MERGER AND RECAPITALIZATION
AGREEMENT
This Agreement made and entered into as of this
19 th
day of October, 2009 (the “
Agreement ”), by and among WES Consulting, Inc., a
Florida corporation with its principal place of business located at
2745 Bankers Industrial Drive, Doraville, Georgia 30360 (“
WES ”); the undersigned shareholder of WES which
represents a majority of the issued and outstanding common stock of
WES (the “ WES Shareholder ”); Liberator, Inc.,
a Nevada Corporation, with its registered office at 2745 Bankers
Industrial Drive, Doraville, Georgia 30360 (“
Liberator ”) and the undersigned shareholders of
Liberator which represents a majority vote of the issued and
outstanding equity of Liberator (the “ Liberator
Shareholders ”).
RECITALS
A. The
respective Boards of Directors and shareholders representing a
majority of the issued and outstanding common stock of each of
Liberator and WES have approved and declared advisable the merger
of Liberator with and into WES (the “ Merger ”)
and approved the Merger upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and
outstanding share of the common stock of Liberator (a “
Liberator Common Share ” or, collectively, the “
Liberator Common Shares” ), will be converted into one
share of common stock, $0.01 par value, of WES (“ WES
Common Stock ”) which, after giving effect to the Merger,
shall equal, in the aggregate, 98.4% of the total issued and
outstanding common stock of WES. At the Approval Time
(as defined herein), each Series A Preferred Share of Liberator (a
“ Liberator Preferred Share ” or, collectively,
the “ Liberator Preferred Shares ”) will be
converted into one share of preferred stock of WES (the “
WES Preferred Stock ”). Liberator Common
Shares and Liberator Preferred Shares are referred to herein,
collectively, as the “ Liberator Shares.
” The WES Common Stock owned by Liberator will be
cancelled upon the consummation of the transactions contemplated by
this Agreement.
B. The
respective Boards of Directors and shareholders representing a
majority of the issued and outstanding common stock of each of
Liberator and WES have determined that the Merger is in furtherance
of and consistent with their respective long-term business
strategies and is fair to and in the best interests of their
respective stockholders.
C. 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
”);
D. For
financial accounting purposes, it is intended that the Merger will
be accounted for as a “ purchase ”;
NOW, THEREFORE , in consideration of the premises, and of the
representations, warranties, covenants and agreements contained
herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECT OF
MERGER
SECTION 1.1 The
Merger . Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the
laws of the state of Florida (“ Florida Law ”)
and the laws of the State of Nevada (“ Nevada Law
”) at the Effective Time, Liberator shall be
merged with and into WES and the separate corporate existence of
Liberator shall thereupon cease. WES shall be the
surviving corporation in the Merger (sometimes hereinafter referred
to as the “ Surviving Corporation ”), and the
separate corporate existence of WES with all its rights,
privileges, immunities, powers and franchises shall continue
unaffected by the merger, except as set forth
herein. The Merger shall have the effects specified in
the Florida Law.
SECTION 1.2
Closing . Subject to the terms and
conditions of this Agreement, the closing of the Merger and the
consummation of the other transactions contemplated hereby (the
“ Closing ”) shall take place at the offices of
Anslow & Jaclin LLP, 195 Route 9 South, Manalapan, NJ 07726 not
later than October 19, 2009 and at such other date, time and place
as the parties hereto shall agree.
SECTION 1.3
Effective Time . On the date of Closing,
Liberator and WES will cause a Certificate of Merger (the “
Florida Certificate of Merger ”) to be executed,
acknowledged and filed with the Secretary of State of the State of
Florida. On the date of Closing, Liberator and WES will cause a
Certificate of Merger (the "“ Nevada Certificate of
Merger ”) to be executed, acknowledged and filed with the
Secretary of State of the State of Nevada. The Merger shall become
effective at the time when the Florida Certificate of Merger has
been filed with the Secretary of State of the State of Florida, or,
as otherwise agreed by Liberator and WES (the “ Effective
Time ”).
SECTION 1.4
Certificate of Incorporation . The
certificate of incorporation of WES as in effect immediately prior
to the Effective Time shall be the certificate of incorporation of
the Surviving Corporation (the “ Certificate of
Incorporation ”), until duly amended as provided therein
or by applicable law.
SECTION 1.5
By-Laws . The by-laws of WES in effect
immediately prior to the Effective Time shall be the by-laws of the
Surviving Corporation (the “By-Laws”), until thereafter
amended as provided therein or by applicable law.
