisition Subsidiary by the Company or any
Subsidiary in connection with this Agreement and is labeled confidential or
proprietary; provided,
however,
that it
shall not include any information (A) which, at the time of disclosure, is
available publicly, (B) which, after disclosure, becomes available publicly
through no fault of the Parent or the Acquisition Subsidiary, (C) which the
Parent or the Acquisition Subsidiary knew or to which the Parent or the
Acquisition Subsidiary had access prior to disclosure, or (D) which the
Parent or the Acquisition Subsidiary rightfully obtains from a source other
than
the Company or a Subsidiary.
4.6 Operation
of Business.
Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Parent shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and
in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees
and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not
be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Parent shall not (and shall cause
each Subsidiary not to), without the written consent of the
Company:
(a) issue
or
sell, or redeem or repurchase, any stock or other securities of the Parent
or
any rights, warrants or options to acquire any such stock or other
securities;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or
pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, except as contemplated
by,
and in connection with, the Stock Split;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to,
or
investments in, any other person or entity;
-42-
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay
any
bonus or other benefit to its directors, officers or employees, except for
the
adoption of Parent Option Plan covering 2,000,000 shares of Parent Common Stock
in connection with the Merger;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any Parent
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets
in
the Ordinary Course of Business, except as contemplated by, and in connection
with, the Split-Off;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its
charter, by-laws or other organizational documents;
(i) change
in
any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute
a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any
action or fail to take any action permitted by this Agreement with the knowledge
that such action or failure to take action would result in (i) any of the
representations and warranties of the Parent and/or the Acquisition Subsidiary
set forth in this Agreement becoming untrue or (ii) any of the conditions
to the Merger set forth in Article V not being satisfied; or
(m) agree
in
writing or otherwise to take any of the foregoing actions.
4.7 Access
to Information.
(a) The
Parent shall (and shall cause the Acquisition Subsidiary to) permit
representatives of the Company to have full access (at all reasonable times,
and
in a manner so as not to interfere with the normal business operations of the
Parent and the Acquisition Subsidiary)
-43-
to
all
premises, properties, financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to the Parent and the Acquisition
Subsidiary.
(b) The
Company (i) shall treat and hold as confidential any Parent Confidential
Information (as defined below), (ii) shall not use any of the Parent
Confidential Information except in connection with this Agreement, and
(iii) if this Agreement is terminated for any reason whatsoever, shall
return to the Parent all tangible embodiments (and all copies) thereof which
are
in its possession. For purposes of this Agreement, “Parent Confidential
Information” means any confidential or proprietary information of the Parent or
any Subsidiary that is furnished in writing to the Company by the Parent or
the
Acquisition Subsidiary in connection with this Agreement and is labeled
confidential or proprietary; provided,
however,
that it
shall not include any information (A) which, at the time of disclosure, is
available publicly, (B) which, after disclosure, becomes available publicly
through no fault of the Company, (C) which the Company knew or to which the
Company had access prior to disclosure or (D) which the Company rightfully
obtains from a source other than the Parent or the Acquisition
Subsidiary.
4.8 Expenses.
The
costs and expenses (including legal fees and expenses of Parent and the Company)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be payable at Closing from the proceeds of the Private Placement
Offering.
4.9 Indemnification.
(a) The
Parent shall not, for a period of three years after the Effective Time, take
any
action to alter or impair any exculpatory or indemnification provisions now
existing in the certificate of incorporation or bylaws of the Company for the
benefit of any individual who served as a director or officer of the Company
at
any time prior to the Effective Time, except for any changes which may be
required to conform with changes in applicable law and any changes which do
not
affect the application of such provisions to acts or omissions of such
individuals prior to the Effective Time.
(b) From
and
after the Effective Time, the Parent agrees that it will, and will cause the
Surviving Corporation to, indemnify and hold harmless each present and former
director and officer of the Company (the “Indemnified Executives”) against any
costs or expenses (including attorneys’ fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Delaware law (and the Parent and the Surviving Corporation
shall
also advance expenses as incurred to the fullest extent permitted under Delaware
law, provided the Indemnified Executive to whom expenses are
-44-
advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Indemnified Executive is not entitled to
indemnification).
4.10 Listing
of Merger Shares.
The
Parent shall take whatever steps are necessary to cause the Merger Shares to
be
eligible for quotation on the NASD’s OTC Bulletin Board.
4.11 Stock
Split.
The
Parent shall take whatever steps are necessary to enable it to effect the Stock
Split prior to or as of the Effective Time.
4.12 Name
Change.
As soon
as reasonably practicable after the Effective Time, the Parent shall take all
necessary steps to enable it to change its corporate name to such name as is
mutually agreeable by the Company and the Parent, if the Parent has not already
done so prior to the Effective Time.
