AGREEMENT AND PLAN OF MERGER

 

 

AGREEMENT AND PLAN OF MERGER, dated as of February 7, 2008 (the “Agreement”), among Splinternet Holdings, Inc., a Delaware corporation (“Splinternet”), Splinternet Merger Sub I, Inc., a Delaware corporation and wholly owned subsidiary of Splinternet (“Merger Sub”), and Vidiation, Inc., a Delaware corporation (the “Company”). Splinternet, Merger Sub and the Company are collectively referred to herein as the “Parties.” Splinternet and Merger Sub are sometimes referred to herein collectively as the “Splinternet Parties.”

 

RECITALS:

 

WHEREAS, the respective boards of directors of each of Splinternet, Merger Sub and the Company have approved the merger of Merger Sub with and into the Company (the “Merger”) upon the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, it is intended that, for federal income tax purposes, the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the “Code”); and

 

WHEREAS, the Company, Splinternet and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement.

 

NOW, THEREFORE, in consideration of the premises and mutual promises herein made, and in consideration of the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the Parties agree as follows:

 

ARTICLE I

 

1.1 Certain Definitions. In addition to other terms defined elsewhere herein, the following terms shall, when used in this Agreement, have the following meanings:

 

“Acquisition” means the acquisition by a Person of any businesses, assets or property other than in the ordinary course, whether by way of the purchase of assets or stock, by merger, consolidation or otherwise.

 

“Affiliate” means, with respect to any Person: (i) any Person directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such other Person (other than passive or institutional investors); (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; and (iv) any officer, director or partner of such other Person. “Control” for the foregoing purposes shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.

 

“Business Day” means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York, are required or authorized to be closed.

 

“Code” means the United States Internal Revenue Code of 1986, as amended.

 

“Collateral Documents” mean the Exhibits and any other documents, instruments and certificates to be executed and delivered by the Parties hereunder or thereunder.

 

“Commission” means the Securities and Exchange Commission or any Regulatory Authority that succeeds to its functions.

 

“Company Assets” mean all properties, assets, privileges, powers, rights, interests and claims of every type and description that are owned, leased, held, used or useful in the Company Business and in which the Company has any right, title or interest or in which the Company acquires any right, title or interest on or before the Closing Date, wherever located, whether known or unknown, and whether or not now or on the Closing Date on the books and records of the Company, but excluding any of the foregoing, if any, transferred prior to the Closing pursuant to this Agreement or any Collateral Documents.

 

“Company Business” means the business conducted by the Company.

 

“Company Common Stock” means the common shares of the Company.

 

“Company Shareholders” means, as of any particular date, the holders of Company Common Stock on that date.

 

“Encumbrance” means any material mortgage, pledge, lien, encumbrance, charge, security interest, security agreement, conditional sale or other title retention agreement, limitation, option, assessment, restrictive agreement, restriction, adverse interest, restriction on transfer or exception to or material defect in title or other ownership interest (including restrictive covenants, leases and licenses).

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

“Legal Requirement” means any statute, ordinance, law, rule, regulation, code, injunction, judgment, order, decree, ruling, or other requirement enacted, adopted or applied by any Regulatory Authority, including judicial decisions applying common law or interpreting any other Legal Requirement.

 

“Losses” shall mean all damages, awards, judgments, assessments, fines, sanctions, penalties, charges, costs, expenses, payments, diminutions in value and other losses, however suffered or characterized, all interest thereon, all costs and expenses of investigating any claim, lawsuit or arbitration and any appeal therefrom, all actual attorneys’, accountants’ investment bankers’ and expert witness’ fees incurred in connection therewith, whether or not such claim, lawsuit or arbitration is ultimately defeated and, subject to Section 9.4, all amounts paid incident to any compromise or settlement of any such claim, lawsuit or arbitration.

 

“Liability” means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

 

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, properties or business of the Parties, (ii) the validity, binding effect or enforceability of this Agreement or the Collateral Documents or (iii) the ability of any Party to perform its obligations under this Agreement and the Collateral Documents; provided, however, that none of the following shall constitute a Material Adverse Effect on the Company: (a) occurrences due to a disruption of a Party’s business as a result of the announcement of the execution of this Agreement or changes caused by the taking of action required by this Agreement, (b) general economic conditions, or (c) any changes generally affecting the industries in which a Party operates.

 

“Merger Shares” means the shares of Splinternet Common Stock deliverable by Splinternet in exchange for Company Common Stock pursuant to Section 2.5(a).

 

“Permit” means any license, permit, consent, approval, registration, authorization, qualification or similar right granted by a Regulatory Authority.

 

“Person” means any natural person, corporation, partnership, trust, unincorporated organization, association, limited liability company, Regulatory Authority or other entity.

 

“Regulatory Authority” means: (i) the United States of America; (ii) any state, commonwealth, territory or possession of the United States of America and any political subdivision thereof (including counties, municipalities and the like); (iii) Canada and any other foreign (as to the United States of America) sovereign entity and any political subdivision thereof; or (iv) any agency, authority or instrumentality of any of the foregoing, including any court, tribunal, department, bureau, commission or board.

 

“Representative” means any director, officer, employee, agent, consultant, advisor or other representative of a Person, including legal counsel, accountants and financial advisors.

 

“Splinternet Common Stock” means the common shares of Splinternet.

 

“Splinternet Securities Filings” means Splinternet’s Annual Report on Form 10-KSB and its quarterly reports on Form 10-QSB, and all other reports filed and to be filed with the Commission prior to the Effective Time.

 

“Subsidiary” of a specified Person means (a) any Person if securities having ordinary voting power (at the time in question and without regard to the happening of any contingency) to elect a majority of the directors, trustees, managers or other governing body of such Person are held or controlled by the specified Person or a Subsidiary of the specified Person; (b) any Person in which the specified Person and its subsidiaries collectively hold a 50% or greater equity interest; (c) any partnership or similar organization in which the specified Person or subsidiary of the specified Person is a general partner; or (d) any Person the management of which is directly or indirectly controlled by the specified Person and its Subsidiaries through the exercise of voting power, by contract or otherwise.

 

“Tax” means any U.S. or non U.S. federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, intangible property, recording, occupancy, sales, use, transfer, registration, value added minimum, estimated or other tax of any kind whatsoever, including any interest, additions to tax, penalties, fees, deficiencies, assessments, additions or other charges of any nature with respect thereto, whether disputed or not.

