AGREEMENT AND PLAN OF REORGANIZATION

 

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and entered into as of the 28th day of June, 2011, by and among ALANCO TECHNOLOGIES, INC., an Arizona corporation ("Alanco”), and YUUZOO CORPORATION BVI, a corporation organized under the laws of the British Virgin Islands (“YuuZoo”).

RECITALS :

Alanco is a publically traded corporation whose shares are currently traded on the Nasdaq Capital Market under the symbol ALAN. Alanco recently sold its remaining operating business assets, but retains substantial investment assets.

YuuZoo is an end-to-end mobile solutions platform provider offering vertically integrated internet content developed specifically for mobile phone handsets and computers, including targeted mobile social networks, mobile commerce and a mobile payment platform.

            The respective Boards of Directors of Alanco and YuuZoo have concluded that it is to their respective companies’ mutual advantage and benefit to effect a reorganization whereby YuuZoo shall acquire Alanco through a reverse merger whereby YuuZoo will be merged into Alanco pursuant to this Agreement and in accordance with the applicable laws of the State of Arizona and the British Virgin Islands, intending the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the 1986 Internal Revenue Code of the United States of America.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual agreements and subject to the terms and conditions set forth in this Agreement, the parties agree as follows:

1.0            The Merger .

1.1            Transfer of Property and Liabilities .  Upon the Effective Date (as defined in Section 11 hereof), the separate existence of YuuZoo shall cease; all of the outstanding shares of stock of YuuZoo shall be exchanged for and converted into shares of common stock of Alanco, as hereinafter provided; and upon the filing of the Plan of Merger as well as Articles of Amendment and Merger with the Arizona Corporation Commission and the filing of the Plan of Merger as well as Articles of Merger with the Registrar of Corporate Affairs of the British Virgin Islands, Alanco shall possess all the rights, privileges, immunities, powers, and purposes, and all the property, real and personal, causes of action, and every other asset of YuuZoo, and shall assume and be liable for all the liabilities, obligations, and penalties of YuuZoo, in accordance with Section 10-1106 of the Arizona Revised Statutes and Section 173 of the BVI Business Companies Act 2004.

1.2            Surviving Corporation .  Following the merger, the existence of Alanco shall continue unaffected and unimpaired by the merger as the surviving corporation, with all the rights, privileges, immunities, and powers, and subject to all the duties and liabilities, of a corporation organized under the laws of the State of Arizona. The Articles of Incorporation and Bylaws of Alanco, as in effect immediately prior to the Effective Date, shall continue in full force and effect, and, except as provided in Section 1.3, shall not be changed in any manner by the merger. The directors of Alanco immediately following the Effective Date shall be as set forth in Section 1.4 below, and the officers of Alanco immediately following the Effective Date shall be as set forth in Section 1.5 below.

1.3            Name of Surviving Corporation .  The Articles of Incorporation of the surviving corporation shall be amended to change its name to YuuZoo Corporation.

1.4            Directors of the Surviving Corporation .  The Board of Directors of Alanco as the surviving corporation shall consist of one member selected by Alanco, namely, Robert R. Kauffman, and eight members chosen by YuuZoo, five of which must be “independent” as defined by the rules of the Securities and Exchange Commission and Nasdaq.

1.5            Officer of the Surviving Corporation .  The principal officers of Alanco as the surviving corporation shall be as follows:

Office                                                                                        Name

Executive Chairman and Chief Executive Officer            Thomas Zilliacus

Executive Director and CVO                                               Ronald Creevey

Chief Financial Officer                                                         Ken Ng

1.6            Management Advisors to Surviving Corporation .  Robert R. Kauffman, current Alanco CEO, and John A. Carlson, current Alanco CFO, shall continue as employees of the surviving corporation in management advisory rolls for a minimum period through the filing of the surviving corporation’s 10-K for the fiscal year ended June 30, 2012.

2.0            Status and Conversion of Shares .

2.1            Continued Status of Alanco Common Stock .  Each issued and outstanding share of Alanco Class A Common Stock (”Alanco Common Stock”) shall continue to be an issued and outstanding share of Alanco Common Stock.