4.13 Split-Off.
The
Parent shall take whatever steps are necessary to enable it to effect the
Split-Off as of the Effective Time.
4.14 Stock
Option Plan.
The
Board of Directors and shareholders of Parent shall adopt the Parent Option
Plan
reserving for issuance 2,000,000 shares of Parent Common Stock prior to or
as of
the Effective Time.
ARTICLE
V
CONDITIONS
TO CONSUMMATION OF MERGER
5.1 Conditions
to Each Party’s Obligations.
The
respective obligations of each Party to consummate the Merger are subject to
the
satisfaction of the following conditions:
(a) this
Agreement and the Merger shall have received the Requisite Company Stockholder
Approval;
(b) the
completion of the offer and sale of the Private Placement Offering;
and
(c) satisfactory
completion by Parent and Company of all necessary legal due
diligence.
5.2 Conditions
to Obligations of the Parent and the Acquisition Subsidiary.
The
obligation of each of the Parent and the Acquisition Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Parent) of the
following additional conditions:
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(a) the
number of Dissenting Shares shall not exceed 10% of the number of outstanding
Company Shares as of the Effective Time;
(b) the
Company and its Subsidiaries shall have obtained (and shall have provided copies
thereof to the Parent) all of the waivers, permits, consents, approvals or
other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2 which are required on the part of the Company or
the Subsidiaries, except for any the failure of which to obtain or effect would
not, individually or in the aggregate, have a Company Material Adverse Effect
or
a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement;
(c) the
representations and warranties of the Company set forth in this Agreement shall
be true and correct as of the date of this Agreement and shall be true and
correct as of the Effective Time as though made as of the Effective Time, except
to the extent that the inaccuracy of any such representation or warranty is
the
result of events or circumstances occurring subsequent to the date of this
Agreement and any such inaccuracies, individually or in the aggregate, would
not
have a Company Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement (it being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any
such inaccuracies would have a Company Material Adverse Effect for purposes
of
this Section 5.2(c));
(d) the
Company shall have performed or complied in all material respects with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(e) no
Legal
Proceeding shall be pending wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Company
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(f) the
Company shall have delivered to the Parent and the Acquisition Subsidiary a
certificate (the “Company Certificate”) to the effect that each of the
conditions specified in clauses (a)-(c) of Section 5.1 and clauses (a)
through (e) (insofar as clause (e) relates to Legal Proceedings involving
the Company or a Subsidiary) of this Section 5.2 is satisfied in all
respects;
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(g) IPT
Ethanol, Inc., shall have merged with and into the Company; and
(h) the
Parent shall have received from McGuireWoods LLP, counsel to the Company, an
opinion with respect to the matters set forth in Exhibit C
attached
hereto, addressed to the Parent and dated as of the Closing Date.
5.3 Conditions
to Obligations of the Company.
The
obligation of the Company to consummate the Merger is subject to the
satisfaction of the following additional conditions:
(a) the
Parent shall have obtained (and shall have provided copies thereof to the
Company and its Subsidiaries) all of the waivers, permits, consents, approvals
or other authorizations, and effected all of the registrations, filings and
notices, referred to in Section 4.2 which are required on the part of the
Parent, except for any the failure of which to obtain or effect would not,
individually or in the aggregate, have a Parent Material Adverse Effect or
a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement;
(b) the
representations and warranties of the Parent set forth in this Agreement shall
be true and correct as of the date of this Agreement and shall be true and
correct as of the Effective Time as though made as of the Effective Time, except
to the extent that the inaccuracy of any such representation or warranty is
the
result of events or circumstances occurring subsequent to the date of this
Agreement and any such inaccuracies, individually or in the aggregate, would
not
have a Parent Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement (it being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether
any
such inaccuracies would have a Parent Material Adverse Effect for purposes
of
this Section 5.3(b));
(c) each
of
the Parent and the Acquisition Subsidiary shall have performed or complied
with
its agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Effective Time;
(d) no
Legal
Proceeding shall be pending wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Parent
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(e) the
Parent shall have delivered to the Company a certificate (the “Parent
Certificate”) to the effect that each of the conditions specified in clause (c)
of Section 5.1 and clauses (a) through (d) (insofar as clause (d)
relates to Legal Proceedings involving the Parent and the Acquisition
Subsidiary) of this Section 5.3 is satisfied in all
respects;
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(f) the
Company shall have received from Gottbetter & Partners, LLP, counsel to the
Parent and the Acquisition Subsidiary, an opinion with respect to the matters
set forth in Exhibit
D
attached
hereto, addressed to the Company and dated as of the Closing Date;
(g) the
total
number of shares of Parent Common Stock issued and outstanding immediately
prior
to the Effective Time shall equal 14,000,000 shares, after giving effect to
the
Stock Split and the Share Contribution in connection with the Split-Off, but
excluding 1,000,000 shares of Parent Common Stock to be issued to financial
advisors in connection with the Private Placement Offering;
(h) the
Parent shall have assumed the employment agreements by and among the Company
and
each of Xxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X. Xxxx and Xxxxx X.