 

“Tax Return” means any return, declaration, report, claim for refund or credit or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 

 

ARTICLE II

 

2.1 Merger; Surviving Corporation. In accordance with and subject to the provisions of this Agreement and the General Corporation Law of the State of Delaware (“GCL”), at the Effective Time (as defined in Section 2.4), the Merger Sub shall be merged with and into the Company (the “Merger”), and the Company shall be the surviving corporation in the Merger (hereinafter sometimes called the “Surviving Corporation”) and shall continue its corporate existence under the laws of the State of Delaware. At the Effective Time, the separate existence of the Merger Sub shall cease. All properties, franchises and rights belonging to the Company and Merger Sub, by virtue of the Merger and without further act or deed, shall be vested in the Surviving Corporation, which shall thenceforth be responsible for all the liabilities and obligations of each of Merger Sub and the Company.

 

2.2 Articles of Incorporation. The Company’s certificate of incorporation, as in effect at the Effective Time, shall continue in full force and effect as the certificate of incorporation of the Surviving Corporation until altered or amended as provided therein or by law.

 

2.3 By-Laws. The Company’s by-laws, as in effect at the Effective Time, shall be the by-laws of the Surviving Corporation until altered, amended or repealed as provided therein or by law.

 

2.4 Effective Time. The Merger shall become effective at the time and date that the certificate of merger (the “Certificate of Merger”), in form and substance acceptable to the Parties and executed in accordance with the relevant provisions of the GCL, is accepted for filing by the Secretary of State of the State of Delaware in accordance with the provisions of the GCL. The date and time when the Merger becomes effective are referred to herein as the “Effective Time.”

 

2.5 Merger Shares; Conversion and Cancellation of Securities.

 

(a) Conversion of Company Common Stock. At the Effective Time, all shares of Company Common Stock outstanding immediately before the Effective Time, other than shares described in Section 2.5(b) and other than Dissenting Shares (as defined in Section 2.8), collectively, the “Excluded Shares”, shall be converted, by virtue of the Merger, into 4,788,179 shares of Splinternet Common Stock (the “Merger Shares”), subject to the following:

 

 

(i) the allocation of the Merger Shares among the Company Shareholders excluding the holders of Dissenting Shares shall be as set forth on Exhibit 2.5 to be delivered to Splinternet at least one business day prior to the Closing;

 

(ii) if between the date of this Agreement and the Closing Date, Splinternet shall declare a stock split or declare a dividend on Splinternet Common Stock payable in Splinternet Common Stock (or set a record date with respect thereto), the number of Merger Shares be adjusted to reflect fully the appropriate effect of any such subdivision, combination or dividend.

 

At the Effective Time, all Company Common Stock shall no longer be outstanding and shall be cancelled and retired and shall cease to exist, and each certificate formerly representing any Company Common Stock (other than Excluded Shares) shall thereafter represent only the right to the Merger Shares and any distribution or dividend pursuant to Section 2.6(b).

 

(b) Treasury Shares, Etc. Each share of Company Common Stock held in the treasury of the Company (and each share of Company Common Stock, if any, held by Splinternet or any Subsidiary of Splinternet or of the Company immediately before the Effective Time) shall be cancelled and extinguished, and nothing shall be issued or paid in respect thereof.

 

(c) Fractional Shares. No certificates or scrip evidencing fractional shares of Splinternet Common Stock shall be issued in exchange for Company Common Stock. All fractional share amounts shall be rounded up to the nearest whole share.

 

(d) Capital Stock of Merger Sub. Each share of common stock of the Merger Sub issued and outstanding immediately before the Effective Time shall be converted into and become, and shall represent, one fully-paid and nonassessable share of common stock of the Surviving Corporation, and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

 

2.6 Surrender of Company Certificates.

 

(a) Exchange Procedures. Promptly after the Effective Time, Splinternet or its appointed designee shall mail to each holder of a certificate or certificates of Company Common Stock (“Company Certificates”) whose shares are converted into the right to receive the Merger Shares, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Certificates shall pass to Splinternet, only upon delivery of the Company Certificates to Splinternet and which shall be in such form and have such other provisions as Splinternet may reasonably specify) and (ii) instructions for use in effecting the surrender of the Company Certificates in exchange for the Merger Shares and any dividends or other distributions pursuant to Section 2.6(b). Upon surrender of Company Certificates for cancellation to Splinternet, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Company Certificates shall be entitled to receive the Merger Shares in exchange therefor and any dividends or distributions payable pursuant to Section 2.6(b), and the Company Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Company Certificates will be deemed from and after the Effective Time, for all corporate purposes, subject to Section 2.8, to evidence the ownership of the number of full shares of Splinternet Common Stock into which such shares of the Company Common Stock shall have been so converted and any dividends or distributions payable pursuant to Section 2.6(b). Notwithstanding the foregoing, if any Company Certificate is lost, stolen, destroyed or mutilated, such holder shall provide evidence reasonably satisfactory to Splinternet as to such loss, theft, destruction or mutilation and an affidavit in form and substance satisfactory to Splinternet, and, thereupon, such holder shall be entitled to receive the Merger Shares in exchange therefore and any dividends or distributions payable pursuant to Section 2.6(b), and the Company Certificates so surrendered shall forthwith be canceled.

 

(b) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the date of this Agreement with respect to Splinternet Common Stock with a record date after the Effective Time, will be paid to the holders of any unsurrendered Company Certificates with respect to the shares of Splinternet Common Stock represented thereby until the holders of record of such Company Certificates shall surrender such Company Certificates or, in the case of any Company Certificate which is lost, stolen, destroyed or mutilated, an affidavit in form and substance satisfactory to Splinternet. Subject to applicable law, following surrender of any such Company Certificates or delivery of such affidavit, Splinternet shall deliver to the record holders thereof, without interest, the Merger Shares hereof and the amount of any such dividends or other distributions with a record date after the Effective Time payable with respect to such whole shares of Splinternet Common Stock.

 

(c) Transfers of Ownership. If certificates for shares of Splinternet Common Stock are to be issued in a name other than that in which the Company Certificates surrendered in exchange therefore are registered, it will be a condition of the issuance thereof that the Company Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the persons requesting such exchange will have paid to Splinternet or any agent designated by it any transfer or other taxes required by reason of the issuance of certificates for shares of Splinternet Common Stock in any name other than that of the registered holder of the Company Certificates surrendered, or established to the satisfaction of Splinternet or any agent designated by it that such tax has been paid or is not payable.

 

(d) Required Withholding. In connection with any payment to any holder or former holder of the Company Common Stock, each of Splinternet and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of the Company Common Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable laws. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid.

 

(e) No Liability. Notwithstanding anything to the contrary in this Section 2.6, neither Splinternet, the Surviving Corporation nor any party hereto shall be liable to any Person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Company Certificate shall not have been surrendered prior to the date immediately prior to the date on which such property would otherwise escheat to or become the property of any Governmental or Regulatory Authority, any such property, to the extent permitted by applicable law, shall become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto.