2.2            Conversion of YuuZoo Common Stock .  All of the shares of YuuZoo Common Stock issued and outstanding immediately prior to the Effective Date shall be converted by the merger into shares of Alanco Common Stock.  Therefore, upon the Effective Date, each share of issued and outstanding YuuZoo Common Stock outstanding on the Effective Date shall be converted into fully paid and nonassessable shares of authorized but previously unissued Alanco Common Stock, so that the YuuZoo shareholders own eighty-eight (88%) percent (based upon a negotiated value for YuuZoo of $88 million (“YuuZoo’s Value”)) of the total number of shares of Alanco Common Stock then outstanding, and the Alanco shareholders own twelve (12%) percent (based upon a negotiated value for Alanco of $12 million (“Alanco’s Value”)) of the total number of shares of Alanco Common Stock outstanding as of the date hereof.  The calculation of the number of shares of Alanco Common Stock to be issued to YuuZoo shareholders upon the Effective Date shall be based upon the number of shares of Alanco Common Stock currently outstanding, namely, 4,663,411 shares.  Any additional shares of Alanco Common Stock issued by Alanco with respect to the exercise of outstanding stock options before Closing shall not be counted in the calculation, however, in the event the Alanco Series B Convertible Preferred Stock is converted into or redeemed with Alanco Common Stock prior to the Closing Date, such additionally issued shares of Alanco Common Stock shall be included in the base number of shares comprising the Alanco shareholders’ 12% interest in the surviving corporation.  The foregoing relative percentages to be held by the YuuZoo shareholders and the Alanco shareholders is subject to adjustment in accordance with Section 2.5 below.  The aggregate number of shares to be issued pursuant to this Section, as adjusted pursuant to Section 2.5, shall be known as the “Closing Shares.”  (For clarification, all issued and outstanding shares of YuuZoo Series C Preferred Stock and Series D Preferred Stock shall be converted into YuuZoo Common Stock before the Closing Date so that YuuZoo only has common stock outstanding as of the Closing Date.)

2.3            Mechanics of Conversion .  After the Effective Date, each holder of shares of YuuZoo Common Stock shall surrender the certificate or certificates for the same to Alanco’s stock transfer agent, Computershare Investor Services, 350 Indiana Street, Suite 800, Golden, CO 80401 (the “Exchange Agent”), and shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of Alanco Common Stock into which the shares so surrendered shall have been converted as described above. Until so surrendered, each outstanding certificate which prior to the Effective Date represented shares of YuuZoo Common Stock shall be deemed for all corporate purposes to evidence ownership of the number of shares of Alanco Common Stock into which the YuuZoo shares shall have been converted.

2.4.            No Fractional Shares .  No certificate for a fractional share of Alanco Common Stock shall be issued upon the exchange described herein, but in lieu thereof, there shall be issued to each holder who would have otherwise received a certificate for a fractional share cash equal to the value of such fractional share with the value of a full share of Alanco Common Stock determined to be equal to the average closing price of the Alanco Common Stock on the Nasdaq Capital Market for the twenty trading days immediately proceeding the Effective Date.

2.5            Alanco Net Asset Adjustment .  The aggregate number of shares to be issued to YuuZoo shareholders pursuant to Section 2.2 above shall be adjusted in the event the Net Assets of Alanco are below $6,000,000 or in excess of $10,000,000.  The “Net Assets of Alanco” means the sum of Alanco’s cash (excluding cash realized from the exercise of outstanding Alanco stock option from the date hereof through the Closing Date), any amount owed to Alanco by YuuZoo (excluding cash loaned by Alanco to YuuZoo from cash realized from the exercise of outstanding Alanco stock option from the date hereof through the Closing Date), and the value of Orbcomm Inc. stock owned by Alanco as of the Closing Date.  Each share of Orbcomm Inc. common stock owned by Alanco shall be valued at the average closing price for such shares for the five (5) trading days immediately preceding the Closing Date.  The adjustment shall be as follows:

Net Assets                                             Adjustment

Alanco’s Value (as adjusted above) shall be added to YuuZoo’s Value of $88,000,000, which sum shall be used to determine each party’s relative percentage to be inserted in Section 2.2 above. For example, if the value of the Net Assets of Alanco as of the Closing Date equals $5,000,000, then Alanco’s Value will equal $11,000,000 instead of $12,000,000.  The resulting relative ownership percentages would then equal 11.1% for Alanco’s shareholders and 88.9% for YuuZoo’s shareholders.  If, on the other hand, the value of the Net Assets of Alanco as of the Closing Date equals $11,000,000, then Alanco’s Value will equal $13,000,000.  The resulting relative ownership percentages would then equal 12.9% for Alanco’s shareholders and 87.1% for YuuZoo shareholders.