Xxxxxxxxx;
(i) the
Parent shall have adopted the Parent Option Plan;
(j) the
Company shall have received a certificate of Parent’s transfer agent and
registrar certifying that as of the Closing Date there are 24,000,000 shares
of
Parent Common Stock issued and outstanding (without giving effect to the
10,000,000 shares of Parent Common Stock to be retired in connection with the
Split-Off, after which retirement there will be 14,000,000 shares of Parent
Common Stock issued and outstanding);
(k) contemporaneously
with the closing of the Merger, the Parent, Leasco, and the Buyer shall execute
the Split-Off Agreement, which Split-Off is effective simultaneous with the
Merger;
(l) the
Parent shall have changed its name to such name as is mutually acceptable to
the
Company and the Parent; and
(m) the
Parent shall have assumed the rights and obligations of the Company under the
Registration Rights Agreement dated as of August 3, 2006 by and among the
Company and the investors in the Private Placement Offering.
ARTICLE
VI
INDEMNIFICATION
6.1 Indemnification
by the Company Stockholders.
The
Indemnifying Stockholders receiving the Merger Shares pursuant to
Section 1.5 shall indemnify the Parent in respect of, and hold it harmless
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due
or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators,
fees
and expenses of attorneys, accountants, financial advisors and
other
-48-
experts,
and other expenses of litigation) (“Damages”) incurred or suffered by the
Surviving Corporation or the Parent or any Affiliate thereof resulting from,
relating to or constituting:
(a) any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement or the Company
Certificate;
(b) any
failure of any Company Stockholder to have good, valid and marketable title
to
the issued and outstanding Company Shares issued in the name of such Company
Stockholder, free and clear of all Security Interests; or
(c) any
claim
by a stockholder or former stockholder of the Company, or any other person
or
entity, seeking to assert, or based upon: (i) ownership or rights to
ownership of any shares of stock of the Company; (ii) any rights of a
stockholder (other than the right to receive the Merger Shares pursuant to
this
Agreement or appraisal rights under the applicable provisions of the GCL),
including any option, preemptive rights or rights to notice or to vote;
(iii) any rights under the certificate of incorporation or bylaws of the
Company; or (iv) any claim that his, her or its shares were wrongfully
repurchased by the Company.
6.2 Indemnification
by the Parent.
(a) The
Parent shall indemnify the Indemnifying Stockholders in respect of, and hold
them harmless against, any and all Damages incurred or suffered by the
Indemnifying Stockholders resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Parent or the Acquisition Subsidiary contained in this
Agreement or the Parent Certificate.
(b) The
post-Closing adjustment mechanism set forth in Section 1.13 is intended to
secure the indemnification obligations of the Parent under this Agreement and
shall be the exclusive means for the Indemnifying Stockholders to collect any
Damages for which they are entitled to indemnification under this Article VI.
6.3 Indemnification
Claims by the Parent.
(a) In
the
event the Parent is entitled, or seeks to assert rights, to indemnification
under Section 6.1, Parent shall give written notification to the Indemnifying
Stockholders of the commencement of any suit or proceeding relating to a third
party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Parent of notice of such suit or proceeding, and shall describe in
reasonable detail (to the extent known by the Parent) the facts constituting
the
basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Parent in notifying the
Indemnifying Stockholders shall relieve the Indemnifying Stockholders of any
liability or obligation hereunder except to the extent of any
-49-
damage
or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Stockholders may, upon written
notice thereof to the Parent, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Parent; provided that
(i) the Indemnifying Stockholders may only assume control of such defense
if (A) it acknowledges in writing to the Parent that any damages, fines, costs
or other liabilities that may be assessed against the Parent in connection
with
such suit or proceeding constitute Damages for which the Parent shall be
indemnified pursuant to this Article VI and (B) the ad damnum is less than
or equal to the amount of Damages for which the Indemnifying Stockholders are
liable under this Article VI and (ii) the Indemnifying Stockholders may not
assume control of the defense of a suit or proceeding involving criminal
liability or in which equitable relief is sought against the Parent. If the
Indemnifying Stockholders do not so assume control of such defense, the Parent
shall control such defense. The party not controlling such defense (the
“Non-Controlling Party”) may participate therein at its own expense; provided
that if the Indemnifying Stockholders assume control of such defense and the
Parent reasonably concludes that the Indemnifying Stockholders and the Parent
have conflicting interests or different defenses available with respect to
such
suit or proceeding, the reasonable fees and expenses of counsel to the Parent
shall be considered “Damages” for purposes of this Agreement. The party
controlling such defense (the “Controlling Party”) shall keep the
Non-Controlling Party advised of the status of such suit or proceeding and
the
defense thereof and shall consider in good faith recommendations made by the
Non-Controlling Party with respect thereto. The Non-Controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of
such
suit or proceeding. The Indemnifying Stockholders shall not agree to any
settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Parent, which shall not
be
unreasonably withheld or delayed; provided that the consent of the Parent shall
not be required if the Indemnifying Stockholders agree in writing to pay any
amounts payable pursuant to such settlement or judgment and such settlement
or
judgment includes a complete release of the Parent from further liability and
has no other adverse effect on the Parent. The Parent shall not agree to any
settlement of, or the entry of any judgment arising from, any such suit or
proceeding without the prior written consent of the Indemnifying Stockholders,
which shall not be unreasonably withheld or delayed.