 

(f) Termination. Any holders of the Company Certificates who have not complied with this ARTICLE II shall look only to Splinternet or the Surviving Corporation for, and Splinternet and the Surviving Corporation shall remain liable for, payment of their claim for Merger Shares and any dividends or distributions with respect to Splinternet Common Stock, without interest thereon.

 

2.7 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of shares of Company Common Stock thereafter on the records of the Company.

 

2.8 Dissenting Shares. Shares of Company Common Stock which are issued and outstanding immediately prior to the Effective Time and which are held by persons who have properly exercised, and not withdrawn or waived, appraisal rights with respect thereto in accordance with the GCL (the “Dissenting Shares”), will not be converted into the right to receive the Merger Shares, and holders of such shares of Company Common Stock will be entitled, in lieu thereof, to receive payment of the appraised value of such shares of Company Common Stock in accordance with the provisions of the GCL unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the GCL. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such right, such shares of Company Common Stock will thereupon be treated as if they had been converted at the Effective Time into the right to receive the Merger Shares, without any interest thereon. The Company will give Splinternet prompt notice of any demands received by the Company for appraisal of shares of Company Common Stock. Prior to the Effective Time, the Company will not, except with the prior written consent of Splinternet make any payment with respect to, or settle or offer to settle, any such demands.

 

2.9 Restriction on Transfer. The Merger Shares may not be sold, transferred, or otherwise disposed of without registration under the Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Merger Shares or any available exemption from registration under the Act, the Merger Shares must be held indefinitely. The Company Shareholders are aware that the Merger Shares may not be sold pursuant to Rule 144 promulgated under the Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 may be the availability of current information to the public about Splinternet.

 

2.10 Closing. The closing of the transactions contemplated by this Agreement and the Collateral Documents (the “Closing”) shall take place at the offices of Splinternet, or at such other location as the parties may agree on such date which is no later than five (5) business days following completion of the actions described in ARTICLES V and VI below, or on such other date as shall be mutually agreed upon by the parties hereto (the actual time and date of closing being hereinafter referred to as the “Closing Date”).

 

ARTICLE III

 

The Company represents and warrants to Splinternet that the statements contained in this ARTICLE III are correct and complete as of the date of this Agreement and, except as provided in Section 5.1, will be correct and complete in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE III, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for changes contemplated or permitted by this Agreement).

 

3.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The Company has all requisite power and authority to own, lease and use its assets as they are currently owned, leased and used and to conduct its business as it is currently conducted. The Company is duly qualified or licensed to do business in and is in good standing in each jurisdiction in which the character of the properties owned, leased or used by it or the nature of the activities conducted by it make such qualification necessary, except any such jurisdiction where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Company or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Company to perform its obligations under this Agreement or any of the Collateral Documents.

 

3.2 Capitalization.

 

(a) The authorized, issued and outstanding capital stock and other ownership interests of the Company consists of 10,000,000 shares of common stock, of which 3,591,134 shares were outstanding as of the date hereof. All of the outstanding Company capital stock has been duly authorized and are validly issued, fully paid and nonassessable.

 

(b) Listed in Item 3.2(b) to the disclosure schedule delivered by the Company to Splinternet (the “Company Disclosure Schedule”) are all issued and outstanding Company Common Stock, and all outstanding or authorized options, warrants, purchase rights, preemptive rights or other contracts or commitments that could require the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock or other ownership interests (collectively “Options”).

 

(c) All of the issued and outstanding shares of Company Common Stock have been duly authorized and are validly issued and outstanding, fully paid and nonassessable and have been issued in compliance with applicable securities laws and other applicable Legal Requirements or transfer restrictions under applicable securities laws.

 

3.3 Authority and Validity. The Company has all requisite corporate power to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement (subject to the approval of the Company Shareholders as contemplated by Section 9.3). The execution and delivery by the Company of, the performance by the Company of its obligations under, and the consummation by the Company of the transactions contemplated by, this Agreement have been duly authorized by all requisite action of the Company (subject to the approval of the Company Shareholders as contemplated by Section 9.3). This Agreement has been duly executed and delivered by the Company and (assuming due execution and delivery by the Splinternet Parties and approval by the Company Shareholders) is the legal, valid, and binding obligation of the Company, enforceable against it in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles. Upon the execution and delivery of the Collateral Documents by each Person (other than the Splinternet Parties) that is required by this Agreement to execute, or that does execute, this Agreement or any of the Collateral Documents, and assuming due execution and delivery thereof by the Splinternet Parties, the Collateral Documents will be the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles.

 

3.4 No Breach or Violation. Subject to obtaining the consents, approvals, authorizations, and orders of and making the registrations or filings with or giving notices to Regulatory Authorities and Persons identified herein, the execution, delivery and performance by the Company of this Agreement and the Collateral Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby in accordance with the terms and conditions hereof and thereof, do not and will not conflict with, constitute a violation or breach of, constitute a default or give rise to any right of termination or acceleration of any right or obligation of the Company under, or result in the creation or imposition of any Encumbrance upon the Company, the Company Assets, the Company Business or the Company Common Stock by reason of the terms of (i) the articles of incorporation, by-laws or other charter or organizational document of the Company or any Subsidiary of the Company, (ii) any material contract, agreement, lease, indenture or other instrument to which the Company is a party or by or to which the Company, or the Assets may be bound or subject and a violation of which would result in a Material Adverse Effect on the Company, (iii) any order, judgment, injunction, award or decree of any arbitrator or Regulatory Authority or any statute, law, rule or regulation applicable to the Company or (iv) any Permit of the Company, which in the case of (ii), (iii) or (iv) above would have a Material Adverse Effect on the Company or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Company to perform its obligations under this Agreement or any of the Collateral Documents.

 

3.5 Consents and Approvals. Except for requirements described in Item 3.5 of the Company Disclosure Schedule, no consent, approval, authorization or order of, registration or filing with, or notice to, any Regulatory Authority or any other Person is necessary to be obtained, made or given by the Company in connection with the execution, delivery and performance by the Company of this Agreement or any Collateral Document or for the consummation by the Company of the transactions contemplated hereby or thereby, except to the extent the failure to obtain any such consent, approval, authorization or order or to make any such registration or filing would not have a Material Adverse Effect on the Company or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Company to perform its obligations under this Agreement or any of the Collateral Documents.

