EXHIBIT 1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
SYMPHONY SERVICE CORP.
PALO ALTO ACQUISITION CORPORATION,
AND
THE SHAREHOLDERS OF
STONEHOUSE TECHNOLOGIES, INC.
Dated as of September 15, 2004
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of September 15, 2004, by and among Symphony Service Corp., a Delaware
corporation ("Purchaser Parent"), Palo Alto Acquisition Corporation, a Delaware
corporation ("Purchaser") and wholly owned subsidiary of Purchaser Parent, and
each of the shareholders of Stonehouse Technologies, Inc., a Texas corporation
(the "Company"), set forth on Exhibit A attached hereto (collectively referred
to herein as "Sellers").
RECITALS
A. Sellers (including nStor Technologies, Inc., a Delaware corporation
("Parent")) are the sole record and beneficial owners of all of the outstanding
shares of capital stock of the Company.
X. Xxxxxxx desire to sell all of the outstanding shares (the "Shares")
of Common Stock (no par value) ("Company Common Stock"), of the Company to
Purchaser and Purchaser desires to purchase all of the Shares from Sellers, in
each case upon the terms and subject to the conditions set forth in this
Agreement.
C. As a condition and inducement to Purchaser's and Purchaser Parent's
willingness to enter into this Agreement, the stockholders of Parent listed in
Exhibit B attached hereto are delivering to Purchaser concurrently with the
execution of this Agreement the voting agreement attached hereto as Exhibit C
(the "Voting Agreement").
NOW, THEREFORE, in consideration of the premises and the covenants and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Sale and Transfer of Stock. Subject to and upon the terms and
conditions of this Agreement, at the Closing, Sellers shall sell, convey, assign
and transfer, and deliver to Purchaser, and Purchaser shall purchase from
Sellers, all of the Shares, free and clear of all Liens (as defined below) (the
"Share Purchase").
1.2 The Purchase Price. Subject to and upon the terms and conditions of
this Agreement, in consideration for the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares at the Closing, Purchaser Parent shall:
(a) pay to Sellers cash in the amount of Six Million Dollars
($6,000,000.00) (the "Cash Purchase Price"), which Cash Purchase Price shall be
paid by Purchaser Parent to Sellers at the Closing (in the amount set forth next
to such Seller's name on Exhibit A attached hereto) by wire transfer of
immediately available funds to such account as Sellers shall, not less
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than one (1) business day prior to the Closing Date (as defined below),
designate in writing to Purchaser;
(b) deliver to Sellers three promissory notes (or such other
consideration mutually agreeable to the parties) in the aggregate principal
amount of $525,000.00, each in the amount set forth next to such Seller's name
on Exhibit A attached hereto in substantially the form attached hereto as
Exhibit D (each a "36 Month Note" and collectively, the "36 Month Notes"); and
(c) deliver to Sellers three promissory notes (or such other
consideration mutually agreeable to the parties) in the aggregate principal
amount of $725,000.00, each in the amount set forth next to such Seller's name
on Exhibit A attached hereto in substantially the form attached hereto as
Exhibit E (each a "12 Month Note" and collectively, the "12 Month Notes" and
together with the 36 Month Notes, the "Notes"), which Notes shall not be
transferable to any third party without the prior written consent of Purchaser
Parent (which shall not be unreasonably withheld), except for transfers to
affiliates of Parent. The "Purchase Price" shall consist of the Cash Purchase
Price, the principal amount of the 36 Month Notes and the principal amount of
the 12 Month Notes.
Purchaser, Purchaser Parent and Sellers each acknowledge that the above
Purchase Price will represent the fair market value of the Shares at the time of
Closing as determined as a result of arm's length negotiation.
1.3 Post-Closing Purchase Price Adjustment.
(a) Within fifteen (15) days following the Closing, the Company
shall prepare a statement of Working Capital (as defined below) as of the
Closing Date, in accordance with United States generally accepted accounting
principles ("GAAP") (except that the Company shall not be required to provide
any notes thereto). Upon completion of that calculation, the Company shall
prepare and deliver to Parent a certificate (the "Closing Date Certificate")
setting forth the Working Capital as of the Closing Date (the "Final Working
Capital"). "Working Capital" shall mean cash plus accounts receivable less 5% of
the total accounts receivable as of the Closing Date for doubtful accounts and
warranty returns, less accounts payable and accrued expenses payable (excluding
accrued vacation), including any payables due to Parent from the Company.
(b) If within fifteen (15) days after the Closing Date Certificate
is delivered to Parent, Parent shall not have given written notice to Purchaser
setting forth any objection to the Final Working Capital, then such
determination of such amount shall be final and binding on the parties hereto.
If Parent, within such fifteen (15) day period following delivery of the Closing
Date Certificate, shall give written notice to Purchaser setting forth any
objection to such determination of the Closing Date Certificate, Parent and
Purchaser shall endeavor to reach agreement within the ten (10) business day
period following the receipt by Parent of the notice of objection. If the
parties are unable to reach agreement within such ten (10) business day period,
then the matter shall be submitted to KPMG, LLP, or such other "big-four"
accounting firm as may be mutually agreeable to the parties (the "Independent
Accountants") for determination of the Final Working Capital. If the parties
submit the determination of the Final Working Capital
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to the Independent Accountants, then the determination of the Independent
Accountants shall be final and binding on the parties. In connection with the
resolution of any dispute, each party shall pay its own fees and expenses,
including, without limitation, legal, accounting and consultant fees and
expenses. If the Final Working Capital as determined by the Independent
Accountants is greater than the Final Working Capital as set forth on the
Closing Date Certificate by more than ten percent (10%), then the cost and
expense of the Independent Accountants shall be paid by Purchaser. In all other
circumstances, the cost and expense of the Independent Accountants shall be paid
by Parent. If the Final Working Capital, as finally determined as provided
above, is less than $800,000, then the 12 Month Notes shall be reduced, pro
rata, on a dollar for dollar basis, by the amount of such deficiency, effective
as of the Closing Date.
1.4 The Closing. The closing for the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxx Xxxxxx White & XxXxxxxxx LLP, located at 000 Xxxxxxxxxxx Xxxx, Xxxxx
Xxxx, Xxxxxxxxxx, at a time and date to be specified by the parties, which shall
be no later than the first business day after the satisfaction or waiver of the
conditions set forth in Article VI (other than those that by their terms are to
be satisfied or waived at the Closing), or at such other time, date and location
as the parties hereto agree in writing. The date on which the Closing occurs is
referred to herein as the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
A. Representations and Warranties of Parent
Parent represents and warrants to Purchaser and Purchaser Parent that,
except as set forth in the written disclosure schedule prepared by Parent which
is dated as of the date of this Agreement and arranged in sections corresponding
to the numbered and lettered sections contained in this Article II and which was
previously delivered to Purchaser and Purchaser Parent in connection herewith
(the "Parent Disclosure Schedule"), as of the date of this Agreement and as of
the Closing Date, except where another date is specified:
2.1 Organization and Qualification. Each of Parent and the Company is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has the requisite corporate power and
authority necessary to own, lease and operate the properties it purports to own,
lease or operate and to carry on its business as it is now being conducted or
presently proposed to be conducted. Each of Parent and the Company is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have or reasonably be expected to have a
Material Adverse Effect (as defined below) on Parent or the Company. The Company
does not have any Subsidiaries (as defined below). The Company does not directly
or indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity.
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2.2 Charter and Bylaws. Parent has heretofore made available to
Purchaser true, complete and correct copies of the charter and bylaws (or
equivalent organizational documents), each as amended to date, of Parent (the
"Parent Charter Documents") and made available to Purchaser true, complete and
correct copies of the charter and bylaws (or equivalent organizational
documents), each as amended to date, of the Company (the "Company Charter
Documents"). The Parent Charter Documents and the Company Charter Documents are
in full force and effect. Parent is not in violation of any of the provisions of
the Parent Charter Documents and the Company is not in violation of any of the
provisions of the Company Charter Documents.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Company Common Stock and no shares of preferred stock (the
"Company Preferred Stock"). Except as set forth in Section 2.3(a) of the Parent
Disclosure Schedule, as of the date hereof, 16,312,500 shares of Company Common
Stock, and no shares of Company Preferred Stock, are issued and outstanding and
all of such shares are held by Parent. No shares of Company Common Stock or
Company Preferred Stock are issued and held in the treasury of the Company.
(b) Except as set forth in Section 2.3(b) of the Parent Disclosure
Schedule, there are no options, preemptive rights, warrants, calls, rights,
commitments or agreements of any kind to which the Company is a party, or by
which the Company is bound, obligating the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company. There are no stockholder agreements, voting trusts, proxies or other
similar agreements or understandings to which the Company is a party or by which
it is bound with respect to the shares of capital stock of the Company. There
are no rights or obligations, contingent or otherwise (including without
limitation rights of first refusal in favor of the Company) of the Company, to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity. There are no
registration rights or other agreements or understandings to which the Company
is a party or by which it is bound with respect to any capital stock of the
Company.