SECTION 1.6
Directors . As of the Effective Time, the
authorized number of directors comprising the Board of Directors of
WES shall consist of not less than two (2) and not more than five
(5) individuals. The following individuals shall be
elected to the Board Directors of WES at the Effective Time: (i)
Louis S. Friedman (Chairman of the Board); and (ii) Ronald P.
Scott.
SECTION 1.7
Officers . As of the Effective Time, the
officers of WES shall be (i) Louis S. Friedman (Chief Executive
Officer, President), (ii) Ronald P. Scott (Chief Financial Officer
and Secretary) and (iii) Leslie Vogelman (Treasurer), until their
successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the By-Laws.
SECTION 1.8
Effect on Capital Stock . As a result of
the Merger and without any action on the part of the holder of any
capital stock of WES:
(a) Merger
Consideration .
(i) At
the Effective Time, each Liberator Common Share issued and
outstanding immediately prior to the Effective Time shall be
converted into, and become exchangeable for one (1) validly issued,
fully paid and non-assessable share of WES Common Stock (the
“ WES Common Shares ”).
(ii) At
the Approval Time, each Liberator Preferred Share issued and
outstanding immediately prior to the Effective Time shall be
converted into and become exchangeable for one (1) share of WES
Preferred Stock.
(iii) WES
Common Shares and WES Preferred Stock, collectively, are referred
to herein as the “ WES Merger Stock, ” and the
conversion of Liberator Shares into WES Merger Stock is referred to
as the “ Merger Purchase Price ”);
(b) At the Effective
Time, all Liberator Shares shall be canceled and Liberator shall
cease to exist, and each certificate (a “ Certificate
”) formerly representing:
(i)
any Liberator
Common Shares shall thereafter represent only the right to receive
the shares of WES Common Stock into which such Liberator Common
Shares have been converted; and
(ii) any
Liberator Preferred Shares shall thereafter represent only the
right to receive, at the Approval Time, the shares of WES Preferred
Stock into which such Liberator Preferred Shares have been
converted.
(c) At the Effective
Time, all WES Common Stock owned by Liberator shall be immediately
cancelled and returned to the treasury of WES.
SECTION 1.9 Exchange
of Certificates for Shares.
(i) At
the Effective Time, WES shall deliver or cause to be delivered to
each respective owner of the Liberator Common Shares and in each of
their respective names certificates representing WES Common Stock
into which Liberator Common Shares that such shareholders owns are
to be converted as set forth on Schedule 1 attached
hereto.
(ii) At
the Approval Time, WES shall deliver or cause to be delivered to
each respective owner of the Liberator Preferred Shares and in each
of their respective names certificates representing WES Preferred
Stock into which Liberator Preferred Shares that such shareholders
owns are to be converted as set forth on Schedule 1 attached
hereto.
(b) Fractional
Shares . No certificates or scrip representing
fractional shares of WES Common Stock or WES Preferred Stock shall
be issued upon the surrender for exchange of Certificates pursuant
to this Article I; no dividend or other distribution by WES and no
stock split, combination or reclassification shall relate to any
such fractional share; and no such fractional share shall entitle
the record or beneficial owner thereof to vote or to any other
rights of a stockholder of WES. In lieu of any such factional
share, each holder of Liberator Shares who would otherwise have
been entitled thereto upon the surrender of Certificate(s) for
exchange pursuant to this Article I will be paid an additional
share of WES Common Stock or WES Preferred Stock.