 

3.6 Intellectual Property. The Company has good title to or the right to use all material company intellectual property rights and all material inventions, processes, designs, formulae, trade secrets and know-how necessary for the operation of the Company Business without the payment of any royalty or similar payment. Item 3.6 of the Company Disclosure Schedule lists all patents, trade names, trademarks and service marks, all patent, trademark and service mark registrations or applications, presently owned, possessed, used or held by the Company and all copyrights and copyright applications and registrations, relating to the business of the Company, all of which are collectively referred to as the “Proprietary Rights”. Item 3.6 of the Company Disclosure Schedule also lists all licenses, if any granted by or to the Company. Except as set forth in Item 3.6 of the Company Disclosure Schedule, the Company has not granted to any person, firm or corporation, any right, license or privilege in any of the Proprietary Rights or the know-how used in the business of the Company nor have such Proprietary Rights or know-how been revealed to any persons other that its employees, customers and consultants. No Proprietary Rights or applications or grants of licenses set forth in Item 3.6 of the Company Disclosure Schedule are subject to any pending or threatened challenge.

 

3.7 Compliance with Legal Requirements. The Company has operated the Company Business in compliance with all Legal Requirements applicable to the Company except to the extent the failure to operate in compliance with all material Legal Requirements would not have a Material Adverse Effect on the Company or Material Adverse Effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents. 

 

3.8 Financial Statements. At the earliest possible time prior to the Closing Date, the Company shall deliver to Splinternet the following financial statements of the Company which shall have been audited by an independent certified public accounting firm and which shall be presented in accordance with United States generally accepted accounting principles applied on a basis consistent throughout the periods presented: Balance Sheet as at a date (the “Balance Sheet Date”) no more than forty-five (45) days prior to the Closing Date, and Statements of Income, Statements of Cash Flows and Changes in Stockholder’s Equity for the periods then ended , and the notes relating thereto (the “Company Audited Financial Statements”). In addition, the Company shall deliver any other financial statements deemed necessary by Splinternet or its advisors in order to comply with requirements of the Exchange Act. All of the financial statements to be delivered pursuant hereto will be complete and accurate and present fairly the financial position of the Company and the results of its operations and changes in its financial positions as of the dates and for the periods indicated as being covered thereby.

 

3.9 Litigation. Except as set forth on Item 3.9 of the Company Disclosure Schedule, there are no outstanding judgments or orders against or otherwise affecting or related to the Company, the Company Business or the Company Assets and there is no action, suit, complaint, proceeding or investigation, judicial, administrative or otherwise, that is pending or, to the Company’s knowledge, threatened that, if adversely determined, would have a Material Adverse Effect on the Company or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents.

 

3.10 Taxes. The Company has duly and timely filed in proper form all Tax Returns for all Taxes required to be filed with the appropriate Regulatory Authority, and has paid all Taxes required to be paid in respect thereof except where such failure would not have a Material Adverse Effect on the Company.

 

3.11 Books and Records. The books and records of the Company accurately and fairly represent the Company Business and its results of operations in all material respects. All accounts receivable and inventory of the Company Business are reflected properly on such books and records in all material respects.

 

3.12 Brokers or Finders. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Company or any of its Affiliates in connection with the transactions contemplated by this Agreement, and neither the Company, nor any of its Affiliates has incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with the transaction contemplated by this Agreement.

 

3.13 Proxies. Company management holds, or prior to the Closing will hold, irrevocable proxies from the Company Shareholders adequate to ensure Company Shareholder approval of the Merger as required by applicable law.

 

3.14 No Undisclosed Liabilities. Except as set forth as Item 3.14 of the Company Disclosure Schedule, the Company is not subject to any liability (including, to Company’s knowledge, unasserted claims), absolute or contingent, which is not shown or which is in excess of amounts shown or reserved for in the Company Audited Financial Statements.

 

3.15 Absence of Certain Changes. Except as set forth as Item 3.15 of the Company Disclosure Schedule hereto since the Balance Sheet Date, the Company has not: (a) suffered any material adverse change in its financial condition, assets, liabilities or business; (b) except in the ordinary course of business, contracted for or paid any capital expenditures; (c) incurred any indebtedness or borrowed money, issued or sold any debt or equity securities, declared any dividends or discharged or incurred any liabilities or obligations except in the ordinary course of business as heretofore conducted; (d) mortgaged, pledged or subjected the Company to any lien, lease, security interest or other charge or encumbrance any of its properties or assets; (e) paid any material amount on any indebtedness prior to the due date, forgiven or cancelled any material amount on any indebtedness prior to the due date, forgiven or cancelled any material debts or claims or released or waived any material rights or claims; (f) suffered any damage or destruction to or loss of any assets (whether or not covered by insurance); (g) except in the ordinary course of business, acquired or disposed of any assets or incurred any liabilities or obligations; (h) made any payments to its affiliates or associates or loaned any money to any person or entity; (i) formed or acquired or disposed of any interest in any corporation, partnership, limited liability company, joint venture or other entity; (j) except in the ordinary course of business, entered into any employment, compensation, consulting or collective bargaining agreement or any other agreement of any kind or nature with any person or group, or modified or amended in any respect the terms of any such existing agreement; (k) entered into any other commitment or transaction or experience any other event that relates to or affect in any way this Agreement or to the transactions contemplated hereby, or that has affected, or may adversely affect the Company’s business, operations, assets, liabilities or financial condition; or (1) amended its certificate of incorporation or By-laws, except as otherwise contemplated herein.

 

3.16 Contracts. Item 3.16 of the Company Disclosure Schedule is a true and complete list of all contracts, agreements, leases, commitments or other understandings or arrangements, written or oral, express or implied, to which the Company is a party or by which it or any of its property is bound or affected (the “Contracts”). Except as set forth as Item 3.16 of the Company Disclosure Schedule, the Company has complied with and performed, in all material respects, all of its obligations required to be performed under and is not in default with respect to any of the Contracts, as of the date hereof, nor has any event occurred which has not been cured which, with or without the giving of notice, lapse of time, or both, would constitute a default in any respect thereunder. To the best knowledge of the Company, no other party has failed to comply with or perform, in all material respects, any of its obligations required to be performed under or is in material default with respect to any such Contracts, as of the date hereof, nor has any event occurred which, with or without the giving of notice, lapse of time or both, would constitute a material default in any respect by such party thereunder. Except as set forth as Item 3.16 of the Company Disclosure Schedule, the Company knows of no and has no reason to believe that there are any facts or circumstances which would make a material default by any party to any contract or obligation likely to occur subsequent to the date hereof.

 

3.17 Permits and Licenses. The Company has all certificates of occupancy, rights, permits, certificates, licenses, franchises, approvals and other authorizations as are reasonably necessary to conduct its business and to own, lease, use, operate and occupy its assets, at the places and in the manner now conducted and operated, except those the absence of which would not materially adversely affect its business. The Company has not received any written or oral notice or claim pertaining to the failure to obtain any material permit, certificate, license, approval or other authorization required by any federal, state or local agency or other regulatory body, the failure of which to obtain would materially and adversely affect its business.