3.0            Status and Conversion of Outstanding Stock Options and Warrants .  All Alanco outstanding stock options to its employees and directors, and outstanding warrants to investors shall continue to be an issued and outstanding options or warrants, as the case may be without modification in their terms.  All YuuZoo options outstanding under its Employee Stock Option Plan, and all warrants outstanding to investors and consultants, shall be exercised on or before the Closing Date so that YuuZoo shall not have any outstanding stock options or warrants as of the Closing .

4.0            Additional Shares of Alanco Common Stock Based Upon YuuZoo Financial Performance .  Alanco may issue additional shares of Alanco Common Stock (the “Earn Out Shares”) to the YuuZoo shareholders in connection with the merger based upon the financial performance of YuuZoo for the twelve months ending June 30, 2012 (the Measuring Period”).  In particular, if the audited net income of YuuZoo determined in accordance with U.S. GAAP (the “Net Income”) equals $5,000,000, Alanco shall issue an additional 1,000,000 shares of Alanco Common Stock to YuuZoo shareholders.  For each additional US Dollar of Net Income earned during the Measuring Period, Alanco shall issue one additional share of Alanco Common Stock to YuuZoo shareholders.  In addition to the foregoing, if YuuZoo has $10,000,000 or more of Net Income during the Measuring Period, Alanco shall issue an additional 1,500,000 shares to YuuZoo shareholders.  Notwithstanding the foregoing, the total number of Earn Out shares issuable pursuant to this Section shall be limited so that the Earn Out Shares plus the Closing Shares aggregate to not more than 92% of the total number of issued and outstanding shares of Alanco common Stock at the Closing assuming that all of the Earn Out Shares to be issued were also issued at the Closing.

The Earn Out Shares shall be issued to the YuuZoo shareholders as of the Closing Date in proportion to their YuuZoo common stock ownership as of the Closing Date.  The Earn Out Shares shall be issued as soon as practicable following the end of the Measurement Period, but not later than thirty (30) days after the filing of the 10-K report that includes the audited Net Income.

5.0            Representations and Warranties of YuuZoo .  YuuZoo represents and warrants to Alanco as follows, and acknowledges and confirms that Alanco is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by Alanco or on its behalf.  Any of the following representations or warranties that refer to a Schedule means the Schedule with the same number included with the YuuZoo Disclosure Schedules that shall be delivered by YuuZoo to Alanco on or before July 15, 2011.

5.1.            Organization and Standing .  YuuZoo is a corporation duly organized, validly existing and in good standing under the laws of the British Virgin Islands, has all of the requisite corporate power and authority and has all of the licenses, permits, authorities and consents that are necessary to own, operate and lease its properties and to carry on its business as now being conducted.  YuuZoo is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the property owned, leased or operated by YuuZoo or the nature of the business conducted by YuuZoo makes such qualification necessary.  YuuZoo is not a party to or subject to any agreement, consent decree or order, or other understanding or arrangement with, or any directive of, any governmental authority or other person which imposes any restriction or otherwise affects in any material way the conduct of its business in any jurisdiction or location.  True and accurate copies of YuuZoo's Organization Memorandum and Articles of Association, as amended, and By-laws, as presently in effect, shall be included Schedule 5.1 of the YuuZoo Disclosure Schedules.