(b) In
order
to seek indemnification under this Article VI, Parent shall give written
notification (a “Claim Notice”) to the Indemnifying Stockholders which contains
(i) a description and the amount (the “Claimed Amount”) of any Damages incurred
or reasonably expected to be incurred by the Parent, (ii) a statement that
the
Parent is entitled to indemnification under this Article VI for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment (in the manner provided in paragraph (c) below) in the amount
of such Damages. The Indemnifying Stockholders shall deliver a copy of the
Claim
Notice to the Escrow Agent.
-50-
(c) Within
20
days after delivery of a Claim Notice, the Indemnifying Stockholders shall
deliver to the Parent a written response (the “Response”) in which the
Indemnifying Stockholders shall: (i) agree that the Parent is entitled to
receive all of the Claimed Amount (in which case the Indemnifying Stockholders
and the Parent shall deliver to the Escrow Agent, within three days following
the delivery of the Response, a written notice executed by both parties
instructing the Escrow Agent to distribute to the Parent such number of Escrow
Shares as have an aggregate Value (as defined below) equal to the Claimed
Amount), (ii) agree that the Parent is entitled to receive part, but not
all, of the Claimed Amount (the “Agreed Amount”) (in which case the Indemnifying
Stockholders and the Parent shall deliver to the Escrow Agent, within three
days
following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Parent such number
of
Escrow Shares as have an aggregate Value (as defined below) equal to the Agreed
Amount) or (iii) dispute that the Parent is entitled to receive any of the
Claimed Amount. If the Indemnifying Stockholders in the Response disputes its
liability for all or part of the Claimed Amount, the Indemnifying Stockholders
and the Parent shall follow the procedures set forth in Section 6.3(d) for
the resolution of such dispute (a “Dispute”). For purposes of this
Article VI, the “Value” of any Escrow Shares delivered in satisfaction of
an indemnity claim shall be $1.00 per Escrow Share (subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Parent Common Stock since the Closing Date),
multiplied by the number of such Escrow Shares.
(d) During
the 60-day period following the delivery of a Response that reflects a Dispute,
the Indemnifying Stockholders and the Parent shall use good faith efforts to
resolve the Dispute. If the Dispute is not resolved within such 60-day period,
the Indemnifying Stockholders and the Parent shall discuss in good faith the
submission of the Dispute to a mutually acceptable alternative dispute
resolution procedure (which may be non-binding or binding upon the parties,
as
they agree in advance) (the “ADR Procedure”). In the event the Indemnifying
Stockholders and the Parent agree upon an ADR Procedure, such parties shall,
in
consultation with the chosen dispute resolution service (the “ADR Service”),
promptly agree upon a format and timetable for the ADR Procedure, agree upon
the
rules applicable to the ADR Procedure, and promptly undertake the ADR Procedure.
The provisions of this Section 6.3(d) shall not obligate the Indemnifying
Stockholders and the Parent to pursue an ADR Procedure or prevent either such
Party from pursuing the Dispute in a court of competent jurisdiction; provided
that, if the Indemnifying Stockholders and the Parent agree to pursue an ADR
Procedure, neither the Indemnifying Stockholders nor the Parent may commence
litigation or seek other remedies with respect to the Dispute prior to the
completion of such ADR Procedure. Any ADR Procedure undertaken by the
Indemnifying Stockholders and the Parent shall be considered a compromise
negotiation for purposes of federal and state rules of evidence, and all
statements, offers, opinions and disclosures (whether written or oral) made
in
the course of the ADR Procedure by or on behalf of the Indemnifying
Stockholders, the Parent or the ADR Service shall be treated as confidential
and, where appropriate, as privileged work product. Such statements, offers,
opinions and disclosures shall not be discoverable or admissible for any
purposes in any litigation or other proceeding relating to the Dispute (provided
that this sentence shall not be construed to exclude from discovery or admission
any matter that is otherwise
-51-
discoverable
or admissible). The fees and expenses of any ADR Service used by the
Indemnifying Stockholders and the Parent shall be shared equally by the
Indemnifying Stockholders and the Parent. The Parent and the Indemnifying
Stockholders shall deliver to the Escrow Agent, promptly following the
resolution of the Dispute (whether by mutual agreement, pursuant to an ADR
Procedure, as a result of a judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Parent (which notice
shall be consistent with the terms of the resolution of the
Dispute).