 

3.18 Assets Necessary to Business. The Company owns or leases all properties and assets, real, personal, and mixed, tangible and intangible, and is a party to all licenses, permits and other agreements necessary to permit it to carry on its business as presently conducted. Item 3.18 of the Company Disclosure Schedule lists all of the material properties and assets of the Company and all material contracts to which it is a party or by which it is bound. Prior to Closing, the Company will make all records available to Splinternet with respect to all such material contracts.

 

3.19 Labor Agreements and Labor Relations. The Company has no collective bargaining or union contracts or agreements. The Company is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practices; to the Company’s knowledge, there are no charges of discrimination or unfair labor practice charges or complaints against the Company pending or threatened before any governmental or regulatory agency or authority; and, there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or affecting the Company.

 

3.20 Employment Arrangements. Except as set forth as Item 3.20 of the Company Disclosure Schedule hereto, the Company has no employment or consulting agreements or arrangements, written or oral, which are not terminable at the will of the Company, or any pension, profit-sharing, option, other incentive plan, or any other type of employment benefit plan as defined in ERISA or otherwise, or any obligation to or customary arrangement with employees for bonuses, incentive compensation, vacations, severance pay, insurance or other benefits. No employee of the Company is in violation of any employment agreement or restrictive covenant. 

3.21 Affiliate Transactions. Except as set forth in Item 3.21 of the Company Disclosure Schedule, no officer, director or employee of the Company (or any of the relatives or affiliates of any of the aforementioned persons) is a party to any agreement, contract, commitment or transaction with the Company or affecting the business of the Company, or has any interest in any property, whether real, personal or mixed, or tangible or intangible, used in or necessary to the Company which will subject the Company to any liability or obligation from and after the Effective Time.

3.22  Restrictive Agreements. There is no agreement (non-compete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which would have a material adverse effect on the Company’s business. Except as set forth in Item 3.22 of the Company Disclosure Schedule, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products to or providing services to, customers or potential customers or any class of customers, in any geographic areas, during any period of time or in any segment of the market.

 

3.23 Disclosure. No representation or warranty of the Company in this Agreement or in the Collateral Documents and no statement in any certificate furnished or to be furnished by the Company pursuant to this Agreement contained, contains or will contain on the date such agreement or certificate was or is delivered, or on the Closing Date, any untrue statement of a material fact, or omitted, omits or will omit on such date to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

 

ARTICLE IV

 

Each of the Splinternet Parties, jointly and severally, represent and warrant to the Company that the statements contained in this ARTICLE IV are correct and complete as of the date of this Agreement and, except as provided in Section 6.1, will be correct and complete in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE IV, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for changes contemplated or permitted by the Agreement).

 

4.1 Organization and Qualification. Each of Splinternet and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Each of Splinternet and Merger Sub has all requisite power and authority to own, lease and use its assets as they are currently owned, leased and used and to conduct its business as it is currently conducted. Both Splinternet and Merger Sub are duly qualified or licensed to do business in and are each in good standing in each jurisdiction in which the character of the properties owned, leased or used by it or the nature of the activities conducted by it makes such qualification necessary, except any such jurisdiction where the failure to be so qualified or licensed and in good standing would not have a Material Adverse Effect on Splinternet or a Material Adverse Effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Company or any of the Splinternet Parties to perform their obligations under this Agreement or any of the Collateral Documents.

 

4.2 Capitalization.

 

(a) As of the date hereof, the authorized capital stock of Splinternet consists of 90,000,000 shares of common stock $0.001 par value of which there are 56,715,000 shares outstanding, and 10,000,000 shares of Preferred Stock, $0.001 par value of which there are no shares outstanding. The shares of Splinternet Common Stock included in the Merger Shares, when issued in accordance with this Agreement, will have been duly authorized, validly issued and outstanding and will be fully paid and nonassessable.

 

(b) As of the date hereof, the authorized capital stock of Merger Sub consists of 100 shares of common stock no par value of which there are 100 shares outstanding. Each outstanding share of Merger Sub is duly authorized, validly issued and outstanding and will be fully paid and nonassessable and is owned by Splinternet.

 

(c) Listed in Item 4.2(c) to the disclosure schedule delivered by Splinternet to the Company (the “Splinternet Disclosure Schedule”) are all outstanding or authorized options, warrants, purchase rights, preemptive rights or other contracts or commitments that could require Splinternet or any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding any of its capital stock or other ownership interests. 

 

(d) All of the issued and outstanding shares of Splinternet Common Stock have been duly authorized and are validly issued and outstanding, fully paid and nonassessable and have been issued in compliance with applicable securities laws and other applicable Legal Requirements.

 

4.3 Authority and Validity. Each Splinternet Party has all requisite power to execute and deliver, to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and the Collateral Documents. The execution and delivery by each Splinternet Party of, the performance by each Splinternet Party of its respective obligations under, and the consummation by the Splinternet Parties of the transactions contemplated by, this Agreement and the Collateral Documents have been duly authorized by all requisite action of each Splinternet Party. This Agreement has been duly executed and delivered by each of the Splinternet Parties and (assuming due execution and delivery by the Company) is the legal, valid and binding obligation of each Splinternet Party, enforceable against each of them in accordance with its terms except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles. Upon the execution and delivery by each of the Splinternet Parties of the Collateral Documents to which each of them is a party, and assuming due execution and delivery thereof by the other parties thereto, the Collateral Documents will be the legal, valid and binding obligations of each such Person, as the case may be, enforceable against each of them in accordance with their respective terms except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally and (ii) general equitable principles.

 

4.4 No Breach or Violation. Subject to obtaining the consents, approvals, authorizations, and orders of and making the registrations or filings with or giving notices to Regulatory Authorities and Persons identified herein, the execution, delivery and performance by the Splinternet Parties of this Agreement and the Collateral Documents to which each is a party and the consummation of the transactions contemplated hereby and thereby in accordance with the terms and conditions hereof and thereof, do not and will not conflict with, constitute a violation or breach of, constitute a default or give rise to any right of termination or acceleration of any right or obligation of any Splinternet Party under, or result in the creation or imposition of any Encumbrance upon the property of Splinternet or Merger Sub by reason of the terms of (i) the articles of incorporation, by-laws or other charter or organizational document of any Splinternet Party, (ii) any contract, agreement, lease, indenture or other instrument to which any Splinternet Party is a party or by or to which any Splinternet Party or their property may be bound or subject and a violation of which would result in a Material Adverse Effect on Splinternet taken as a whole, (iii) any order, judgment, injunction, award or decree of any arbitrator or Regulatory Authority or any statute, law, rule or regulation applicable to any Splinternet Party or (iv) any Permit of Splinternet or Merger Sub, which in the case of (ii), (iii) or (iv) above would have a Material Adverse Effect on Splinternet or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of any Splinternet Party to perform its obligations hereunder or thereunder.