(c) Adjustments of
Conversion Number . In the event that WES changes
the number of shares of WES Common Stock or WES Preferred Stock ,
issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), dividend
or distribution, recapitalization, merger (other than the Merger,
Stock Purchase or the cancellation of options previously granted by
Liberator), subdivision, or other similar transaction with a
dilutive effect, or if a record date with respect to any of the
foregoing shall occur prior to the Effective Time, the conversion
number shall be equitably adjusted.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
LIBERATOR
Liberator represents, warrants and covenants to
WES as follows and acknowledges that WES is relying upon such
representations and warranties in connection with the Contemplated
Transactions (as hereinafter defined):
SECTION 2.1
Capitalization . The outstanding and
issued capital stock of Liberator consists of 60,932,981 shares of
common stock and 4,300,000 shares of Series A Preferred
Shares. Schedule 1 sets forth the name of
each record and beneficial shareholder of Liberator (each a “
Shareholder ” and collectively the “
Shareholders ”) and the number of Liberator Shares
held by each such person. One Up Innovations, Inc., a Georgia
corporation is wholly owned by Liberator (“ OneUp
”); Foam Labs, Inc., a Georgia corporation is wholly owned by
OneUp (together with OneUp, jointly and severally, the “
Subsidiaries ”), is wholly owned by Liberator and are
its only subsidiaries. Except as set forth on
Schedule 1 , Liberator and Subsidiaries do not and, at the
Closing, Liberator and Subsidiaries will not, have outstanding any
capital stock or other securities or any rights, warrants or
options to acquire securities of Liberator or the Subsidiaries, or
any convertible or exchangeable securities and, other than WES
pursuant to this Agreement, no person has or, at Closing will have,
any right to purchase or otherwise acquire any securities of
Liberator or the Subsidiaries. There are, and at Closing
there will be, no outstanding obligations of Liberator or the
Subsidiaries to repurchase, redeem or otherwise acquire any
securities of Liberator or the Subsidiaries. All of
Liberator Shares are, and at Closing will be, duly authorized, duly
and validly issued, fully paid and non-assessable, and none were
issued in violation of any preemptive rights, rights of first
refusal or any other contractual or legal restrictions of any kind
except as otherwise disclosed.
SECTION 2.2
Title to the Shares . The Shareholders are the beneficial
owner and holds good and valid title to its Liberator Shares free
and clear of any Lien. At the Closing, each Shareholder
of Liberator will deliver Liberator Shares to WES free and clear of
any Lien, other than restrictions imposed by the Securities
Act and applicable securities Laws including the laws of the
State of Florida.
SECTION 2.3
Authority Relative to this Agreement .
At the Closing,
Liberator will have full power, capacity and authority to execute
and deliver each Transaction Document to which it is or, at
Closing, will be, a party and to consummate the transactions
contemplated hereby and thereby (the “ Contemplated
Transactions ”). The execution, delivery and
performance by Liberator of each Transaction Document and the
consummation of the Contemplated Transactions to which Liberator
is, or at Closing, will be, a party will have been duly and validly
authorized by Liberator and no other acts by or on behalf of
Liberator will be necessary or required to authorize the execution,
delivery and performance by each of Liberator of each Transaction
Document and the consummation of the Contemplated Transactions to
which it is or, at Closing, will be, a party. This
Agreement and the other Transaction Documents to which Liberator is
a party have been duly and validly executed and delivered by
Liberator and (assuming the valid execution and delivery thereof by
the other parties thereto) will constitute the legal, valid and
binding agreements of Liberator enforceable against Liberator in
accordance with their respective terms, except as such obligations
and their enforceability may be limited by applicable bankruptcy
and other similar Laws affecting the enforcement of creditors'
rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any
proceeding therefor may be brought (whether at law or in
equity).
SECTION 2.4
No Conflicts; Consents . The execution, delivery and
performance by Liberator of each Transaction Document to which it
is a party and the consummation of the Contemplated Transactions to
which Liberator is a party, upon approval of the Shareholders will
not: (i) violate any provision of the certificate of
incorporation or by-laws of Liberator; (ii) require Liberator
to obtain any consent, approval or action of or waiver from, or
make any filing with, or give any notice to, any Governmental Body
or any other person, except as otherwise disclosed (the “
Liberator Required Consents ”); (iii) violate,
conflict with or result in a breach or default under (with or
without the giving of notice or the passage of time or both), or
permit the suspension or termination of, any material Contract
(including any Real Property Lease) to which Liberator is a party
or by which it or any of its assets is bound or subject, or to the
best of Liberator’s knowledge and information result in the
creation of any Lien upon any of Liberator Shares or upon any of
the Assets of Liberator; (iv) violate any Order, any Law, of
any Governmental Body against, or binding upon, Liberator or upon
any of their respective assets or the Business; or (v) violate
or result in the revocation or suspension of any Permit.
SECTION 2.5
Corporate Existence and Power . Liberator is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Nevada, and has all requisite powers, authority and
all Permits required to own and/or operate its Assets and to carry
on the Business as now conducted, including all qualifications
under any statute in effect in any state or foreign jurisdiction in
which Liberator operates its Business. Liberator is duly
qualified to do business and is in good standing in each state of
the United States and in each other jurisdiction where the
character of the property owned or leased by it or the nature of
its activities makes such qualification necessary.