(e) Notwithstanding
the other provisions of this Section 6.3, if a third party asserts (other
than by means of a lawsuit) that the Parent is liable to such third party for
a
monetary or other obligation which may constitute or result in Damages for
which
such Parent may be entitled to indemnification pursuant to this Article VI,
and the Parent reasonably determines that it has a valid business reason to
fulfill such obligation, then (i) Parent shall be entitled to satisfy such
obligation, with prior notice to but without prior consent from the Indemnifying
Stockholders, (ii) Parent may subsequently make a claim for
indemnification in accordance with the provisions of this Article VI, and
(iii) Parent shall be reimbursed, in accordance with the provisions of
this Article VI, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnifying Stockholders to dispute the Parent’s entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI).
(f) For
purposes of this Section 6.3 and the last two sentences of
Section 6.4, any references to the Indemnifying Stockholders (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer
to the Indemnification Representative. The Indemnification Representative shall
have full power and authority on behalf of each Indemnifying Stockholder to
take
any and all actions on behalf of, execute any and all instruments on behalf
of,
and execute or waive any and all rights of, the Indemnifying Stockholders under
this Article VI. The Indemnification Representative shall have no liability
to any Indemnifying Stockholder for any action taken or omitted on behalf of
the
Indemnifying Stockholders pursuant to this Article VI.
6.4 Survival
of Representations and Warranties.
All
representations and warranties contained in this Agreement, the Company
Certificate or the Parent Certificate shall (a) survive the Closing and any
investigation at any time made by or on behalf of Parent or the Indemnifying
Stockholders and (b) shall expire on the date two years following the
Closing Date. If Parent delivers to an Indemnifying Stockholders, before
expiration of a representation or warranty, either a Claim Notice based upon
a
breach of such representation or warranty, or a notice that, as a result a
legal
proceeding instituted by or written claim made by a third party, the Parent
reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an “Expected Claim Notice”), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given
is
definitively
-52-
withdrawn
or resolved in favor of the Parent, the Parent shall promptly so notify the
Indemnifying Stockholders; and if the Parent has delivered a copy of the
Expected Claim Notice to the Escrow Agent and Escrow Shares have been retained
in escrow after the Termination Date (as defined in the Escrow Agreement) with
respect to such Expected Claim Notice, the Indemnifying Stockholders and the
Parent shall promptly deliver to the Escrow Agent a written notice executed
by
both parties instructing the Escrow Agent to distribute such retained Escrow
Shares to the Indemnifying Stockholders in accordance with the terms of the
Escrow Agreement.
6.5 Limitations
on Parent’s Claims for Indemnification.
(a) Notwithstanding
anything to the contrary herein, the Parent shall not be entitled to recover,
or
be indemnified for, Damages arising out of a misrepresentation or breach of
warranty set forth in Article II unless and until the aggregate of all such
Damages paid or payable by the Indemnifying Stockholders collectively exceeds
$50,000 (the “Damages Threshold”) and then, if such aggregate threshold is
reached, the Parent shall only be entitled to recover for Damages in excess
of
such respective threshold; and in no event shall any Indemnifying Stockholder
be
liable under this Article VI for an aggregate amount, whether paid in cash
or in
shares of Parent Common Stock, greater than the product of the number of Escrow
Shares held on account of such Indemnifying Stockholder, pursuant to Section
1.5
above, multiplied by the Value. For purposes of the preceding sentence, each
Escrow Share delivered by a party in payment of his or its obligations under
this Article VI shall be valued at the Value.
(b) The
Escrow Agreement is intended to secure the indemnification obligations of the
Indemnifying Stockholders under this Agreement and shall be the exclusive means
for the Parent to collect any Damages for which it is entitled to
indemnification under this Article VI.