5.2.            Capitalization . The authorized and outstanding capital of YuuZoo shall be shown on Schedule 5.2 of the YuuZoo Disclosure Schedules.  All issued shares of capital stock have been validly authorized and issued and are fully paid and nonassessable.  All issued and outstanding shares of YuuZoo Series C Preferred Stock and Series D Preferred Stock shall be converted into YuuZoo Common Stock before the Closing Date.  All options, warrants or other rights outstanding concerning the right to purchase or acquire of any shares of capital stock or similar equity or debt instruments of YuuZoo, including the name of the holder, the date of issuance, date of expiration, and exercise price per share, shall be shown on Schedule 5.2 of the YuuZoo Disclosure Schedules.  All options, warrants or other rights outstanding concerning the right to purchase or acquire of any shares of capital stock or similar equity or debt instruments of YuuZoo shall be exercised on or before the Closing Date so that no such options, warrants or other rights will be outstanding as of the Closing.

5.3.            Subsidiaries .  Except for YuuZoo Content Management Pte Ltd, YuuZooNow! Pte Ltd, YuuZoo Technology & Services Pte Ltd, and YuuPay Management Pte Ltd, each of which is organized under the laws of Singapore (each a "Subsidiary" and together the "Subsidiaries"), and except as shown on Schedule 5.3 of the YuuZoo Disclosure Schedules, YuuZoo has no subsidiaries or affiliated companies and does not otherwise presently own or control, or have any investment in, directly or indirectly, any other corporation, association, or other business entity.  Each Subsidiary is duly organized, validly existing and in good standing under the laws of the country of its incorporation and is wholly owned by YuuZoo, except that YuuZoo owns 51% of YuuPay Management Pte Ltd.  Each Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the property owned, leased or operated by the Subsidiary or the nature of the business conducted by the Subsidiary makes such qualification necessary.  Each Subsidiary has all the requisite corporate power, authority, licenses and permits that are necessary to own, operate and lease its properties and to carry on its business as now being conducted.

5.4.            Authorization .  YuuZoo has all the requisite legal and corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  All corporate action on the part of YuuZoo and its officers, directors and stockholders necessary for the authorization, execution, delivery, and performance of all obligations of YuuZoo under this Agreement has been, or will be taken prior to the Closing.  This Agreement, when executed and delivered, shall constitute a legal, valid and binding obligation of YuuZoo, enforceable in accordance with its terms.

5.5.            Governmental Consents .  No consent, approval, order, or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of YuuZoo in connection with the execution, delivery or performance of this Agreement or consummation of the transactions contemplated hereby, except for the approval of the office of the Registrar of Corporate Affairs for the British Virgin Islands with respect to the Plan of Merger and Articles of Merger to be filed therewith.

5.6.            Compliance with Other Instruments .  YuuZoo will not be, as a result of the execution, delivery or performance of this Agreement, in violation of or default under any provision of its Organization Memorandum or Articles of Association or By-laws, as amended and in effect on the date hereof, or of any provision of any instrument, contract or lease to which it is a party, or to YuuZoo’s knowledge, of any provision of any judgment, writ, decree, order, statute, rule, or governmental regulation applicable to YuuZoo.

5.7.            Financial Statements .  A balance sheet, income statement and statement of cash flows as of and for each of the fiscal years ending December 31, 2010, and December 31, 2009, and a balance sheet, income statement and statement of cash flows as of and for the period ending March 31, 2011 for YuuZoo (collectively, the "YuuZoo Financials"), shall be included as Schedule 5.7 of the YuuZoo Disclosure Schedules.  The 2010 and 2009 year-end financial statements are presently being audited, and such audited statements shall be substituted for the unaudited statements when available.  The YuuZoo Financials shall be presented under United States Generally Accepted Accounting Principles (“US GAAP”).

The YuuZoo Financials have been prepared by management, are true and correct and fairly present the financial position of YuuZoo as of their respective dates and the results of its operations for the periods then ended and contain all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation.  YuuZoo has established a standard system of accounting and has consistently carried out and administered the same.  Except to the extent reflected or reserved against or disclosed in the YuuZoo Financial Statements, as of their respective dates, YuuZoo has not incurred any material liabilities or obligations of any kind, whether accrued, absolute, contingent or otherwise, which should have been so reflected or reserved against or disclosed (including, without limitation, all liabilities to vendors and customers of YuuZoo).