(c) All outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
pre-emptive right, subscription right or any similar right under any provision
of the Texas Business Corporation Act ("TBCA"), the Company Charter Documents or
any agreement to which the Company is a party or otherwise bound. Except as set
forth in Section 2.3(c) of the Parent Disclosure Schedule, all outstanding
shares of the Company's capital stock are held by Sellers free and clear of all
security interests, liens, claims, pledges, agreements, limitations in voting
rights, charges or other encumbrances of any nature whatsoever (collectively,
"Liens"). All shares of outstanding capital stock of the Company were issued in
compliance with all applicable federal and state securities laws. No material
change in the Company's capitalization has occurred since July 31, 2004. There
are no accrued and unpaid dividends with respect to any outstanding shares of
capital stock of the Company.
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2.4 Authority Relative to this Agreement. Parent has all necessary power
and authority (corporate or otherwise) to execute and deliver this Agreement and
each instrument required hereby to be executed and delivered by it at the
Closing and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by Parent of this
Agreement and each instrument required hereby to be executed and delivered at
the Closing by Parent or the Company and the consummation by Parent of the
transactions contemplated hereby has been duly and validly authorized by all
necessary action (corporate or otherwise) on the part of Parent, subject only to
the approval of this Agreement and the transactions contemplated herein by
Parent's stockholders by the affirmative vote of the holders of a majority of
the outstanding shares of capital stock of Parent as required by the Delaware
General Corporation Law ("DGCL") and Parent's Certificate of Incorporation (the
"Parent Stockholder Approval"). This Agreement has been duly and validly
executed and delivered by Parent and, assuming the due authorization, execution
and delivery of this Agreement by Purchaser and Purchaser Parent, constitutes
the legal, valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law). As of the
date of this Agreement, the Board of Directors of Parent has unanimously
determined that it is fair to, advisable and in the best interests of Parent's
stockholders for Parent to participate in the transactions set forth in this
Agreement, and has unanimously recommended that Parent's stockholders approve
and adopt this Agreement and approve the transactions contemplated herein (the
"Parent Recommendation"), and none of the aforesaid actions by the Parent's
Board of Directors has been amended, rescinded or modified. The Parent
Stockholder Approval is the only vote of the holders of any class or series of
Parent's capital stock necessary to approve and adopt this Agreement and no
other vote of any holders of shares of Parent's capital stock is necessary to
approve any of the transactions contemplated hereby.
2.5 Agreements, Contracts and Commitments.
(a) The Company does not have any agreements, contracts or
commitments (including but not limited to end user license agreements) that (i)
will result in (A) payments by the Company or (B) payments to the Company, in
either case in excess of $50,000; or (ii) which require the making of any
charitable contribution in excess of $10,000.
(b) No purchase contracts or purchase commitments of the Company
continue for a period of more than ninety (90) days or are in excess of the
normal, ordinary and usual requirements of the business of the Company.
(c) There are no material contracts or agreements to which the
Company is a party that (a) do not expire or that the Company may not terminate
within one year after the date of this Agreement or (b) may be renewed at the
option of any person other than the Company so as to expire more than one year
after the date of this Agreement.
(d) The Company does not have any outstanding contract with any
officer or director or any material outstanding contract (i) with any employee,
agent, consultant, advisor, salesman or sales representative, or (ii) with any
distributor or dealer, other than with respect to
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any reseller, distribution, OEM or end user license agreement for Company
products entered into in the ordinary course of business, that is not cancelable
by it on notice of 30 days or less and without material liability, penalty or
premium.
(e) The Company is not in default, nor is there any known basis
for any valid claim of default, under any material contract made or obligation
owed by it.
(f) The Company does not have any employee to whom it is paying
compensation at an annual rate of more than $100,000 for services rendered, and
all such employees can be terminated at will without penalty or further payment.
(g) The Company is not restricted from carrying on its business in
any material respect anywhere in the world by any agreement under which the
Company (i) is restricted from selling, licensing or otherwise distributing any
of its technology or products or providing services to customers or potential
customers or any class of customers, including without limitation resellers or
other distributors, in any geographic area, during any period of time, or in any
segment of any market or line of business, (ii) is required to give favored
pricing to any customers or potential customers or any class of customers or to
provide exclusive or favored access to any product features to any customers or
potential customers or any class of customers, or (iii) has agreed to purchase a
minimum amount of goods or services or has agreed to purchase goods or services
exclusively from a certain party.
(h) The Company does not have any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, resellers, retailers or other customers.
(i) The Company does not have any debt obligation for borrowed
money, including guarantees of or agreements to acquire any such debt obligation
of others.
(j) The Company does not have any contract for capital
expenditures in excess of $10,000, individually, or such contracts representing
in excess of $25,000 in the aggregate.
(k) The Company does not have any contract, agreement or
commitment currently in force relating to the disposition or acquisition of
assets in excess of $10,000, individually, or such contracts, agreements or
commitments in excess of $25,000 in the aggregate.
(l) The Company does not have any contract, agreement or
commitment for the purchase of any ownership interest in any corporation,
partnership, joint venture or other business enterprise.
(m) The Company does not have any outstanding loan to any person.
(n) The Company does not have any power of attorney outstanding or
any obligations or liabilities (whether absolute, accrued, contingent or
otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor
(other than indemnities contained in agreements for the purchase, sale, license,
distribution, maintenance or support of products
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entered into in the ordinary course of business) or otherwise in respect of any
obligation of any person, corporation, partnership, joint venture, association,
organization or other entity, or any capital maintenance, keep-well or similar
agreements or arrangements.
(o) The Company does not have any agreements, contracts or
arrangements containing any provision requiring the Company to indemnify (other
than indemnities contained in agreements for the purchase, financing, sale,
license, distribution, maintenance or support of products or services entered
into in the ordinary course of business) another party or containing any
covenant not to bring legal action against any third party.
(p) The Company does not have any agreements, contracts or
arrangements with respect to which any rights or obligations of a party
thereunder would be accelerated as a result of the consummation of the Share
Purchase.
(q) Parent has made available to Purchaser true, complete and
correct copies of each contract listed in Section 2.5 of the Parent Disclosure
Schedule (each a "Company Material Contract" and collectively, the "Company
Material Contracts").
(r) (i) The Company has not breached, is not in default under, and
has not received written notice of any breach of or default under, any Company
Material Contract and such breach or default remains uncured, (ii) to Parent's
Knowledge, no other party to any Company Material Contract has breached or is in
default of any of its obligations thereunder which breach or default remains
uncured, (iii) each Company Material Contract is in full force and effect and
(iv) each Company Material Contract is a legal, valid and binding obligation of
the Company and, to Parent's Knowledge, each of the other parties thereto,
enforceable in accordance with its terms, except that the enforcement thereof
may be limited by (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (B) general equitable principles
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
2.6 No Conflict; Required Filings and Consents.
(a) The execution and delivery by Parent of this Agreement do not,
the execution and delivery by Parent of any instrument required hereby to be
executed and delivered by Parent at the Closing will not, and the performance of
its agreements and obligations under this Agreement by Parent will not, (i)
conflict with or violate the Parent Charter Documents or the Company Charter
Documents, (ii) conflict with or violate any federal, state, local, municipal,
foreign or other law, statute, constitution, resolution, ordinance, code, order,
edict, decree, rule, regulation or ruling issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Entity (each, a "Legal Requirement") applicable to Parent or the
Company or by which it or any of its properties is bound or affected; or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default), or impair the Company's rights,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets (including intangible assets) of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any of its
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properties is bound or affected, other than such breaches, defaults or
impairments as would not, individually or in the aggregate, have or reasonably
be expected to have a Material Adverse Effect on the Company.
(b) Except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities or "blue
sky" laws and the rules of the American Stock Exchange ("AMEX"), the execution
and delivery by Parent of this Agreement do not, the execution and delivery by
Parent of any instrument required hereby to be executed and delivered by Parent
at the Closing will not, and the performance of agreements and obligations under
this Agreement by Parent will not, require any consent, approval, order,
license, authorization, registration, declaration or permit of, or filing with
or notification to, any court, arbitrational tribunal, administrative or
regulatory agency or commission or other governmental authority or
instrumentality (whether domestic or foreign, a "Governmental Entity").
2.7 Compliance; Permits.
(a) The Company is and has been in compliance with and is not in
default or violation of (and has not received any notice of material
non-compliance, default or violation with respect to) any law, rule, regulation,
order, judgment or decree applicable to the Company or by which any of its
respective properties is bound or affected, and the Company is not aware of any
such non-compliance, default or violation thereunder.