(c) Except
with respect to claims based on fraud, after the Closing, the rights of the
Indemnified Stockholders and the Parent under this Article VI and the
Escrow Agreement shall be the exclusive remedy of the Indemnified Stockholders
and the Parent with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
(d) No
Indemnifying Stockholder shall have any right of contribution against the
Surviving Corporation with respect to any breach by the Company of any of its
representations, warranties, covenants or agreements. The amount of Damages
recoverable by Parent under this Article VI with respect to an indemnity
claim shall be reduced by (i) any proceeds received by Parent with respect
to the Damages to which such indemnity claim relates, from an insurance carrier
and (ii) the amount of any tax savings actually realized by Parent, for the
tax year in which such Damages are incurred, which are clearly attributable
to
the Damages to which such indemnity claim relates (net of any increased tax
liability which may result from the receipt of the indemnity payment or any
insurance proceeds relating to such Damages).
-53-
ARTICLE
VII
DEFINITIONS
For
purposes of this Agreement, each of the following defined terms is defined
in
the Section of this Agreement indicated below.
|
Defined
Term
|
Section
|
|
|
Acquisition
Subsidiary
|
Introduction
|
|
|
ADR
Procedure
|
6.3(d)
|
|
|
ADR
Service
|
6.3(d)
|
|
|
Affiliate
|
2.13(a)(vii)
|
|
|
Agreed
Amount
|
6.3(c)
|
|
|
Agreement
|
Introduction
|
|
|
Buyer
|
Introduction
|
|
|
CERCLA
|
2.20(a)
|
|
|
Certificates
|
1.7
|
|
|
Certificate
of Merger
|
1.1
|
|
|
Claim
Notice
|
6.3(b)
|
|
|
Claimed
Amount
|
6.3(b)
|
|
|
Claims
|
1.13
|
|
|
Closing
|
1.2
|
|
|
Closing
Date
|
1.2
|
|
|
Code
|
Introduction
|
|
|
Common
Conversion Ratio
|
1.5(b)
|
|
|
Company
|
Introduction
|
|
|
Company
Certificate
|
5.3(e)
|
|
|
Company
Class A Shares
|
1.5(a)
|
|
|
Company
Class A Stockholders
|
1.5(a)
|
|
|
Company
Class B Shares
|
1.5(c)
|
|
|
Company
Class B Stockholders
|
1.5(c)
|
|
|
Company
Class B Warrants
|
Introduction
|
|
|
Company
Confidential Information
|
4.5(b)
|
|
|
Company
Financial Statements
|
2.6
|
|
|
Company
Material Adverse Effect
|
2.1
|
-54-
|
Company
Shares
|
1.5(a)
|
|
|
Company
Stockholder
|
1.3(d)
|
|
|
Company
Unit
|
Introduction
|
|
|
Contemplated
Transactions
|
8.3
|
|
|
Controlling
Party
|
6.3(a)
|
|
|
Current
Report
|
4.3
|
|
|
Damages
|
6.1
|
|
|
Damages
Threshold
|
6.5(a)
|
|
|
Defaulting
Party
|
8.6
|
|
|
Disclosure
Schedule
|
Article II
|
|
|
Dispute
|
6.3(c)
|
|
|
Dissenting
Shares
|
1.6(a)
|
|
|
Effective
Time
|
1.1
|
|
|
Employee
Benefit Plan
|
2.19(a)(i)
|
|
|
Environmental
Law
|
2.20(a)
|
|
|
ERISA
|
2.19(a)(ii)
|
|
|
ERISA
Affiliate
|
2.19(a)(iii)
|
|
|
Escrow
Agent
|
1.3(h)
|
|
|
Escrow
Agreement
|
1.3(h)
|
|
|
Escrow
Shares
|
1.5(b)
|
|
|
Exchange
Act
|
2.13(a)
|
|
|
Expected
Claim Notice
|
6.4
|
|
|
GAAP
|
2.8
|
|
|
GCL
|
1.1
|
|
|
Governmental
Entity
|
2.4
|
|
|
Indemnification
Representative
|
1.3(g)
|
|
|
Indemnified
Executives
|
4.9(b)
|
|
|
Indemnifying
Stockholders
|
1.5(b)
|
|
|
Initial
Shares
|
1.5(b)
|
|
|
Leaseco
|
Introduction
|
|
|
Legal
Proceeding
|
2.17
|
|
|
Loss
|
1.13
|
|
|
Merger
|
Introduction
|
|
|
Merger
Shares
|
1.5(b)
|
|
|
New
Warrants
|
Introduction
|
|
|
Non-Controlling
Party
|
6.3(a)
|
|
|
Non-Defaulting
Party
|
8.6
|
|
|
Options
|
1.5(b)
|
|
|
Ordinary
Course of Business
|
2.4
|
|
|
OTCBB
|
3.2
|
|
|
Parent
|
Introduction
|
|
|
Parent
Certificate
|
5.3(e)
|
|
|
Parent
Common Stock
|
1.5(a)
|
|
|
Parent
Confidential Information
|
4.7(b)
|
|
|
Parent
Disclosure Schedule
|
Article
III
|
|
|
Parent
Liabilities
|
1.13
|
|
|
Parent
Material Adverse Effect
|
3.1
|
|
|
Parent
Options
|
1.8(a)
|
|
|
Parent
Option Plan
|
1.8(a)
|
|
|
Parent
Reports
|
3.6
|
|
|
Party
|
Introduction
|
|
|
Permits
|
2.23
|
|
|
PPO
Price
|
Introduction
|
|
|
Private
Placement Offering
|
Introduction
|
|
|
Reasonable
Best Efforts
|
4.1
|
|
|
Requisite
Company Stockholder Approval
|
2.3
|
|
|
Response
|
6.3(c)
|
|
|
SEC
|
1.13
|
|
|
Securities
Act
|
1.14
|
|
|
Security
Interest
|
2.4
|
|
|
Share
Contribution
|
3.2
|
|
|
Split-Off
|
Introduction
|
|
|
Split-Off
Agreement