 

4.5 Consents and Approvals. Except for requirements under applicable United States or state securities laws, no consent, approval, authorization or order of, registration or filing with, or notice to, any Regulatory Authority or any other Person is necessary to be obtained, made or given by any Splinternet Party in connection with the execution, delivery and performance by them of this Agreement or any Collateral Documents or for the consummation by them of the transactions contemplated hereby or thereby, except to the extent the failure to obtain such consent, approval, authorization or order or to make such registration or filings or to give such notice would not have a Material Adverse Effect on Splinternet or a material adverse effect on the validity, binding effect or enforceability of this Agreement or the Collateral Documents or the ability of the Company or any of the Splinternet Parties to perform its obligations under this Agreement or any of the Collateral Documents.

 

4.6 Ordinary Course. Since the date of the balance sheet included in the most recent Splinternet Securities Filings filed through the date hereof, there has not been any occurrence, event, incident, action, failure to act or transaction involving Splinternet or any of its Subsidiaries which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Splinternet.

 

4.7 Brokers or Finders. No broker or finder has acted directly or indirectly for Splinternet, any Splinternet Party or any of their Affiliates in connection with the transactions contemplated by this Agreement, and neither Splinternet, any Splinternet Party nor any of their Affiliates has incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with the transaction contemplated by this Agreement. The Company shall have no liability regarding any broker or finder engaged by Splinternet.

 

4.8 Disclosure. No representation or warranty of Splinternet in this Agreement or in the Collateral Documents and no statement in any certificate furnished or to be furnished by Splinternet pursuant to this Agreement contained, contains or will contain on the date such agreement or certificate was or is delivered, or on the Closing Date, any untrue statement of a material fact, or omitted, omits or will omit on such date to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

 

4.9 Filings. Splinternet has made all of the filings required by the Exchange Act required to be made and no such filing contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, not misleading.

 

ARTICLE V

 

All obligations of the Splinternet Parties under this Agreement shall be subject to the fulfillment at or prior to Closing of each of the following conditions, it being understood that the Splinternet Parties may, in their sole discretion, to the extent permitted by applicable Legal Requirements, waive any or all of such conditions in whole or in part.

 

5.1 Accuracy of Representations. All representations and warranties of the Company contained in this Agreement, the Collateral Documents and any certificate delivered by any of the Company at or prior to Closing shall be, if specifically qualified by materiality, true in all respects and, if not so qualified, shall be true in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for changes contemplated or permitted by this Agreement. The Company shall have delivered to Splinternet and Merger Sub a certificate dated the Closing Date to the foregoing effect.

 

5.2 Covenants. The Company shall, in all material respects, have performed and complied with each of the covenants, obligations and agreements contained in this Agreement and the Collateral Documents that are to be performed or complied with by them at or prior to Closing. The Company shall have delivered to Splinternet and Merger Sub a certificate dated the Closing Date to the foregoing effect.

 

5.3 Consents and Approvals. All consents, approvals, permits, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to, any Regulatory Authority or Person as provided herein. 

 

5.4 Delivery of Documents. The Company shall have delivered, or caused to be delivered, to Splinternet and Merger Sub the following documents:

 

(i) Certified copies of the Company articles of incorporation and by-laws and certified resolutions of the board of directors and Shareholders of the Company authorizing the execution of this Agreement and the Collateral Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby.

 

(ii) Such other documents and instruments as Splinternet may reasonably request: (A) to evidence the accuracy of the Company’s representations and warranties under this Agreement, the Collateral Documents and any documents, instruments or certificates required to be delivered thereunder; (B) to evidence the performance by the Company of, or the compliance by the Company with, any covenant, obligation, condition and agreement to be performed or complied with by the Company under this Agreement and the Collateral Documents; or (C) to otherwise facilitate the consummation or performance of any of the transactions contemplated by this Agreement and the Collateral Documents.

 

5.5 No Material Adverse Change. Since the date hereof, there shall have been no material adverse change in the Company Assets, the Company Business or the financial condition or operations of the Company, taken as a whole.

 

5.6 Additional Disclosure.  There shall have been no disclosure in any Company Disclosure Schedule or any supplement to the Company Disclosure Schedule or documents set forth in or attached thereto delivered after the execution of this Agreement, which is not satisfactory to Splinternet in its sole discretion.

 

5.7 Company Financial Statements. The Company Audited Financial Statements shall be satisfactory to Splinternet in its sole discretion.

 

5.8 Acquisition of Assets from Vidiation, LLC. The Company shall have completed the acquisition of certain assets from Vidiation, LLC on terms acceptable to Splinternet in its sole discretion.

 

5.9 Satisfaction with Company.  Splinternet shall be fully satisfied in the exercise of its sole discretion with the results of the investigation and review it conducts (or has its representatives conduct), prior to the Closing Date, of the business, properties or affairs of the Company.

 

ARTICLE VI

 

All obligations of the Company under this Agreement shall be subject to the fulfillment at or prior to Closing of the following conditions, it being understood that the Company may, in its sole discretion, to the extent permitted by applicable Legal Requirements, waive any or all of such conditions in whole or in part.

 

6.1 Accuracy of Representations. All representations and warranties of the Splinternet Parties contained in this Agreement and the Collateral Documents and any other document, instrument or certificate delivered by any of the Splinternet Parties at or prior to the Closing shall be, if specifically qualified by materiality, true and correct in all respects and, if not so qualified, shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for changes contemplated or permitted by this Agreement. The Splinternet Parties shall have delivered to the Company a certificate dated the Closing Date to the foregoing effect.

 

6.2 Covenants. The Splinternet Parties shall, in all material respects, have performed and complied with each obligation, agreement, covenant and condition contained in this Agreement and the Collateral Documents and required by this Agreement and the Collateral Documents to be performed or complied with by the Splinternet Parties at or prior to Closing. The Splinternet Parties shall have delivered to the Company a certificate dated the Closing Date to the foregoing effect.

 

6.3 Consents and Approvals. All consents, approvals, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to, any Regulatory Authority or Person as provided herein. 

 

6.4 Delivery of Documents. The Splinternet Parties, as applicable, shall have executed and delivered, or caused to be executed and delivered, to the Company the following documents:

 

(i) Certified copies of the articles of incorporation and by-laws of Splinternet and certified resolutions by the board of directors authorizing the execution of this Agreement and the Collateral Documents and the consummation of the transactions contemplated hereby.