(b) The Company holds all permits, licenses, easements, variances,
exemptions, consents, certificates, authorizations, registrations, orders and
other approvals from Governmental Entities that are material to the operation of
the business of the Company as currently conducted (collectively, the "Company
Permits"), except for failures to hold such Company Permits which would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on the Company. The Company Permits are in full force
and effect, have not been violated in any respect and, to Parent's Knowledge, no
suspension, revocation or cancellation thereof has been threatened, and there is
no action, proceeding or investigation pending or, to Parent's Knowledge,
threatened, seeking the suspension, revocation or cancellation of any Company
Permits, except where such failure to be in full force and effect or such
violation, suspension, revocation, cancellation, action, proceeding or
investigation would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on the Company. No Company Permit
shall cease to be effective as a result of the consummation of the transactions
contemplated by this Agreement.
2.8 Absence of Certain Changes or Events. The Company maintains a
standard system of accounting established and administered in accordance with
GAAP. The Company's unaudited balance sheet as of July 31, 2004 is referred to
in this Agreement as the "Company Balance Sheet." The accounts receivable shown
on the Company Balance Sheet arose in the Company's ordinary course of business,
consistent with its past practices, and have been collected or are collectible
in the book amounts thereof, less an amount not in excess of the allowance for
doubtful accounts provided for in the Company Balance Sheet. Allowances for
doubtful accounts and warranty returns are adequate and have been prepared in
accordance with
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GAAP consistently applied and in accordance with the Company's past practices.
The Company's receivables arising after the Balance Sheet Date and before the
Closing Date arose or will arise in the Company's ordinary course of business
based on bona fide sales, consistent with its past practices, and have been
collected or are collectible in the book amounts thereof, less allowances for
doubtful accounts and warranty returns determined in accordance with GAAP
consistently applied and the Company's past practices. None of the Company's
receivables is subject to any material claim of offset, recoupment, setoff or
counter-claim, and the Company does not have any Knowledge of any specific facts
or circumstances (whether asserted or unasserted) that could give rise to any
such claim. No material amount of receivables is contingent upon the performance
by the Company of any obligation or contract other than normal warranty repair
and replacement. No person has any encumbrance on any of such receivables, and
no agreement for deduction or discount has been made with respect to any of such
receivables. Since the date of the Company Balance Sheet, the Company has
conducted its business in all material respects in the ordinary course
consistent with past practice and, since such date, there has not occurred: (i)
any change, development, event or other circumstance, situation or state of
affairs that has had or would reasonably be expected to have a Material Adverse
Effect on the Company; (ii) any amendments to or changes in either of the
Company Charter Documents; (iii) any damage to, destruction or loss of any asset
of the Company (whether or not covered by insurance) that would reasonably be
expected to have a Material Adverse Effect on the Company; (iv) any change by
the Company in its accounting methods, principles or practices; (v) any
revaluation by the Company of any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice, in
terms of both frequency and amount, and in any event in excess of $50,000; (vi)
any sale of a material amount of assets (tangible or intangible) of the Company;
or (vii) any other action or event that would have required the consent of
Purchaser pursuant to Section 4.1 had such action or event occurred after the
date of this Agreement.
2.9 No Undisclosed Liabilities.
(a) Except as reflected in the Company Balance Sheet, the Company
does not have any liabilities (absolute, accrued, contingent or otherwise) which
are required by GAAP to be set forth on a balance sheet of Company or in the
notes thereto, other than any liabilities and obligations incurred since July
31, 2004 in the ordinary course of business consistent with past practice.
(b) The Company is not a party to, and does not have any
commitment to become a party to, any joint venture, partnership agreement or any
similar contract (including without limitation any contract relating to any
transaction, arrangement or relationship between or among the Company, on the
one hand, and any unconsolidated affiliate, including without limitation any
structured finance, special purpose or limited purpose entity or person, on the
other hand) where the purpose or intended effect of such arrangement is to avoid
disclosure of any material transaction involving the Company in the Company's
financial statements.
(c) The Company does not have any liabilities (absolute, accrued,
contingent or otherwise) which arise from, relate to or are caused by the prior
consolidation (for federal income tax purposes) of the Company with Pacific USA
Holdings, Corp.
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2.10 Absence of Litigation; Investigations. Except as set forth in
Section 2.10 of the Parent Disclosure Schedule, there are no claims, actions,
suits, proceedings or, to Parent's Knowledge, governmental investigations,
inquiries or subpoenas (other than any actions, suits, proceedings,
investigations, inquiries or subpoenas challenging or otherwise arising from or
relating to the transactions contemplated by this Agreement) (a) (i) pending
against the Company or Parent or any properties or assets of the Company or
Parent or (ii) to Parent's Knowledge, threatened against the Company or Parent
that, in each case, if determined or resolved adversely to the Company or
Parent, would individually or in the aggregate, prevent or materially delay the
transactions contemplated hereby or have or reasonably be expected to have a
Material Adverse Effect on the Company or any of its properties or assets, or
(b) whether filed or threatened, that have been settled or compromised by the
Company within the two (2) years prior to the date of this Agreement and at the
time of such settlement or compromise were material. The Company is not subject
to any outstanding order, writ, injunction or decree that would, individually or
in the aggregate, have or reasonably be expected to have a Material Adverse
Effect on the Company or would, individually or in the aggregate, prevent or
delay or reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. There has not been since December
31, 2003 nor are there currently any internal investigations or inquiries being
conducted by Parent, the Company, the Board of Directors of each (or any
committee thereof) or any third party at the request of any of the foregoing
concerning any financial, accounting, tax, conflict of interest, self-dealing,
fraudulent or deceptive conduct or other misfeasance or malfeasance issues
relating to the Company.
2.11 Employee Benefit Plans, Options and Employment Agreements.
(a) Section 2.11(a) of the Parent Disclosure Schedule sets forth a
complete and accurate list of all Employee Benefit Plans (as defined below)
which benefit employees of the Company (collectively, the "Company Employee
Plans"). For purposes of this Agreement, the term "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA), any
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and any
other plan, agreement or arrangement involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, equity compensation, or other forms of incentive
compensation or post-retirement compensation and all severance agreements, for
the benefit of, or relating to, any current or former employee of the Company.
(b) With respect to each Company Employee Plan, Parent has made
available to Purchaser complete and accurate copies of (i) such Company Employee
Plan (or a written summary of any unwritten plan) together with all amendments,
(ii) in the case of any plan for which Forms 5500 are required to be filed, the
two most recent annual report (Form 5500) with schedules attached, (iii) in the
case of any plan that is intended to be qualified under Section 401(a) of the
Code, the most recent determination letter from the United States Internal
Revenue Service ("IRS"), (iv) each trust agreement, group annuity contract,
administration and similar agreements, investment management or investment
advisory agreements, (v) summary plan descriptions, employee handbooks, or other
similar employee communications, (vi) all personnel, payroll and employment
manuals and policies of the Company, and (vii) the most recent financial
statements for each Company Employee Plan that is funded.
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(c) Each Company Employee Plan has been administered in all
material respects in accordance with the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended,
(the "Code") and all other applicable laws and the regulations thereunder.
(d) With respect to the Company Employee Plans, there are no
material benefit obligations for which contributions have not been made or
properly accrued and there are no benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
GAAP, on the financial statements of the Company. Except as set forth in Section
2.11(d) of the Parent Disclosure Schedule, the Company does not have any plans
that are intended to be qualified under Section 401(a) of the Code.
(e) None of the Company Employee Plans have (i) ever maintained or
participated in a Company Employee Plan which was subject to Section 412 of the
Code or Title IV of ERISA or (ii) ever been obligated to contribute to a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No Company
Employee Plan is funded by, associated with or related to a "voluntary
employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code. Except as set forth in Section 2.11(e) of the Parent Disclosure
Schedule, none of the Company Employee Plans provides health or other welfare
benefits or coverage to any person following retirement or other termination of
employment.
(f) Each Company Employee Plan is amendable and terminable
unilaterally by the Company or covered thereby at any time without liability to
the Company as a result thereof, and no Company Employee Plan or related plan
documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Company Employee Plan, or in any
way limits such action.
(g) Section 2.11(g) of the Parent Disclosure Schedule contains (i)
a true, complete and current list of all independent contractors, and (ii) a
description of the services each independent contractor performs, and a copy of
the agreement between each independent contractor and the Company. To Parent's
Knowledge, each individual who has received compensation for the performance of
services on behalf of the Company has been properly classified as an employee or
independent contractor in accordance with applicable law.
(h) Section 2.11(h) of the Parent Disclosure Schedule sets forth a
true, complete and correct list of (i) all employment or consulting agreements
with employees of the Company obligating the Company to make annual cash
payments in an amount equal to or exceeding $100,000 or which are not terminable
at will by the Company without further payment; (ii) all severance agreements,
programs and policies of the Company with or relating to its employees, in each
case with potential outstanding obligations equal to or exceeding $50,000,
excluding programs and policies required to be maintained by law; and (iii) all
plans, programs, agreements and other arrangements of the Company with or
relating to its employees which contain change in control provisions including
any such plans or agreements providing for an increase in vesting of benefits by
reason of the transactions contemplated by this Agreement. True, complete and
correct copies of each of the foregoing agreements to which any employee of the
Company is a party have been made available to Purchaser.