|
Introduction
|
|
|
Stock
Split
|
3.2
|
|
|
Subsidiary
|
2.5(a)
|
|
|
Surviving
Corporation
|
1.1
|
|
|
Tax
Returns
|
2.9(a)(ii)
|
|
|
Taxes
|
2.9(a)(i)
|
|
|
Transaction
Documentation
|
3.3
|
|
|
Unit
|
Introduction
|
|
|
Value
|
6.3(c)
|
|
|
Warrants
|
1.5(b)
|
ARTICLE
VIII
TERMINATION
8.1 Termination
by Mutual Agreement.
This
Agreement may be terminated at any time by mutual consent of the parties hereto,
provided that such consent to terminate is in writing and is signed by each
of
the parties hereto.
8.2 Termination
for Failure to Close.
This
Agreement shall be automatically terminated if the Closing Date shall not have
occurred by October 18, 2006.
8.3 Termination
by Operation of Law.
This
Agreement may be terminated by any Party hereto if there shall be any statute,
rule or regulation that renders consummation of the transactions contemplated
by
this Agreement (the “Contemplated Transactions) illegal or otherwise prohibited,
or a court of competent jurisdiction or any government (or governmental
authority) shall have issued an order, decree or ruling, or has taken any other
action restraining, enjoining or otherwise prohibiting the consummation of
such
transactions and such order, decree, ruling or other action shall have become
final and nonappealable.
-55-
8.4 Termination
for Failure to Perform Covenants or Conditions.
This
Agreement may be terminated prior to the Effective Time:
(a) by
the
Parent and the Acquisition Subsidiary if: (i) any of the representations
and warranties made in this Agreement by the Company shall not be materially
true and correct, when made or at any time prior to consummation of the
Contemplated Transactions as if made at and as of such time; (ii) any of
the conditions set forth in Section 5.2 hereof have not been fulfilled in all
material respects by the Closing Date; (iii) the Company shall have failed
to observe or perform any of its material obligations under this Agreement;
or
(iv) as otherwise set forth herein; or
(b) by
the
Company if: (i) any of the representations and warranties of the Parent or
the Acquisition Subsidiary shall not be materially true and correct when made
or
at any time prior to consummation of the Contemplated Transactions as if made
at
and as of such time; (ii) any of the conditions set forth in Section 5.3
hereof have not been fulfilled in all material respects by the Closing Date;
(iii) the Parent or the Acquisition Subsidiary shall have failed to observe
or perform any of their material respective obligations under this Agreement;
or
(iv) as otherwise set forth herein.
8.5 Effect
of Termination or Default; Remedies.
In the
event of termination of this Agreement as set forth above, this Agreement shall
forthwith become void and there shall be no liability on the part of any Party
hereto, provided that such Party is a Non-Defaulting Party (as defined below).
The foregoing shall not relieve any Party from liability for damages actually
incurred as a result of such Party’s breach of any term or provision of this
Agreement.
8.6 Remedies;
Specific Performance.
In the
event that any Party shall fail or refuse to consummate the Contemplated
Transactions or if any default under or beach of any representation, warranty,
covenant or condition of this Agreement on the part of any Party (the
“Defaulting Party”) shall have occurred that results in the failure to
consummate the Contemplated Transactions, then in addition to the other remedies
provided herein, the non-defaulting Party (the “Non-Defaulting Party”) shall be
entitled to seek and obtain money damages from the Defaulting Party, or may
seek
to obtain an order of specific performance thereof against the Defaulting Party
from a court of competent jurisdiction, provided that the Non-Defaulting Party
seeking such protection must file its request with such court within forty-five
(45) days after it becomes aware of the Defaulting Party’s failure, refusal,
default or breach. In addition, the Non-Defaulting Party shall be entitled
to
obtain from the Defaulting Party court costs and reasonable attorneys’ fees
incurred in connection with or in pursuit of enforcing the rights and remedies
provided hereunder.