 

(ii) Such other documents and instruments as the Company may reasonably request: (A) to evidence the accuracy of the representations and warranties of the Splinternet Parties under this Agreement and the Collateral Documents and any documents, instruments or certificates required to be delivered thereunder; (B) to evidence the performance by the Splinternet Parties of, or the compliance by the Splinternet Parties with, any covenant, obligation, condition and agreement to be performed or complied with by the Splinternet Parties under this Agreement and the Collateral Documents; or (C) to otherwise facilitate the consummation or performance of any of the transactions contemplated by this Agreement and the Collateral Documents.

 

6.5 No Material Adverse Change. There shall have been no material adverse change in the business, financial condition or operations of Splinternet and its Subsidiaries taken as a whole.

 

6.6 No Litigation. No action, suit or proceeding shall be pending or threatened by or before any Regulatory Authority and no Legal Requirement shall have been enacted, promulgated or issued or deemed applicable to any of the transactions contemplated by this Agreement and the Collateral Documents that would: (i) prevent consummation of any of the transactions contemplated by this Agreement and the Collateral Documents; (ii) cause any of the transactions contemplated by this Agreement and the Collateral Documents to be rescinded following consummation; or (iii) have a Material Adverse Effect on Splinternet.

 

ARTICLE VII

 

7.1 Indemnification by the Company. The Company shall indemnify, defend and hold harmless (i) Splinternet, (ii) each of Splinternet’s assigns and successors in interest to the Company Common Stock, and (iii)  each of their respective current, former and future shareholders, members, partners, directors, officers, managers, employees, agents, attorneys and representatives, from and against any and all Losses which may be incurred or suffered by any such party and which may arise out of or result from any inaccuracy in or breach of any material representation, warranty, covenant or agreement of the Company contained in this Agreement or in any document or other writing delivered pursuant thereto. 

 

7.2 Indemnification by the Splinternet Parties. The Splinternet Parties shall indemnify, defend and hold harmless (i) the Company, (ii) each of the Company Shareholders and their respective assigns and successors in interest to the Splinternet Common Stock, and (iii) each of their respective current, former and future shareholders, members, partners, directors, officers, managers, employees, agents, attorneys and representatives from and against any and all Losses which may be incurred or suffered by any such party hereto and which may arise out of or result from any inaccuracy in or any breach of any material representation, warranty, covenant or agreement of the Splinternet Parties contained in this Agreement or in any document or other writing delivered pursuant thereto.

 

7.3 Notice to Indemnifying Party. If any party (the “Indemnified Party”) receives notice of any claim or other commencement of any action or proceeding with respect to which any other party (or parties) (the “Indemnifying Party”) is obligated to provide indemnification pursuant to Sections 7.1 or 7.2, the Indemnified Party shall promptly give the Indemnifying Party written notice thereof, which notice shall specify in reasonable detail, if known, the amount or an estimate of the amount of the liability arising therefrom and the basis of the claim. Such notice shall be a condition precedent to any liability of the Indemnifying Party for indemnification hereunder, but the failure of the Indemnified Party to give prompt notice of a claim shall not adversely affect the Indemnified Party’s right to indemnification hereunder unless the defense of that claim is materially prejudiced by such failure. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld or delayed) unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification thereof as provided in Section 7.4.

 

7.4 Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceeding by a Person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding (i) if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim (subject to any limitations on such liability contained in this Agreement) and (ii) if it provides assurances, reasonably satisfactory to the Indemnified Party, that it will be financially able to satisfy such claims in full if the same are decided adversely. If the Indemnifying Party assumes the defense of any such claim or legal proceeding, it may use counsel of its choice to prosecute such defense, subject to the approval of such counsel by the Indemnified Party, which approval shall not be unreasonably withheld or delayed. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense; provided, however, that if the Indemnified Party, in its sole discretion, determines that there exists a conflict of interest between the Indemnifying Party (or any constituent party thereof) and the Indemnified Party, the Indemnified Party (or any constituent party thereof) shall have the right to engage separate counsel, the reasonable costs and expenses of which shall be paid by the Indemnified Party. If the Indemnifying Party assumes the defense of any such claim or legal proceeding, the Indemnifying Party shall take all steps necessary to pursue the resolution thereof in a prompt and diligent manner. The Indemnifying Party shall be entitled to consent to a settlement of, or the stipulation of any judgment arising from, any such claim or legal proceeding, with the consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed; provided, however, that no such consent shall be required from the Indemnified Party if (i) the Indemnifying Party pays or causes to be paid all Losses arising out of such settlement or judgment concurrently with the effectiveness thereof (as well as all other Losses theretofore incurred by the Indemnified Party which then remain unpaid or unreimbursed), (ii) in the case of a settlement, the settlement is conditioned upon a complete release by the claimant of the Indemnified Party and (iii) such settlement or judgment does not require the encumbrance of any asset of the Indemnified Party or impose any restriction upon its conduct of business.

 

ARTICLE VIII

 

8.1 Termination of Agreement. This Agreement may be terminated prior to the Closing as follows:

(a) At the election of Splinternet, on or after April 30, 2008, if the Closing shall not have occurred by the close of business on such date, provided that Splinternet is not in default of any of its obligations hereunder;

(b)  by mutual consent of the Parties; or

(c) by either the Company or the Splinternet Parties if there shall be in effect a final nonappealable order of a governmental body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; it being agreed that the parties hereto shall promptly appeal any adverse determination which is not nonappealable (and pursue such appeal with reasonable diligence).

 

If this Agreement is terminated as provided herein each party shall deliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same. In the event this Agreement is validly terminated as provided herein, then each of the Parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to any of the Parties; provided, however, that nothing in this Section 8.1 shall relieve any of the Parties of any liability for a breach of this Agreement. 

 

ARTICLE IX

 

9.1 Parties Obligated and Benefited. This Agreement shall be binding upon the Parties and their respective successors by operation of law and shall inure solely to the benefit of the Parties and their respective successors by operation of law, and no other Person shall be entitled to any of the benefits conferred by this Agreement, except that the Company Shareholders shall be third party beneficiaries of this Agreement. Without the prior written consent of the other Party, no Party may assign this Agreement or the Collateral Documents or any of its rights or interests or delegate any of its duties under this Agreement or the Collateral Documents.