5.8            Undisclosed Liabilities .  Except as set forth on Schedule 5.8 of the YuuZoo Disclosure Schedules, YuuZoo has no liabilities or obligations, either absolute, accrued, contingent or otherwise, which individually or in the aggregate are materially adverse to the financial condition and business of YuuZoo, which (i) have not been reflected in the YuuZoo Financial Statements, (ii) have not been described in this Agreement or in any of the Schedules hereto, or (iii) have not been incurred in the ordinary course of business since March 31, 2011, consistent with past practices.

5.9            Inventory .  The inventory of YuuZoo, as reflected in the Financial Statements, consists of a quality and quantity usable and saleable in the ordinary course of business.  The inventory is stored and/or located at premises owned or leased by YuuZoo or at YuuZoo's suppliers.  The value at which YuuZoo's inventory is reflected in the YuuZoo Financial Statements is the cost thereof on a first-in, first-out basis and reflects write-offs or write-downs for damaged or obsolete items in accordance with the historical inventory policy and practices of YuuZoo.  YuuZoo has not transferred inventory on consignment or granted return privileges to any purchaser of its goods, other than in the ordinary course of business.

5.10            Accounts Receivable .  Except as set forth in Schedule 5.10 of the YuuZoo Disclosure Schedules, no amount included in the accounts receivable of YuuZoo as of March 31, 2011, has been released for an amount less than the value at which it was included or is currently regarded as unrecoverable in whole or in part except to the extent there shall have been an appropriate bad debt reserve therefor.  Such receivables are not, to the best knowledge of YuuZoo, subject to any counterclaim, refusal to pay or setoff not reflected in the reserves set forth on the YuuZoo Financial Statements.

5.11.            No Prebillings .  YuuZoo has not prebilled or received payment, and YuuZoo will not prebill or receive payment, from any of its accounts for goods to be delivered or for services to be rendered or for expenses to be incurred subsequent to the date hereof, other than in the ordinary course of business, which shall amount to not more than $10,000.  YuuZoo does not book any such prebilling received as a sale, nor does it book any profit therefrom prior to its actual shipment of the products ordered.

5.12.            Changes .  Except as set forth in Schedule 5.12 of the YuuZoo Disclosure Schedules, since March 31, 2011:

(a)           YuuZoo has not entered into any transaction which was not in the ordinary course of business;

(b)           There has been no material adverse change in the condition (financial or otherwise), business, property, assets or liabilities of YuuZoo other than changes in the ordinary course of business, none of which, individually or in the aggregate, has been material;

(c)           There has been no material damage to, destruction of or loss of physical property (whether or not covered by insurance) adverse to the business or operations of YuuZoo;

(d)           YuuZoo has not increased the compensation of any of its officers or the rate of pay of their employees as a group, except as part of regular compensation increases in the ordinary course of business;

(e)           There has been no resignation or termination of employment of any key officer or employee of YuuZoo, and YuuZoo does not know of any impending resignation or termination of employment of any such officer or employee that if consummated would have an adverse effect on the business of YuuZoo;

(f)           There has been no labor dispute involving YuuZoo or any of its employees and none is pending or, to the best of YuuZoo's knowledge, threatened;

(g)           There have not been any changes, except in the ordinary course of business, in the contingent obligations of YuuZoo, by way of guaranty, endorsement, indemnity, warranty or otherwise;

(h)           There have not been any loans made by YuuZoo to any of its employees, officers or directors other than travel advances and office advances made in the ordinary course of business;

(i)           To YuuZoo’s knowledge, there has been no litigation or administrative agency charges or proceedings commenced involving, relating to or affecting the business of YuuZoo; and

(j)           There has been no other event or condition of any character pertaining to and materially adverse to the assets or business of YuuZoo.

5.13            Title to Assets; Liens, etc .  The assets of YuuZoo, both real, personal and mixed, tangible and intangible, necessary or useful to the operation of the business of YuuZoo (“Assets”) are in good condition and repair, ordinary wear and tear excepted, and suitable for the uses intended.  The Assets have been maintained in a state of good repair, and, in all respects, comply with and are operated in conformity with all applicable laws, ordinances, regulations, orders, permits and other requirements relating thereto adopted or currently in effect.  YuuZoo has good and marketable title to the Assets, free and clear of all liens, other than the lien for current taxes not yet due and payable and liens set forth on Schedule 5.13 of the YuuZoo Disclosure Schedules. Schedule 5.13 of the YuuZoo Disclosure Schedules shall identify and set forth a complete list of each parcel of real estate or interest therein owned or leased by YuuZoo.  The buildings and improvements owned or leased by YuuZoo and the uses thereof do not contravene any zoning or building law or ordinance or violate any restrictive covenant.  Each lease of real property creates a legal, valid and enforceable leasehold interest in favor of YuuZoo, free and clear of all liens.  No default or event of default on the part of YuuZoo, as lessee or mortgagor, as the case may be, exists with respect to any lease or mortgage (and related loan documents) with respect to such real property.