-56-
ARTICLE
IX
MISCELLANEOUS
9.1 Press
Releases and Announcements.
No
Party shall issue any press release or public announcement relating to the
subject matter of this Agreement without the prior written approval of the
other
Parties; provided,
however,
that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide
them
with a copy of the proposed disclosure prior to making the
disclosure).
9.2 No
Third Party Beneficiaries.
This
Agreement shall not confer any rights or remedies upon any person other than
the
Parties and their respective successors and permitted assigns; provided,
however,
that
(a) the provisions in Article I concerning issuance of the Merger
Shares, Article VI concerning indemnification and Article VII
concerning registration rights are intended for the benefit of the Company
Stockholders and (b) the provisions in Section 4.9 concerning
indemnification are intended for the benefit of the individuals specified
therein and their successors and assigns.
9.3 Entire
Agreement.
This
Agreement (including the documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements
or representations by or among the Parties, written or oral, with respect to
the
subject matter hereof.
9.4 Succession
and Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests or obligations
hereunder without the prior written approval of the other Parties; provided
that
the Acquisition Subsidiary may assign its rights, interests and obligations
hereunder to a wholly-owned subsidiary of the Parent.
9.5 Counterparts
and Facsimile Signature.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile signature.
9.6 Headings.
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
9.7 Notices.
All
notices, requests, demands, claims, and other communications hereunder shall
be
in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly delivered four business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or
one
-57-
business
day after it is sent for next business day delivery via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
|
If
to the Company or the Parent (subsequent to the Closing):
Ethanex
Energy North America, Inc.
00000
Xxxxxxxx Xxxx, Xxxxx X
Xxxxxxx,
XX 00000
Attn:
Xxxxx X. Xxxxxxxxx, President and Chief Executive Officer
Facsimile:
(000) 000-0000
|
Copy
to (which copy shall not constitute notice
hereunder):
McGuireWoods
LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx, XX 00000
Attn:
Xxxxx X. Xxxxx, Esq.
Facsimile:
(000) 000-0000
|
|
If
to the Parent or
the
Acquisition Subsidiary (prior to the Closing):
Attn:
Xxxxxx Xxxxxxx, President
00
Xxxxx Xxxxxx, Xxx 000
Xxxxxxxxxxxx,
Xxxxxxx Xxxxxx X0X 0X0
|
Copy
to (which copy shall not constitute notice
hereunder):
Gottbetter
& Partners, LLP
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, XX 00000
Attn:
Xxxx X. Xxxxxxxxxx, Esq.
Facsimile:
(000) 000-0000
|
Any
Party
may give any notice, request, demand, claim or other communication hereunder
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been
duly
given unless and until it actually is received by the Party for whom it is
intended. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
9.8 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York without giving effect to any choice or conflict
of
law provision or rule (whether of the State of New York or
any
other jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the State of New York.
9.9 Amendments
and Waivers.
The
Parties may mutually amend any provision of this Agreement at any time prior
to
the Effective Time. No amendment of any provision of this Agreement shall be
valid unless the
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same
shall be in writing and signed by all of the Parties. No waiver of any right
or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder shall
be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
9.10 Severability.
Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability
of
the remaining terms and provisions hereof or the validity or enforceability
of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent jurisdiction
declares that any term or provision hereof is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to limit the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified.
9.11 Submission
to Jurisdiction.
Each of
the Parties (a) submits to the jurisdiction of any state or federal court
sitting in the County of New York in the State of New York in any action or
proceeding arising out of or relating to this Agreement, (b) agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court, and (c) agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other Party with respect thereto. Any Party may
make service on another Party by sending or delivering a copy of the process
to
the Party to be served at the address and in the manner provided for the giving
of notices in Section 9.7. Nothing in this Section 9.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
9.12 Construction.
(a) The
language used in this Agreement shall be deemed to be the language chosen by
the
Parties to express their mutual intent, and no rule of strict construction
shall
be applied against any Party.
[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.
PARENT
By:
/s/
Xxxxxx Xxxxxxx
Name:
Xxxxxx
Xxxxxxx
Title:
President
and Chief Executive Officer
ACQUISITION
SUBSIDIARY
ETHANEX
NORTH AMERICA ACQUISITION CORP.
By:
/s/
Xxxxxx Xxxxxxx
Name:
Xxxxxx
Xxxxxxx
Title:
President
and Chief Executive Officer
COMPANY
ETHANEX
ENERGY NORTH AMERICA, INC.
By:
/s/
Xxxxx X. Xxxxxxxxx
Name:
Xxxxx
X.
Xxxxxxxxx
Title:
President
and Chief Executive Officer
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