-11-
(i) All contributions required to be made with respect to any
Company Employee Plan on or prior to the Closing have been timely made or are
reflected on the Company's balance sheet. There are no pending or, to the
Knowledge of Parent, threatened or anticipated claims by or on behalf of any
Company Employee Plan, by any employee or beneficiary covered under any such
Plan, or otherwise involving any such Plan (other than routine claims for
benefits).
(j) Section 2.11(j) of the Parent Disclosure Schedule sets forth a
true, complete and correct list of all agreements pursuant to which the
consummation of the transactions contemplated by this Agreement will, either
alone or in combination with another event, (i) entitle any current or former
employee or officer of the Company to severance pay, unemployment compensation
or any other payment to which such employee or officer would not otherwise be or
have been entitled, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer. Section
2.11(j) of the Parent Disclosure Schedule sets forth a true, complete and
correct list of all contracts, agreements, plans or arrangements, including but
not limited to the provisions of this Agreement, covering any employee or former
employee of the Company that, individually or collectively, could give rise to
the payment of any amount by the Company that would not be deductible pursuant
to Sections 280G (determined without regard to Section 280G(b)(4) of the Code)
or 162(m) of the Code in connection with the transactions contemplated by this
Agreement. Current copies of each of the foregoing agreements have been
furnished to Purchaser.
2.12 Labor Matters. (a) The Company is in compliance in all material
respects with all applicable laws respecting employment, employment practices
and occupational safety and health, terms and conditions of employment and wages
and hours, and is not engaged in any unfair labor practices other than any such
non-compliance which, individually or in the aggregate, does not have or would
not reasonably be expected to have, a Material Adverse Effect on the Company;
(b) there are no material controversies pending or, to Parent's Knowledge,
threatened, between the Company and any of its employees, consultants or
independent contractors; (c) the Company is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company, nor does Parent know of any activities or proceedings
of any labor union to organize any such employees; and (d) there are no labor
disputes, strikes, slowdowns, work stoppages, lockouts, or threats thereof, by
or with respect to any employees of, or consultants or independent contractors
to, the Company. To Parent's Knowledge, no employee of the Company is in
violation of any term of any patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted or presently proposed to be conducted by the Company
or to the use of trade secrets or proprietary information of others or, in the
case of any key employee or group of key employees, has given notice as of the
date of this Agreement to the Company that such employee or any employee in a
group of key employees intends to terminate his or her employment with the
Company. During the two (2) years prior to the date hereof, the Company has not
effected (i) a plant closing, as defined in the Worker Adjustment and Retaining
Notification Act of 1988, as amended (the "WARN Act"), or (ii) a mass layoff as
defined in the WARN Act. The Company is not currently engaged in any layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law.
-12-
2.13 Properties; Encumbrances. Except as set forth in Section 2.13 of the
Parent Disclosure Schedule, the Company has good, valid and marketable title to,
or a valid leasehold interest in, all the properties and assets which it
purports to own or lease (real, personal and mixed, tangible and intangible),
including, without limitation, the Monies Software (as defined in Section 2.13
of the Parent Disclosure Schedule) and all the properties and assets reflected
in the Company Balance Sheet (except for personal property sold since the date
of the Company Balance Sheet in the ordinary course of business consistent with
past practice). All properties and assets reflected in the Company Balance Sheet
are free and clear of all Liens, except for Liens reflected on the Company
Balance Sheet and Liens for current taxes not yet due. Section 2.13 of the
Parent Disclosure Schedule sets forth a true, complete and correct list of all
real property owned, leased, subleased or licensed by the Company and the
location of such premises. The Company is and has been in compliance with the
material provisions of each lease or sublease for the real property which is set
forth in Section 2.13 of the Parent Disclosure Schedule.
2.14 Taxes.
(a) For the purposes of this Agreement, the term "Tax" or,
collectively, "Taxes" shall mean (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes as well as public imposts, fees and social security charges
(including but not limited to health, unemployment and pension insurance),
together with all interest, penalties and additions imposed with respect to such
amounts, (ii) any liability for the payment of any amounts of the type described
in clause (i) of this Section 2.14(a) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period, and (iii)
any liability for the payment of any amounts of the type described in clauses
(i) or (ii) of this Section 2.14(a) as a result of any express or implied
obligation to indemnify any other person or as a result of any obligation under
any agreement or arrangement with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Except as set forth in Section 2.14(b) of the Parent
Disclosure Schedule, the Company has prepared and timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law. The Company has paid all Taxes required to be paid and have
withheld or paid (and timely paid over to the appropriate Taxing authority) all
federal, state and foreign income taxes and social security charges and similar
fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other
Taxes required to be withheld or paid. The Company has not been delinquent in
the payment of any Tax (other than any Taxes that have been adequately accrued
or reserved for on the Current Balance Sheet), nor is there any Tax deficiency
outstanding, assessed or proposed against the Company, nor has the Company
executed any waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
-13-
(c) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for such
an audit or other examination. No adjustment relating to any Return filed by the
Company has been proposed formally or, to the Knowledge of the Company,
informally by any Tax authority to the Company or any representative thereof. No
claim has ever been made by a taxing authority in a jurisdiction where the
Company does not file Returns that it is or may be subject to taxation by that
jurisdiction. As of the date of the Current Balance Sheet, the Company does not
have any liabilities for unpaid Taxes which have not been accrued or reserved on
the Current Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and the Company has not incurred any liability for Taxes since the
date of the Current Balance Sheet other than in the ordinary course of business.
(d) The Company has made available or will, as soon as practicable
after the date hereof, make available, to Purchaser or its legal counsel copies
of (A) with respect to federal income taxes of the Company, (i) those portions
of Parent's Tax Returns for the tax years ended December 31, 2002 and 2003
relating to the Company and (ii) those portions of Pacific USA Holdings, Corp.'s
tax returns for the fiscal year ended September 30, 2001, relating to the
Company and (B) with respect to state taxes of the Company, (i) Texas franchise
tax reports for the years 2000, 2001, 2002, 2003 and 2004 and (ii) Virginia
corporate income tax return for 2002 and 2003; provided, that to the extent any
such Returns are not currently completed, the Company shall make them available
as soon as reasonably practicable once they are available; and provided further
that there are no other state Tax Returns other than those referenced above
filed by or on behalf of the Company for Tax periods ending on or after
September 30, 2000. There are (and immediately following the Effective Time
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes other than Liens for Taxes not yet due and payable. The Company has no
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
(e) Except as set forth in Section 2.14 of the Parent Disclosure
Schedule, the Company (i) has never been a member of an affiliated group (within
the meaning of Code Section 1504(a)) filing a consolidated federal income Tax
Return (other than a group the common parent of which was Parent), (ii) has
never been a party to any tax sharing, indemnification or allocation agreement,
and (iii) has never been a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for Tax purposes. The Company
does not have any liability for the Taxes of any person (other than Company)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law, including any arrangement for group Tax relief within a
jurisdiction or similar arrangement), as a transferee or successor, by contract
or agreement, or otherwise.
(f) The Company has never been, at any time, a "United States Real
Property Holding Corporation" within the meaning of Section 897(c)(2) of the
Code. The Company has not constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code. The Company neither has nor
has had a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States and such foreign
country. The Company has not engaged in a transaction that is the same as or
substantially similar to one of
-14-
the types of transactions that the Internal Revenue Service has determined to be
a tax avoidance transaction and identified by notice, regulation, or other form
of published guidance as a listed transaction, as set forth in Treas. Reg.
Section 1.6011-4(b)(2). The Company is not a party to and does not have any
commitment to become a party to, any tax shelter arrangement as described in
Internal Revenue Service final regulations (T.D. 9046).
(g) The Company will not be required to include any income or gain
or exclude any deduction or loss from Taxable income as a result of (i) any
change in method of accounting under Section 481(c) of the Code, (ii) closing
agreement under Section 7121 of the Code, (iii) deferred intercompany gain or
excess loss account under Treasury Regulations under Section 1502 of the Code
(or in the case of each of (i), (ii), and (iii), under any similar provision of
applicable law), (iv) installment sale or open transaction disposition or (v)
prepaid amount. There is no contract, agreement, plan or arrangement to which
the Company is a party, including, without limitation, the provisions of this
Agreement, covering any employee or former employee of the Company, which,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.15 Environmental Matters.
