SPNG Opinion Letter
OCR
JOEL PENSLEY
Attorney at Law
211 Schoolhouse Road
Norfolk, Connecticut 06058
(860) 542-1122
Fax: (212) 898-1266
Email: jpensley@hughes.net
Admitted in New York State
APRIL 17, 2009
Olde Monmouth Stock Transfer Co., Inc.,
200 Memorial Parkway
Atlantic Highlands New Jersey 07716
Ladies/Gentlemen:
This opinion is written with respect to the issuance of certificates without legends pursuant to a spin-off to the stockholders of RM Enterprises International, Inc. ("RM") of Spongetech Delivery Systems, Inc. "Spongetech") held by RM for a period in excess of two years. RM is a noreporting private company and Spongetech is a reporting public company. This opinion is written in order for Olde Monmouth Stock Transfer Co., Inc. to issue certificates in the names and in the number of shares as follows without legends:
MARK OVERY 1,500,000 shares
Target 1R 1,750,000 shares
Michael C Romero 1,500,000 shares
Cody F DeBarge 2.250,000 shares
Michael R Romero 1,250,000 shares
Carla Hohenhouse 750,000 shares
Jae Wang 500.000 shares
In connection with the opinion expressed below, I have examined and considered such corporate records, certificates, and other statements of corporate officers of RM and Spongetech and matters of law as have deemed appropriate as a basis for my opinions set forth below.
The opinions expressed herein are subject to the following assumptions, limitations, qualification, and exceptions:
(a) I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals, the conformity with originals of all documents submitted to me as copies, the authenticity of certificates of public officials, and the due authorization, execution, and delivery of all documents.
(b) As to my opinion regarding the valid existence and good standing of RM and Spongetech, I have relied solely upon certificates of officers of RM and Spongetech.
Except to the extent expressly set forth herein, I have not undertaken any independent investigation to determine the existence or absence of any fact, and no inference as to my knowledge of the existence or absence of any fact should be drawn from my representation of RM and Spongetech or my rendering of the opinion set forth below.
Based upon the foregoing and subject to the assumptions, limitations, qualifications, and exceptions stated herein, I am of the opinion that as of the date hereof:
RM and Spongetech are corporations validly existing and in good standing under the laws of the State of Delaware and are duly qualified as foreign corporations to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary and in which the failure to so qualify would have a material adverse effect on the business, operations, financial condition, or results of operations taken as a whole (a "Material Adverse Effect").
1.
(a) Spongetech had the requisite corporate power and authority to issue the shares and RM has the requisite corporate power and authority to spin them off ratably to its stockholders;
(b) the issuance and delivery of the shares by the Spongetech and the spinning off of those shares by RM and the consummation by it of the transactions contemplated thereby were duly authorized by the Companys' Boards of Directors;
and The tradability of the spun-off shares is addressed by Staff Legal Bulletin No. 4 published by the Securities and Exchange Commission Division of Corporation Finance on September 16, 1997 (the "Bulletin").
The Bulletin defines a spin-off as the situation where a parent company distributes shares of a subsidiary to the parent company's shareholders.
The Bulletin states that the subsidiary (Spongetech) does not have to register a spin-off under the Securities Act when:
* the parent shareholders do not provide consideration for the spun-off shares;
* the spin-off is pro-rata to the parent shareholders;
* the parent provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets;
*the parent has a valid business purpose for the spin-off; and
* if the parent spins-off "restricted securities, "it has held those securities for at least two years."
Adequate Information
If the subsidiary is a reporting company, the parent may provide less information about the spin-off to its shareholders than if the subsidiary were nonreporting. In this situation, the parent provides adequate information if by the date it spins-off the securities:
* the subsidiary has been subject to the Exchange Act reporting requirements for at least 90 days;
* the subsidiary is current in its Exchange Act reporting; and
*the parent gives its shareholders information about the ratio it used to compute the number of shares distributed for each share held, how it will treat fractional shares, and the spin-offs expected tax consequences.
Valid Business Purpose
RM is in a number of businesses. It has a valid business purpose in undertaking the spin-off which match three of the valid business purposes as set forth in the Bulletin. These include the following:
* allowing management of each business to focus solely on that business;
* providing employees of each business stock-based incentives linked solely to his or her employer;
* enhancing access to financing by allowing the financial community to focus separately on each business.
Management has informed me that RM has held the common stock of Spongetech for a period of at least two years. A notice containing the terms and conditions of the distribution will be distributed to all RM stockholders.
Under the circumstances, I am of the opinion that certificates representing the shares of the Spongetech common stock may be spun-off ratably to the stockholders of RM and may be issued without restrictive legend.
This opinion is furnished as of the date hereof and I assume no obligation to update this opinion or to advise you of any events, circumstances, or developments that occur or are otherwise brought to my attention subsequent to the date hereof. This opinion is furnished to you solely for your benefit in connection with the transactions contemplated by the documents and may not be used, circulated, quoted, or otherwise referred to, or relied upon, by any other person other than a broker deal which is selling the securities in market transactions or the transfer agent of Spongetech's securities. This opinion is expressly limited to the matters set forth above and I render no opinion, whether by implication or otherwise, as to any other matters.
Very truly yours,
Joel Pensley
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