SECTION 2.6
Charter Documents and Corporate Records .
Liberator has heretofore
delivered to WES true and complete copies of the Articles of
Incorporation, By-Laws and minute books, or comparable instruments,
of Liberator as in effect on the date hereof. The stock
transfer books of Liberator have been made available to WES for its
inspection and are true and complete in all respects.
SECTION 2.7
Financial Statements .
(a) Schedule 2.7A sets
forth true, complete and correct copies of: Liberator's audited
financial statements as of and for the fiscal years ended June 30,
2009 and June 30, 2008 (the “ Annual Statements
”) and all management letters, management representation
letters and attorney response letters issued in connection with the
Annual Statements. The Annual Statements present fairly and
accurately in all material respects the financial position of
Liberator and the Subsidiaries as of its date, and the earnings,
changes in stockholders' equity and cash flows thereof for the
periods then ended in accordance with GAAP, consistently
applied. Each balance sheet contained therein or
delivered pursuant hereto fully sets forth all consolidated Assets
and Liabilities of Liberator existing as of its date which, under
GAAP, should be set forth therein, and each statement of earnings
contained therein or delivered pursuant hereto sets forth the items
of income and expense of Liberator which should be set forth
therein in accordance with GAAP.
(b) All financial, business and
accounting books, ledgers, accounts and official and other records
relating to Liberator have been properly and accurately kept and
completed, and Liberator has no knowledge, notice belief or
information there are any material inaccuracies or discrepancies
contained or reflected therein.
SECTION 2.8
Liabilities . Liberator has not incurred any Liabilities since
June 30, 2009 (the “ Latest Balance Sheet Date
”) except (i) current Liabilities for trade or business
obligations incurred in connection with the purchase of goods or
services in the ordinary course of the Business and consistent with
past practice, and (ii) Liabilities reflected on any balance
sheet referred to in Section 2.7(a).
SECTION 2.9
Liberator Receivables . Except to the extent of the amount
of the allowance for doubtful accounts reflected in the Annual
Statements and the Interim Statements, all the Receivables of
Liberator reflected therein, and all Receivables that have arisen
since the Latest Balance Sheet Date (except Receivables that have
been collected since such date), are valid and enforceable Claims
subject to no known defenses, offsets, returns, allowances or
credits of any kind, and constitute bona fide Receivables
collectible in the ordinary course of the Business except as
enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or
similar laws or principles of equity affecting the enforcement of
creditors rights generally.
SECTION 2.10 Absence
of Certain Changes . (a) Since June 30, 2009,
Liberator has conducted the Business in the ordinary course
consistent with past practice, except as otherwise disclosed
hereof, and there has not been:
(i) Any
material adverse change in the Condition of the
Business;
(ii) Any
material damage, destruction or other casualty loss (whether or not
covered by insurance), condemnation or other taking affecting the
Business or the Assets of Liberator;
(iii) Any
change in any method of accounting or accounting practice by
Liberator;
(iv) Except
for normal increases granted in the ordinary course of business,
any increase in the compensation, commission, bonus or other direct
or indirect remuneration paid, payable or to become payable to any
officer, stockholder, director, consultant, agent or employee of
Liberator, or any alteration in the benefits payable or provided to
any thereof;
(v)
Any material adverse change in the
relationship of Liberator with its employees, customers, suppliers
or vendors;
(vi)
Except for
any changes made in the ordinary course of Business, any material
change in any of Liberator's business policies, including
advertising, marketing, selling, pricing, purchasing, personnel,
returns or budget policies;
(vii)
Any agreement
or arrangement whether written or oral to do any of the
foregoing.
SECTION 2.11 Leased
Real Property . (a) Liberator has no fee
interest, purchase options or rights of first refusal in any real
property and Liberator has no leasehold or other interest in any
real property, except for the real property lease between Bedford
Realty Company, LLC and OneUp Innovations, Inc. dated September 26,
2005 covering approximately 140,000 square feet of floor space
known as 2745 Bankers Industrial Drive, Doraville, GA 30360 (the
“ Leased Real Property ”), and all leases
including all amendments, modifications, extensions, renewals
and/or supplements thereto (collectively, “ Real Property
Leases ”).
SECTION 2.12 Personal
Property; Assets . &n
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