(a) Except as would not, individually or in the aggregate, have or
reasonably be expected to have a Material Adverse Effect on the Company, during
the two (2) years prior to the date hereof (i) the Company has been in material
compliance with all Environmental Laws (as defined below); (ii) there has been
no release or threatened release by the Company of any pollutant, contaminant or
toxic or hazardous material, substance or waste, or petroleum or any fraction
thereof, (each a "Hazardous Substance") on, upon, into or from any site
currently or heretofore owned, leased or otherwise used by the Company; (iii)
there have been no Hazardous Substances generated by the Company that have been
disposed of or come to rest at any site that has been included in any published
U.S. federal, state or local "superfund" site list or any other similar list of
hazardous or toxic waste sites published by any Governmental Entity within or
outside the United States; (iv) to Parent's Knowledge, there are no underground
storage tanks located on, no polychlorinated biphenyls ("PCBs") or
PCB-containing equipment used or stored on, and no hazardous waste as defined by
the Resource Conservation and Recovery Act, as amended, stored on, any site
owned or operated by the Company, except for the storage of hazardous waste in
compliance with Environmental Laws; and (v) Parent has made available to
Purchaser true and correct copies of all environmental records, reports,
notifications, certificates of need, permits, pending permit applications,
correspondence, engineering studies, and environmental studies or assessments in
the possession of the Company or reasonably available to the Company without
undue hardship from consultants or representatives retained by the Company to
prepare any such report.
(b) For purposes of this Agreement, "Environmental Laws" means any
law, regulation, or other applicable requirement (whether domestic or foreign)
relating to (i) releases or threatened release of Hazardous Substance; (ii)
pollution or protection of employee health or safety, public health or the
environment; or (iii) the manufacture, handling, transport, use, treatment,
storage, or disposal of Hazardous Substances.
-15-
2.16 Intellectual Property.
(a) Section 2.16(a) of the Parent Disclosure Schedule sets forth a
true, complete and correct list of all U.S. and foreign (i) patents and pending
patent applications, including any utility model or similar patent and any
registered community designs owned by the Company as of the date of this
Agreement; (ii) trademark registrations (including internet domain
registrations) and pending trademark applications owned by the Company as of the
date of this Agreement; and (iii) copyright registrations and pending copyright
applications owned by the Company as of the date of this Agreement (collectively
the "Registered Company Intellectual Property"). All of the Registered Company
Intellectual Property is owned solely by the Company.
(b) The Company owns all of the Intellectual Property (as defined
below) that is used in the business of the Company as currently conducted (the
"Company Intellectual Property").
(c) The Registered Company Intellectual Property is valid and
subsisting (except with respect to applications), and has not expired or been
cancelled, or abandoned.
(d) There is no pending or, to Parent's Knowledge, threatened (and
at no time prior to the date of this Agreement has there been pending any)
material suit, arbitration or other adversarial proceeding before any court,
government agency or arbitral tribunal or in any jurisdiction alleging that the
activities or the conduct of the Company's business infringe or misappropriate
any Intellectual Property owned by any third party ("Third Party Intellectual
Property"), or challenging the ownership, validity, enforceability or
registrability of any Company Intellectual Property owned by the Company. The
Company is not, as a result of any suits, actions or similar legal proceedings,
a party to any settlements, covenants not to xxx, consents, decrees,
stipulations, judgments, or orders which (i) materially restrict the Company's
rights to use any Company Intellectual Property owned by the Company, (ii)
materially restrict the Company from conducting its business as currently
conducted in order to avoid infringement of any Third Party Intellectual
Property, or (iii) permit third parties to use any Company Intellectual Property
owned by the Company.
(e) The conduct of the business of the Company as currently
conducted does not infringe upon any Third Party Intellectual Property. To
Parent's Knowledge, no third party is misappropriating, infringing, diluting or
violating any Company Intellectual Property owned by the Company that is
material to the conduct of the business of the Company as currently conducted,
and no intellectual property misappropriation, infringement dilution or
violation suits, arbitrations or other adversarial proceedings have been brought
before any court, government agency or arbitral tribunal against any third party
by the Company which remain unresolved.
(f) The Company has taken reasonable measures to protect the
proprietary nature of the Company Intellectual Property. To Parent's Knowledge,
there has been no disclosure to any third party by the Company of material
confidential information or trade secrets of the Company related to any material
proprietary product currently being marketed, sold, licensed or developed by the
Company (each such product, a "Proprietary Product") other than
-16-
disclosures made pursuant to nondisclosure or confidentiality agreements entered
into by the Company in the ordinary course of business.
(g) All employees of the Company who have made contributions to
the development of any Proprietary Product (including without limitation all
employees who have designed, written, tested or worked on any software code
contained in any Proprietary Product) have signed confidentiality,
non-competition (unless prohibited by applicable law) and assignment of
proprietary rights agreements substantially in one of the forms attached to
Section 2.16(g) of the Parent Disclosure Schedule. All consultants and
independent contractors who have made material contributions to the development
of any Proprietary Product (including without limitation all consultants and
independent contractors who have designed, written, tested or worked on any
software code contained in any Proprietary Product) have assigned to the Company
(or a third party that previously conducted any business currently conducted by
the Company and that has assigned its rights in such Proprietary Product to the
Company) all of their right, title and interest (other than moral rights, if
any) in and to the portions of such Proprietary Product developed by them in the
course of their work for the Company (or applicable third party). Assignments of
the patents and patent applications listed in Section 2.16(a) of the Parent
Disclosure Schedule to the Company have been duly executed and filed with the
United States Patent and Trademark Office.
(h) The Company has not granted or is not obligated to grant
access to any of its source code, including without limitation in any such case
any conditional right to access or under which the Company has established any
escrow arrangement for the storage and conditional release of any of its source
code.
(i) None of the Proprietary Products contains any software code
that is, in whole or in part, subject to the provisions of any license to
software that is made generally available to the public without requiring the
payment of any fees or royalties (including but not limited to the GNU General
Public License, GNU Lesser General Public License, Mozilla Public License, BSD
licenses, and any other similar "free software" or "open source" licenses),
including but not limited to any such license under which the Company is
obligated to make the source code for such Proprietary Product generally
available to the public free of charge.
(j) The Company does not have any obligation to pay any third
party any royalties or other fees for the use of Company Intellectual Property
and no obligation to pay such royalties or other fees will result from the
consummation of the transactions contemplated by this Agreement.
(k) (i) The Company is not in violation of any agreement,
contract, settlement agreement, instrument, note, warranty, license, sublicense
or other legally binding commitment ("Contract") related to the Company
Intellectual Property to which the Company is a party or is otherwise bound;
(ii) the consummation of the transactions contemplated hereby will not result in
any loss or impairment of ownership by the Company of, or the right of the
Company to use (or result in any term extension or expansion of the rights
granted to any third party in or to), any Company Intellectual Property; and
(iii) the consummation of the transactions contemplated hereby will not require
the consent of any third party or any Governmental Entity, with respect to any
such Intellectual Property.
-17-
(l) For purposes of this Agreement, "Intellectual Property" shall
mean trademarks, service marks, trade names, and internet domain names, together
with all goodwill, registrations and applications related to the foregoing;
patentable inventions, patents and industrial design registrations or
applications (including any continuations, divisionals, continuations-in-part,
renewals, reissues, re-examinations and applications for any of the foregoing);
works of authorship protected by copyright for E.U. design registrations;
copyrights (including any registrations and applications for any of the
foregoing); proprietary data and databases; mask works rights and trade secrets
and other confidential information, know-how, proprietary processes, formulae,
algorithms, models, and methodologies.
2.17 Insurance. To Parent's Knowledge, all fire and casualty, general
liability, business interruption, product liability, sprinkler and water damage
insurance policies and other forms of insurance maintained by the Company
provide adequate coverage for all normal risks incident to the business of the
Company and its properties and assets and are in character and amount and with
such deductibles and retained amounts as are generally carried by persons
engaged in similar businesses and subject to the same or similar perils or
hazards. Each such policy is in full force and effect and all premiums due
thereon have been paid in full, except where the failure of such policies to be
in full force and effect or the failure to pay such premiums due would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on the Company. None of such policies shall terminate or
lapse (or be affected in any other materially adverse manner) by reason of the
consummation of the transactions contemplated by this Agreement, except where
the termination or lapse would, individually or in the aggregate, not have or
not reasonably be expected to have a Material Adverse Effect on the Company.
2.18 Restrictions on Business. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company, acquisition of property by the Company or the
conduct of business by the Company as currently conducted or as proposed to be
conducted by the Company.
2.19 Proxy Statement. The information supplied or to be supplied by
Parent or the Company for inclusion in the Proxy Statement to be sent to the
stockholders of Parent shall not, on the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders or at
the time the Proxy Statement is filed with the SEC, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein not
false or misleading. The Proxy Statement shall comply in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
2.20 Interested Party Transactions. Except as set forth in Section 2.20
of the Parent Disclosure Schedule, since July 1, 2004, no event has occurred
that would be required to be reported by the Company as a Certain Relationship
or Related Transaction pursuant to Statement of Financial Accounting Standards
No. 57.