5.14            Patents and Other Intangible Intellectual Assets .

(a)           Schedule 5.14 of the YuuZoo Disclosure Schedules shall set forth a complete and correct list of YuuZoo's intellectual property, including but not limited to US and foreign patents, patent applications, written records of inventions, registered and unregistered trademarks, trade names, service marks, certification marks, copyrights and registration applications for the above, and licenses to and from third parties relating to any of the above.

(b)           Except as set forth in Schedule 5.14 of the YuuZoo Disclosure Schedules, YuuZoo (i) has legal and equitable title to, or has by license or other grant, the right to use, free and clear of all liens, all proprietary technology or information, patents, both US and foreign, all registered and unregistered trademarks, trade names, service marks, certification marks, copyrights, and applications for any and all of the above used in the conduct of its business as now conducted; (ii) does not, to the best of YuuZoo's knowledge, infringe upon the patent, trademark, trade name, service mark, copyright or proprietary information rights of any third party in the conduct of its business as now conducted; (iii) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to any patent, trademark, trade name, service mark, certification mark, copyright or proprietary technology or information with respect to the use thereof or in connection with the conduct of its business or otherwise; (iv) has not licensed or granted any rights to any third parties under its patents, trademarks, trade names, service marks, certification marks, copyrights or proprietary technology or information used in the conduct of its business; (v) has no notice, knowledge or belief that any of YuuZoo's patents, trademarks, trade names, service marks, certification marks or copyrights are invalid, and all registrations, where filed, are subsisting and are registered in the name of YuuZoo; and (vi) has no notice, knowledge or belief that any of the technology or information used in the conduct of its business was illegally obtained.

(c)           YuuZoo employs procedures in its daily operations to maintain the proprietary nature of, owns and has the unrestricted right to use all trade secrets, including know-how, inventions, designs, processes, computer software and documentation for such software and technical data required for or incident to the development, manufacture, operation and sale of all products and services sold by YuuZoo, free and clear of any liens, including without limitation, all claims of current and former employees, consultants, officers, directors and stockholders of YuuZoo.

5.15.            Contracts and Obligations .  Set forth in Schedule 5.15 of the YuuZoo Disclosure Schedules shall be a list of all material written and oral agreements, contracts, indebtedness, liabilities and other obligations to which YuuZoo is a party or by which it is bound which (a) obligate YuuZoo to share, license or develop any product or technology; (b) involve transactions or proposed transactions between YuuZoo and its officers, directors, stockholders, affiliates or any affiliate thereof; (c) involve strategic arrangements or cooperation agreements; (d) involve commitments for inventory items or supplies in excess of $10,000; (e) are for a term longer than twelve (12) months; (f) are written license or franchise agreements; (g) are with any country government; or (h) involve receipts or expenditures by YuuZoo greater than $100,000 in any twelve-month period.  Copies of written, and summaries of oral, agreements, contracts, indebtedness, liabilities and obligations have been made available for inspection by Alanco.  All such agreements are legal, valid and binding obligations and are in full force and effect in all material respects.  Except as set forth in Schedule 5.15 of the YuuZoo Disclosure Schedules, YuuZoo has avoided every condition and has not performed any act the occurrence of which would result in YuuZoo's loss of any right granted under any license, franchise or other agreement.

5.16            Conflicts of Interest; Transactions with Principals . Except as described in Schedule 5.16, no officer, director or stockholder of YuuZoo and no affiliate (as defined under the United States Securities Act of 1933, as amended) of any such officer, director or stockholder has, either directly or indirectly, (a) an interest in any corporation, partnership, proprietorship, association or other person or entity which furnishes or sells services or products to YuuZoo or which purchases services or products from YuuZoo or whose services or products are similar to those furnished or sold by YuuZoo, or (b) a beneficial interest in any contract, agreement or commitment to which YuuZoo may be bound.