 

9.2 Access to Books and Records. During the course of this transaction through Closing, each party agrees to make available for inspection all corporate books, records and assets, and otherwise afford to each other and their respective representatives, reasonable access to all documentation and other information concerning the business, financial and legal conditions of each other for the purpose of conducting a due diligence investigation thereof. Such due diligence investigation shall be for the purpose of satisfying each party as to the business, financial and legal condition of each other for the purpose of determining the desirability of consummating the proposed transaction. The parties further agree to keep confidential and not use for their own benefit, except in accordance with this Agreement any information or documentation

 

9.3 Meeting of the Company Shareholders. Promptly after the date hereof, the Company will take all action necessary in accordance with its articles of incorporation and by-laws, and in accordance with federal and state securities laws, to convene a meeting of the Company’s shareholders to consider the adoption and approval of this Agreement and approval of the Merger to be held as promptly as practicable. The Company will use its reasonable efforts to solicit from its shareholders proxies in favor of the adoption and approval of this Agreement and the approval of the Merger and will take all other action necessary or advisable to secure the vote or consent of its shareholders required by the GCL to obtain such approvals. In lieu of such meeting, the adoption and approval of this Agreement and the Merger may be approved by shareholder consent.

 

9.4 No Solicitations.  From and after the date of this Agreement until the Effective Time or termination of this Agreement pursuant to ARTICLE VIII, the Company will not, nor will it permit any of its officers, directors or agents acting on its behalf to: (a) take any action to solicit, initiate, encourage or assist the submission of any proposal, negotiation or offer from any person or entity other than Splinternet, and other person(s) or entities for purposes of soliciting their participation as investors or co-investors with the Company, relating to the acquisition, sale or transfer of any of the capital stock of the Company or any material part of the assets of the Company; (b) offer to sell or transfer any of the capital stock of the Company or any material part of the assets of the Company to any person other than Splinternet and/or other person(s) or entities who participate as investors or co-investors with Splinternet; or (c) disclose financial or other information relating to the Company other than in the ordinary course of business to any person or entity other than Splinternet, Splinternet’s agents and representatives, and other person(s) or entities for purposes of soliciting their participation as investors or co-investors with Splinternet, except with the written consent of Splinternet. The Company acknowledges and agrees that the legal remedies available to Splinternet in the event the Company violates any of the foregoing covenants would be inadequate and that Splinternet shall be entitled to specific performance, injunctive relief and other equitable remedies in the event of any such violation. The Company will immediately notify Splinternet regarding any contact between the Company, any of its directors, officers, employees, agents or representatives and any other person regarding any offer, proposal or inquiry during this exclusivity period.  

 

9.5 Publicity. The initial press release shall be a joint press release and thereafter until the termination hereof or consummation of the transactions contemplated hereby neither party shall issue any press releases or otherwise making public announcements with respect to the Merger and the other transactions contemplated by this Agreement without the consent of the other, and prior to making any filings with any third party and/or any Regulatory Authorities (including any national securities interdealer quotation service) with respect thereto, each party shall consult with the other, except as may be required by law or by obligations pursuant to any listing agreement with or rules of any national securities interdealer quotation service.

 

9.6 Disclosure Schedules. In the event that either the Company Disclosure Schedule or the Splinternet Disclosure Schedule is not delivered contemporaneously with the execution of this Agreement, it shall be delivered as soon as practicable prior to the Closing Date.

9.7 Notices. All communications, notices, requests, consents or demands given or required under this Agreement shall be in writing and shall be deemed to have been duly given when delivered to, or received by prepaid registered or certified mail or recognized overnight courier addressed to, or upon receipt of a facsimile sent to, the party for whom intended, as follows, or to such other address or facsimile number as may be furnished by such party by notice in the manner provided herein:

	If to Splinternet and/or Merger Sub:
	Splinternet Holdings, Inc.
	535 Connecticut Avenue
	Norwalk, Connecticut 06854
	Attn: James C. Ackerly
	Facsimile: (800) 536-1952
	With a copy to:
	Kaye Cooper Fiore Kay & Rosenberg, LLP
	30A Vreeland Road, Suite 230
	Florham Park, New Jersey 07932
	Attn: David M. Kaye, Esq.
	Facsimile: (973) 443-0609
	If to the Company:
	Vidiation, Inc.
	108 South Wynstone Park Drive
	Suite #117
	N. Barrington, Illinois 60010
	Attn: Frank O’Connor, CEO
	Facsimile: (847) 387-3137

 

 

9.8 Headings. The Article and Section headings of this Agreement are for convenience only and shall not constitute a part of this Agreement or in any way affect the meaning or interpretation thereof.

 

9.9 Governing Law. This Agreement and the transactions contemplated hereby shall be governed and construed by and enforced in accordance with the laws of the State of Connecticut without regard to conflict of laws principles.

9.10  Remedies. It is specifically understood and agreed that certain breaches of this Agreement will result in irreparable injury to the parties hereto, that the remedies available to the parties at law alone will be an inadequate remedy for such breach, and that, in addition to any other legal or equitable remedies that the parties may have, a party may enforce its rights by an action for specific performance and the parties expressly waive the defense that a remedy in damages will be adequate.

 

9.11 Further Actions. The Parties shall execute and deliver to each other, from time to time at or after Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement. In addition, each of the Parties shall use its best efforts to cause satisfaction of conditions under its control to the other party’s obligations to close and otherwise to cooperate to cause consummation of the transactions contemplated hereunder.

 

9.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

9.13 Entire Agreement. This Agreement (including the Exhibits, the Company Disclosure Statement, the Splinternet Disclosure Statement and any other documents, instruments and certificates referred to herein, which are incorporated in and constitute a part of this Agreement) contains the entire agreement of the Parties. 

 

9.14 Expenses. Each party will be responsible for payment of its expenses in connection with the transactions contemplated by this Agreement, except as otherwise provided elsewhere herein.

9.15 Post-Closing Covenants; Survival. All representations, warranties, covenants, agreements and indemnities contained in this Agreement, or in any schedule, exhibit, certificate, agreement, document or statement delivered pursuant hereto, are material, shall be deemed to have been relied upon by the parties, and shall survive the consummation of the transactions contemplated herein regardless of any investigation conducted by or knowledge of any party hereto.

 

9.16  Amendments; Waivers. This Agreement may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by Buyer and Sellers or, in the case of a waiver, the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

9.17  Entire Agreement. This Agreement, together with the schedules and exhibits hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and cancels any and all prior or contemporaneous arrangements, understandings and agreements between them relating to the subject matter hereof.

9.18 Representation by Counsel. Each of the parties hereto represents, warrants and covenants that it has had ample opportunity to consider entering into this Agreement and has had an opportunity to consult with counsel regarding this Agreement prior to executing the same. The parties further agree that any rule that provides that an ambiguity within a document will be interpreted against the party drafting such document shall not apply.

 

 

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.

 

	SPLINTERNET HOLDINGS, INC.
	By: /s/ James C. Ackerly
	Name: James C. Ackerly
	Title: President
	SPLINTERNET MERGER SUB I, INC.
	By: /s/ James C. Ackerly
	Name: James C. Ackerly
	Title: President
	VIDIATION, INC.
	By: /s/ Frank O’Connor
	Name: Frank O’Connor
	Title: President