-18-
2.21 Change of Control Payments. Except as set forth in Section 2.21 of
the Parent Disclosure Schedule, the Company does not have any plans, programs or
agreements to which the Company is party, or to which it is subject, pursuant to
which payments (or acceleration of benefits or vesting of options or lapse of
repurchase rights) may be required upon, or may become payable directly or
indirectly as a result of, the transactions contemplated by this Agreement or
any other change of control of the Company.
2.22 No Existing Discussions. The Company is not engaged, directly or
indirectly, in any discussions or negotiations with any other party with respect
to an Acquisition Proposal (as defined below) or any other substantially similar
proposal.
2.23 Brokers.
(a) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements with the
Company.
(b) Except for the fees and expenses of the legal counsel and
accountants for Parent and the Company in connection with this Agreement and the
transactions contemplated hereby, and except as provided in Section 2.23(b) of
the Parent Disclosure Schedule, there are no other fees and expenses payable by
the Company in connection with this Agreement and the transactions contemplated
hereby.
2.24 Transactions with Parent and Affiliates. The Company is not a party
to any agreements or arrangements with Parent or any affiliate (as defined in
Rule 144 of the Securities Act) of Parent, including, but not limited to, any
agreement or arrangement under which the Company: (i) leases any real or
personal property (either to or from such Person); (ii) licenses technology
(either to or from such Person); (iii) is obligated to purchase any tangible or
intangible asset from or sell such asset to such Person; (iv) purchased or
received products or services from such Person; or (v) pays or received
commissions, rebates or other payments.
B. Representations and Warranties of Mardan Afrasiabi and Xxxx Xxxxxxxxx
Each of Afrasiabi and Xxxxxxxxx (as defined in Exhibit A), severally but
not jointly, represents and warrants to Purchaser and Purchaser Parent that, as
of the date of this Agreement and as of the Closing Date, except where another
date is specified:
2.25 Authority. Each of Afrasiabi and Xxxxxxxxx, as the case may be, has
all necessary power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by him at the Closing
and to perform his obligations hereunder and to consummate the transactions
contemplated hereby.
-19-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PURCHASER
PARENT
Purchaser and Purchaser Parent, jointly and severally, represent and
warrant to Sellers as of the date hereof as follows:
3.1 Organization and Qualification. Each of Purchaser and Purchaser
Parent is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the requisite
corporate power and authority necessary to own, lease and operate the properties
it purports to own, lease or operate and to carry on its business as it is now
being conducted or presently proposed to be conducted. Each of Purchaser and
Purchaser Parent is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary.
3.2 Charter and Bylaws. Each of Purchaser and Purchaser Parent has
heretofore made available to Sellers true, complete and correct copies of the
charter and bylaws (or equivalent organizational documents), each as amended to
date, of Purchaser and Purchaser Parent, respectively (collectively, the
"Purchaser Charter Documents"). The Purchaser Charter Documents are in full
force and effect.
3.3 Authority Relative to this Agreement. Each of Purchaser and
Purchaser Parent has all necessary corporate power and authority to execute and
deliver this Agreement and each instrument required hereby to be executed and
delivered by it at the Closing and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
Purchaser of this Agreement and each instrument required hereby to be executed
and delivered at the Closing by Purchaser and the consummation by Purchaser of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Purchaser. The execution and
delivery by Purchaser Parent of this Agreement and each instrument required
hereby to be executed and delivered at the Closing by Purchaser Parent and the
consummation by Purchaser Parent of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Purchaser Parent. This Agreement has been duly and validly executed and
delivered by Purchaser and Purchaser Parent and, assuming the due authorization,
execution and delivery of this Agreement by Sellers, constitutes the legal,
valid and binding obligation of Purchaser and Purchaser Parent, enforceable
against Purchaser and Purchaser Parent in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and by general equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at law).
3.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery by Purchaser and Purchaser Parent of this
Agreement do not, the execution and delivery by Purchaser and Purchaser Parent
of any instrument required hereby to be executed and delivered by Purchaser or
Purchaser Parent at the
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Closing will not, and the performance of the agreements and obligations under
this Agreement by Purchaser or Purchaser Parent will not, (i) conflict with or
violate the Certificate of Incorporation and bylaws, each as amended to date, of
Purchaser or Purchaser Parent, (ii) conflict with or violate any Legal
Requirement applicable to Purchaser or Purchaser Parent or by which the
properties of Purchaser or Purchaser Parent is bound or affected; or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default), or impair Purchaser's or
Purchaser Parent's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets (including intangible assets) of Purchaser or Purchaser Parent pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Purchaser or
Purchaser Parent is a party or by which Purchaser or Purchaser Parent or the
properties of Purchaser or Purchaser Parent is bound or affected.
(b) The execution and delivery by Purchaser or Purchaser Parent of
this Agreement do not, the execution and delivery by Purchaser or Purchaser
Parent of any instrument required hereby to be executed and delivered by
Purchaser or Purchaser Parent at the Closing will not, and the performance of
agreements and obligations under this Agreement by Purchaser or Purchaser Parent
will not, require any consent, approval, order, license, authorization,
registration, declaration or permit of, or filing with or notification to, any
Governmental Entity.
3.5 Financial Statements. Purchaser Parent has made available to
Sellers: (i) a copy of Purchaser Parent's audited consolidated balance sheet as
of December 31, 2003 and (ii) a copy of the Purchaser Parent's unaudited
consolidated balance sheet as of July 31, 2004 (collectively, the "Purchaser
Parent Financial Statements"). The Purchaser Parent Financial Statements have
been prepared in accordance with GAAP (subject, in the case of unaudited
financial statements, to normal, recurring year-end adjustments and the absence
of notes thereto) applied on a consistent basis throughout the periods
indicated. The Purchaser Parent Financial Statements present fairly in all
material respects the financial condition and operating results of Purchaser
Parent as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Purchaser Parent maintains a standard system
of accounting established and administered in accordance with GAAP.
3.6 No Existing Discussions. In the six month period immediately
preceding the date of this Agreement, Purchaser Parent has not engaged, directly
or indirectly, in any discussions or negotiations with any other party with
respect to an acquisition of Purchaser Parent.
3.7 Absence of Certain Changes or Events. Purchaser Parent maintains a
standard system of accounting established and administered in accordance with
GAAP. Purchaser Parent's unaudited balance sheet as of July 31, 2004 is referred
to in this Agreement as the "Purchaser Parent Balance Sheet." Since the date of
the Purchaser Parent Balance Sheet, Purchaser Parent has conducted its business
in all material respects in the ordinary course consistent with past practice
and, since such date, there has not occurred: (i) any change, development, event
or other circumstance, situation or state of affairs that has had or would
reasonably be expected to have a Material Adverse Effect on Purchaser Parent;
(ii) any damage to, destruction or loss of any asset of Purchaser Parent
(whether or not covered by insurance) that
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would reasonably be expected to have a Material Adverse Effect on Purchaser
Parent or (iii) any change by Purchaser Parent in its accounting methods,
principles or practices.
3.8 No Undisclosed Liabilities. Except as reflected in the Purchaser
Parent Balance Sheet, Purchaser Parent does not have any liabilities (absolute,
accrued, contingent or otherwise) which are required by GAAP to be set forth on
a consolidated balance sheet of Purchaser Parent and its consolidated
subsidiaries or in the notes thereto, other than any liabilities and obligations
incurred since July 31, 2004 in the ordinary course of business consistent with
past practice.
3.9 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made with
Purchaser or Purchaser Parent.
3.10 Entirely for Own Account. This Agreement is made with Purchaser and
Purchaser Parent in reliance upon Purchaser's representation to Sellers, which
by Purchaser's execution of this Agreement, Purchaser hereby confirms, that the
Shares to be acquired by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, each of Purchaser and Purchaser Parent
further represents that neither Purchaser nor Purchaser Parent presently has any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
3.11 No Public Market. Purchaser understands that no public market now
exists for the Shares, and that Purchaser has made no assurances that a public
market will ever exist for the Shares.
3.12 Accredited Investor. Purchaser is an accredited investor as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act.
ARTICLE IV
INTERIM OPERATIONS OF THE COMPANY
4.1 Conduct of Business by the Company.
(a) Ordinary Course. During the period from the date hereof and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Closing Date, Parent shall cause the Company to, except as
otherwise expressly contemplated by this Agreement or as set forth in Section
4.1 of the Parent Disclosure Schedule or to the extent that Purchaser shall
otherwise consent in writing (which consent shall not be unreasonably withheld):
(i) carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations; (ii) pay its debts and Taxes when due, provided
however that the Company may, in good faith, refrain from paying such debts or
Taxes that the Company believes to be subject to a bona fide dispute; (iii) pay
or perform other obligations when due, provided however that the Company may, in
good faith, refrain from paying or performing such obligations that the Company
believes to be subject to a bona fide dispute; and (iv) use commercially
reasonable efforts to
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preserve intact its present business organization, to retain the services of its
present employees, and to preserve the goodwill of its customers and suppliers.