5.17            Outstanding Indebtedness .  YuuZoo has no indebtedness for borrowed money (including deferred compensation) which YuuZoo has directly or indirectly created, incurred, assumed or guaranteed, or with respect to which YuuZoo has otherwise become directly or indirectly liable, other than as disclosed in Schedule 5.17 of the YuuZoo Disclosure Schedules or the YuuZoo Financial Statements.

5.18            Employees .  Except as set forth in Schedule 5.18 of the YuuZoo Disclosure Schedules, YuuZoo has no employment contracts with any of its employees which are not terminable at will or any consulting or independent contractor agreements with any individual or entity, and it does not have any collective bargaining agreements covering any of its employees.  There are no employee or labor disagreements or union organization activities pending or threatened between YuuZoo and its employees, and YuuZoo is not a party to any union or collective bargaining agreement.  YuuZoo complied with all applicable federal and state equal employment opportunity laws and other laws related to employment.  YuuZoo is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with YuuZoo, whether as a result of the transactions contemplated hereby or otherwise, nor does YuuZoo have a present intention to terminate the employment of any of the foregoing.  To YuuZoo's knowledge, no employee of YuuZoo is in violation of any term of any employment contract, patent, proprietary information disclosure agreement or any other contract or agreement relating to the right of any such employee to be employed by YuuZoo because of the nature of the business conducted by YuuZoo or for any other reason, and the continued employment by YuuZoo of its present employees will not result in any such violation.

5.19            Employee Benefit Plans .

(i)           all other employee benefit arrangements or payroll practices, including, without limitation, sick leave, vacation pay, salary continuation for disability, severance hospitalization, medical insurance, and life insurance programs maintained by YuuZoo or any of its affiliates (“Welfare Plans”); and

(ii)           all employee pension benefit plans to which YuuZoo or any of its affiliates have made contributions during the preceding five (5) years thereunder, including, without limitation, retirement, pension, savings, profit sharing, severance and stock purchase programs (the "Pension Plans").  The Welfare Plans and Pension Plans are hereinafter collectively referred to as the "Employee Benefit Plans."

(b)           No YuuZoo Employee Benefit Plan is required to be qualified under ERISA or other applicable laws.

(c)           YuuZoo has no formal plan or commitment, whether legally binding or not, to create any additional Employee Benefit Plans or arrangement or modify or change any existing Employee Benefit Plan, which would affect any employee or former employee of YuuZoo.

(d)           Neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any rights under any of the Employee Benefit Plans becoming exercisable by the holders thereof or result in the creation or vesting of any rights in such holder under any of the Employee Benefit Plans, or accelerate the time of payment or vesting or increase the amount of compensation or benefits due to any director, officer, employee or former employee of YuuZoo.

5.20            Taxes .  YuuZoo has filed all federal, state, county, local and foreign tax returns, reports and forms for income, excise, social security, property, payroll, unemployment and other taxes which are required to be filed by it ("Tax Returns").  YuuZoo has paid, or adequate provision has been made on the YuuZoo Financial Statements for the payment of, all federal, state, county, local and foreign taxes, assessments, levies or duties, howsoever measured or imposed, and related interest and penalties, if any (collectively, "Taxes").  No unexpired waiver of the applicable statute of limitations with respect to any taxable year has been executed by YuuZoo.  There are no tax examinations or audits underway involving YuuZoo.