(b) Required Consent. In addition, without limiting the generality
of Section 4.1, except as permitted or contemplated by the terms of this
Agreement, and except as provided in Section 4.1 of the Parent Disclosure
Schedule, without the prior written consent of Purchaser (which consent shall
not be unreasonably withheld), during the period from the date hereof and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Closing Date, Parent shall not permit the Company to do any of
the following:
(i) Cause, permit or propose any amendments to the Company
Charter Documents;
(ii) Adopt a plan of complete or partial liquidation or
dissolution;
(iii) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(iv) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(v) Issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of capital stock, or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such securities or rights;
(vi) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any material equity or voting interest in or a material
portion of the assets of, or by any other similar manner, any business or any
Person or division thereof, or otherwise acquire or agree to acquire any assets
which are material to the business of the Company;
(vii) Sell, lease, license, encumber or otherwise dispose of
any properties or assets except in the ordinary course of business;
(viii) Make any loans, advances or capital contributions to,
or investments in, any other Person;
(ix) Except as required by GAAP as agreed to by its
independent auditors, make any material change in its methods or principles of
accounting since the date of the Company Balance Sheet;
(x) Make any Tax election or accounting method change that
is reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of the Company following the Closing Date or settle
or compromise any material income Tax liability or consent to any extension or
waiver of any limitation period with respect to Taxes;
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(xi) Revalue any of its assets other than in the ordinary
course of business;
(xii) Grant any rights with respect to any Company
Intellectual Property except in the ordinary course of business;
(xiii) Enter into or renew any Contracts with a value in
excess of $20,000 or containing, or otherwise subjecting the Company to, any
non-competition, exclusivity or other material restrictions on the Company, or
its business, following the Closing;
(xiv) Take any action that would or is reasonably likely to
result in any of the conditions to the sale and transfer of the Shares set forth
in Article I not being satisfied or that would impair the ability of Sellers to
consummate the transactions contemplated hereby in accordance with the terms
hereof or materially delay such consummation;
(xv) Incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of the
Company, guarantee any debt securities of another Person, enter into any "keep
well" or other agreement to maintain any financial statement condition of any
other Person or enter into any arrangement having the economic effect of any of
the foregoing, other than in the ordinary course of business and consistent with
past practices;
(xvi) Modify the compensation of, or pay any special bonus to,
any employee or officer of the Company; or
(xvii) Agree in writing or otherwise to take any of the
actions described in (i) through (xvi) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 No Solicitation.
(a) Sellers agree that neither Sellers nor the Company nor any of
the officers and directors of Parent or the Company shall, and that Sellers
shall use commercially reasonable efforts to cause Parent's and the Company's
employees, agents and representatives (including any investment banker, attorney
or accountant retained by Sellers or the Company) not to (and shall not
authorize any of them to) directly or indirectly: (i) solicit, initiate,
knowingly encourage or knowingly facilitate any inquiries with respect to, or
the making, submission or announcement of, any offer or proposal for an
Acquisition (as defined below) of the Company (an "Acquisition Proposal"); (ii)
participate in any discussions or negotiations regarding, or furnish to any
Person any nonpublic information with respect to, any Acquisition Proposal;
(iii) engage in discussions with any Person with respect to any Acquisition
Proposal, except as to the existence of these provisions; or (iv) enter into any
letter of intent or similar document or any contract, agreement or commitment
contemplating any Acquisition Proposal or transaction contemplated thereby.
Sellers and the Company will (i) immediately cease any and all existing
activities, discussions or negotiations with any third parties conducted
heretofore with respect to any Acquisition
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Proposal, and (ii) immediately notify Purchaser if any Acquisition Proposal is
received by Sellers or the Company. For purposes of this Section 5.1,
"Acquisition" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement): (i) a merger, consolidation,
business combination or similar transaction involving the Company; (ii) a sale
or other disposition by the Company of a significant portion of the Company's
assets; or (iii) the acquisition by any Person or group, directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of shares of
capital stock of the Company.
5.2 Confidentiality; Access to Information.
(a) Confidentiality. The parties acknowledge that Parent and
Purchaser Parent have previously executed a Mutual Nondisclosure Agreement dated
____________, 2004 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms,
and each of Parent, Purchaser and Purchaser Parent will hold, and will cause its
respective directors, officers, employees, agents and advisors (including
attorneys, accountants, consultants, bankers and financial advisors) to hold,
any information regarding the other party confidential in accordance with the
terms of the Confidentiality Agreement.
(b) Access to Information. Sellers shall, and shall cause the
Company to, afford Purchaser and Purchaser Parent and the accountants, counsel
and other representatives of Purchaser and Purchaser Parent access to the
properties, books, records and personnel of the Company (including the books and
records of Parent, but only to the extent related to the Company) during the
period prior to the Closing Date. Notwithstanding the foregoing, Sellers and the
Company may restrict the foregoing access to the extent that any Legal
Requirement applicable to such party requires such party to restrict or prohibit
access to any such properties or information.
5.3 Public Disclosure. Without limiting any other provision of this
Agreement, Sellers and Purchaser Parent and Purchaser will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, and agree on any press release or public statement with
respect to this Agreement and the transactions contemplated hereby and any
Acquisition Proposal, and will not issue any such press release or make any such
public statement prior to such consultation and agreement, except as may be
required by law or any other applicable national or regional securities exchange
or market.
5.4 Proxy Statement For Parent Stockholder Approval. As soon as
practicable after execution of this Agreement, Parent shall prepare and file a
proxy statement of Parent in connection with this Agreement and the transactions
contemplated hereby, including the sale of the Shares, complying with all
applicable Legal Requirements (the "Proxy Statement") with the SEC under the
Exchange Act. Parent will use commercially reasonable efforts to have the Proxy
Statement cleared by the SEC. Purchaser and Parent shall cooperate with each
other in the preparation of the Proxy Statement, and Parent shall notify
Purchaser of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information and shall provide to Purchaser promptly copies of
all correspondence between Parent or any representative of Parent and the SEC.
Parent shall give Purchaser and its counsel the opportunity to review and
comment
-25-
on the Proxy Statement and any other documents filed with the SEC or mailed to
the stockholders of Parent prior to their being filed with, or sent to, the SEC
or mailed to such stockholders of Parent and shall give Purchaser and its
counsel the opportunity to review and comment on all amendments and supplements
to the Proxy Statement and any other documents filed with, or sent to, the SEC
or mailed to the stockholders of Parent and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC or mailed to the stockholders of Parent. Each of Parent and
Purchaser agrees to use its commercially reasonable efforts, after consultation
with the other, to respond promptly to all such comments of and requests by the
SEC. As promptly as practicable after the Proxy Statement has been cleared by
the SEC, Parent shall mail the Proxy Statement to the stockholders of Parent.
Each of Parent and Purchaser promptly shall correct any information provided by
it and used in the Proxy Statement that shall have become false or misleading in
any material respect, and shall provide such additional information as is
necessary to cause the Proxy Statement to not omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and Parent shall take all steps necessary
to file with the SEC and have cleared by the SEC any amendment or supplement to
the Proxy Statement so as to correct the same and to cause the Proxy Statement
as so corrected to be disseminated to the stockholders of Parent, in each case
to the extent required by applicable law.
5.5 Parent Stockholders' Meeting. Parent shall cause a meeting of the
stockholders of Parent (the "Parent Stockholder Meeting") to be duly called and
held as promptly as reasonably practicable after the date hereof for the purpose
of obtaining Parent Stockholder Approval. Parent shall take all other reasonable
lawful action to solicit and secure the Parent Stockholder Approval. The Parent
Recommendation shall be included in the Proxy Statement, and the Parent
Recommendation shall not be withdrawn or modified in a manner adverse to
Purchaser, and no resolution by Parent's Board of Directors or any committee
thereof to withdraw or modify the Parent Recommendation in a manner adverse to
Purchaser shall be adopted or proposed. Parent shall ensure that all proxies
solicited in connection with the Parent Stockholder Meeting are solicited in
compliance with all applicable Legal Requirements. Once Parent Stockholder
Meeting has been called and noticed, Parent shall not postpone or adjourn the
Parent Stockholder Meeting (other than for the absence of a quorum) without the
consent of Purchaser.