 

5.21            Insurance .  All Assets of YuuZoo are covered by such fire, casualty, product liability, environmental liability and other insurance policies issued by reputable insurers as are customarily obtained to cover comparable properties and assets by businesses in the region in which the Assets are located, in amounts, scope and coverage which are reasonable in light of existing conditions.  Schedule 5.21 of the YuuZoo Disclosure Schedules shall set forth a list and description of all of the policies of insurance and fidelity or surety bonds carried by YuuZoo, including, but not limited to, fire, liability, product liability, workers' compensation, officers' life, and directors' and officers' liability insurance policies.  YuuZoo has not failed to give any notice or present any material claim under any insurance policy in due and timely fashion and all insurance premiums due and payable by YuuZoo in connection with the policies set forth on Schedule 5.21 prior to the date hereof have been paid.  There are no outstanding written requirements or written recommendations by any insurance company that issued a policy with respect to any of the assets of YuuZoo, by any Board of Fire Underwriters or other body exercising similar functions or by any governmental authority requiring or recommending any repairs or other work to be done on or with respect to any of the assets or requiring or recommending any equipment or facilities to be installed on or in connection with any of the assets.  YuuZoo does not have any knowledge of any proposed increase therein and does not know of any conditions or circumstances applicable to its business which might result in such increase, except for those conditions generally applicable to the industry in which YuuZoo is engaged in business.  There are no material claims, actions, suits or proceedings arising out of or based upon any of such policies of insurance, and, to the knowledge of YuuZoo, no basis for any such material claim, action, suit or proceeding exists.  There are no notices of any pending or threatened terminations or substantial premium increases with respect to any of such policies, and YuuZoo is in compliance with all conditions contained therein.

5.22            Compliance With Laws .

(a)           To YuuZoo’s knowledge, YuuZoo is in full compliance with all laws, rules and regulations applicable to or affecting it or the conduct of its business and has secured all governmental licenses, permits and approvals necessary to its business.

(b)           Other than sales tax licensing and corporate approvals to do business, no government licenses, permits or appraisals are otherwise issued to or relied upon by YuuZoo to conduct its business.

5.23            Litigation .  Except as set forth in Schedule 5.23 of the YuuZoo Disclosure Schedules, to YuuZoo’s knowledge, there is no action, suit, arbitration, proceeding or investigation pending or threatened against YuuZoo before any court or administrative agency, nor does YuuZoo know or have any reason to know of any basis for any such action, proceeding or investigation.  YuuZoo has not received any opinion or memorandum or legal advice or notice from legal counsel to the effect that it is likely, from a legal standpoint, that it will incur any liability which may be material to its business.

5.24            Brokers .  YuuZoo has not employed any broker, finder of financial advisor, or incurred any direct or indirect liability for any broker’s fees, commission, or financial advisory or finder’s fees in connection with any of the transactions contemplated by this Agreement, except for Halcyon Cabot Partners Ltd.  A complete and accurate copy of the engagement agreement with said firm has been given to Alanco.

5.25            Full Disclosure; No Misrepresentation .  YuuZoo has fully provided Alanco with all the information which Alanco has requested for deciding whether to enter into this Agreement.  Neither this Agreement nor any certificate or Schedule or other information furnished by or on behalf of YuuZoo pursuant to this Agreement contains any untrue statement of a material fact or, when this Agreement and such certificates, Schedules and other information are taken in their entirety, omits to state a material fact necessary to make the statements contained herein or therein not misleading.

6.0            Representations and Warranties of Alanco .  Alanco represents and warrants to YuuZoo as follows, and acknowledges and confirms that YuuZoo is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by YuuZoo or on its behalf.  Any of the following representations or warranties that refer to a Schedule means the Schedule with the same number included with the Alanco Disclosure Schedules that shall be delivered by Alanco to YuuZoo on or before July 15, 2011.

6.1            Organization and Standing .  Alanco is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, has all of the requisite corporate power and authority and have all of the licenses, permits, authorities and consents that are necessary to own, operate and lease its properties and to carry on its business as now being conducted.  Alanco is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the property owned, leased or operated by Alanco or the nature of the business conducted by Alanco makes such qualification necessary.  Neither Alanco nor any Subsidiary (as defined in Section 6.3) is a party to or subject to any agreement, consent decree or order, or other understanding or arrangement with, or any directive of, any governmental authority or other person which imposes any restriction or otherwise affects in any material way the conduct of their business in any jurisdiction or location.  True and accurate copies of Alanco's Articles of Incorporation, as amended, and By-laws, as presently in effect, shall be included as Schedule 6.1 of the Alanco Disclosure Schedules.

6.2            Capitalization . (a) The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of Alanco is set forth in the SEC Reports (as hereinafter defined).  All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance with all applicable securities