5.6 Regulatory Filings; Reasonable Efforts.
(a) Regulatory Filings. Sellers and Purchaser shall coordinate and
cooperate with one another and shall each use commercially reasonable efforts to
comply with, and shall each refrain from taking any action that would impede
compliance with, all Legal Requirements, and as promptly as practicable after
the date hereof, Sellers and Purchaser shall make (or cause to be made) all
filings, notices, petitions, statements, registrations, submissions of
information, application or submission of other documents required by any
Governmental Entity in connection with the transactions contemplated hereby,
including: (i) any filing necessary to obtain any Necessary Consent and (ii) any
filings required under the Securities Act, the Exchange Act, any applicable
state or securities or "blue sky" laws or any other Legal Requirement relating
to the transactions contemplated by this Agreement. Sellers and Purchaser will
cause all documents that it is responsible for filing with any Governmental
Entity under this Section 5.6 to comply in all material respects with all
applicable Legal Requirements.
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(b) Exchange of Information. Sellers and Purchaser each shall
promptly supply the other with any information which may be required in order to
effectuate any filings or applications pursuant to Section 5.6. Except where
prohibited by applicable Legal Requirements, and subject to the Confidentiality
Agreement and any joint defense agreement entered into between the parties or
their counsel, Sellers and Purchaser shall consult with the other prior to
taking a position with respect to any such filing, shall permit the other to
review and discuss in advance, and consider in good faith the views of the other
in connection with any analyses, appearances, presentations, memoranda, briefs,
white papers, arguments, opinions and proposals before making or submitting any
of the foregoing to any Governmental Entity by or on behalf of any party hereto
in connection with any investigations or proceedings in connection with this
Agreement or the transactions contemplated hereby, coordinate with the other in
preparing and exchanging such information and promptly provide the other (and
its counsel) with copies of all filings, presentations or submissions made by
such party with any Governmental Entity in connection with this Agreement or the
transactions contemplated hereby, provided that with respect to any such filing,
presentation or submission, Sellers and Purchaser need not supply the other (or
its counsel) with copies to the extent that any law, treaty, rule or regulation
of any Governmental Entity applicable to such party requires such party or its
subsidiaries to restrict or prohibit access to any such properties or
information.
(c) Notification. Sellers and Purchaser will notify the other
promptly upon the receipt of: (i) any comments from any officials of any
Governmental Entity in connection with any filings made pursuant hereto and (ii)
any request by any officials of any Governmental Entity for amendments or
supplements to any filings made pursuant to, or information provided to comply
in all material respects with, any Legal Requirements. Whenever any event occurs
that is required to be set forth in an amendment or supplement to any filing
made pursuant to Section 5.4, Sellers or Purchaser, as the case may be, will
promptly inform the other of such occurrence and cooperate in filing with the
applicable Governmental Entity such amendment or supplement.
(d) Reasonable Efforts. Upon the terms and subject to the
conditions set forth herein, each of the parties agrees to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by this
Agreement, including using commercially reasonable efforts to accomplish the
following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied; (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, including all Necessary
Consents; (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby; and (v) the execution
or delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
-27-
5.7 Notification of Certain Matters.
(a) By Sellers. Sellers shall give prompt notice to Purchaser and
Purchaser Parent of any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate, or any failure of Sellers to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.5(a) or 6.5(b) would not be
satisfied; provided, however, that the delivery of any notice pursuant to this
Section 5.7(a) will not limit or otherwise affect the remedies available
hereunder to Purchaser and Purchaser Parent or the representations, warranties
or covenants of Sellers or the conditions to the obligations of Purchaser and
Purchaser Parent.
(b) By Purchaser. Purchaser and Purchaser Parent shall give prompt
notice to Sellers of any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate, or any failure of Purchaser or
Purchaser Parent to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Section 6.4(a) or
6.4(b) would not be satisfied; provided, however, that the delivery of any
notice pursuant to this Section 5.7(b) will not limit or otherwise affect the
remedies available hereunder to Sellers or the representations, warranties or
covenants of Purchaser and Purchaser Parent or the conditions to the obligations
of Sellers.
5.8 Updated Schedules. Parent shall have the right, without being deemed
to modify Section 2 for any purpose hereunder, to update the Schedules to this
Agreement (the "Updated Schedules") with respect to any matter arising after the
date hereof but prior to the Closing, provided that Parent deliver the Updated
Schedules to Purchaser no later than three business days prior to the Closing
Date. If Purchaser receives Updated Schedules from Parent, Purchaser shall have
the right to terminate this Agreement pursuant to Section 8.1(e).
5.9 Director and Officer Indemnification. During the six-year period
beginning as of the Closing Date, Purchaser shall cause the Company not to take
any action to alter or impair any exculpatory or indemnification provisions, now
existing in the Company's Charter Documents or provided under applicable law for
the benefit of any individual who served as a director or officer of the Company
at any time prior to the Closing Date, except for any changes that may be
required to conform with changes in Legal Requirements and any changes that do
not affect the application of such provisions to acts or omissions of such
individuals prior to the Closing Date.
5.10 Employee Benefits. Following the Closing Date, Purchaser and
Purchaser Parent shall arrange for each participant in the Company Employee
Plans (the "Company Participants") who becomes an employee of Purchaser or
Purchaser Parent, or any Purchaser or Purchaser Parent subsidiary or, following
the Closing Date, the Company, to be eligible for substantially similar employee
benefits as those received by Purchaser Parent employees with similar positions
and responsibilities.
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5.11 Section 338(h)(10) Election and Other Tax Covenants.
(a) At Purchaser's request, Parent and Purchaser shall jointly
make the election described in Code Section 338(h)(10) (the "Section 338(h)(10)
Election") with respect to the sale and transfer of the Shares hereunder. Parent
will pay any Tax attributable to the making of the Section 338(h)(10) Election
and will indemnify Purchaser, Purchaser Parent and the Company against any
losses arising out of any failure to pay such Tax or otherwise arising from the
making of the Section 338(h)(10) Election. If a Section 338(h)(10) Election is
made, Purchaser and Parent agree that the Purchase Price, liabilities of the
Company and other relevant items shall be allocated to and among the assets of
the Company for all relevant purposes (including Tax and accounting purposes) in
accordance with the methodology set forth in an allocation schedule to be agreed
to by Parent and Purchaser prior to the Closing Date (the "Allocation Schedule")
or, if no such Allocation Schedule is agreed upon by the Closing Date, an
Allocation Schedule to be prepared by Purchaser and agreed to by Parent
following the Closing Date. Purchaser, the Company and Parent will file all Tax
Returns (including amended Tax Returns and claims for refunds) and information
reports in a manner consistent with the final Allocation Schedule and will take
no position in any Tax proceeding inconsistent with the Allocation Schedule.
(b) Purchaser shall be responsible for the preparation and filing
of any Return with respect to the Company that is required to be filed after the
Closing Date, other than any Return of Parent for any period ending on or before
the Closing Date that is filed on a consolidated, combined, unitary or similar
basis and includes the Company (an "Affiliated Group Tax Return"). Parent shall
be responsible for the preparation and filing of any Return with respect to the
Company that is required to be filed on or before the Closing Date and any
Affiliated Group Tax Return, and each such Return shall be true and correct and
shall be completed in accordance with applicable law and consistent with past
practice.
(c) The party responsible for filing a Return pursuant to this
Section 5.11 shall control and bear the cost of the conduct of any audit, claim,
dispute or controversy relating to Taxes ("Tax Contest") with respect to such
Tax Return. Parent shall not (i) take any position on any amended Return
relating to the Company (including any Affiliated Group Tax Return) or (ii)
settle or compromise any Tax Contest relating to the Company (including any Tax
Contest with respect to any Affiliated Group Tax Return), in each case only if
as a result Taxes would be imposed on the Company or Purchaser after the
Closing.
(d) Any Tax sharing, indemnification or allocation agreement (or
similar agreement or arrangement) to which the Company is a party or by which
the Company is bound shall be terminated effective as of the Closing, and the
Company shall have no liability pursuant to any such agreement.
(e) Notwithstanding anything to the contrary in this Agreement, in
addition to any other remedy provided by this Agreement, Parent shall indemnify
and hold Purchaser and Purchaser Parent harmless against any and all Taxes and
related losses imposed on the Company or Purchaser or Purchaser Parent by virtue
of the inclusion of the Company in an Affiliated Group Tax Return (including
Taxes pursuant to Treas. Reg. Section 1.1502-6 or any similar provision
-29-
of state, local or foreign law, including any arrangement for group Tax relief
within a jurisdiction or similar arrangement).
(f) Parent and Purchaser shall provide assistance to each other as
reasonably requested in preparing and filing Tax Returns and responding to Tax
Contests, make available to each other as reasonably requested all relevant
information, records, and documents relating to Taxes of the Company and retain
any books and records that could reasonably be expected to be necessary or
useful in connection with any preparation by any other party of any Tax Return,
or for any Tax Contest. Parent shall contact Purchaser prior to the disposition
of any books and records relating to Company Taxes and allow Purchaser to obtain
or copy such books and records within thirty (30) days of such notice. Purchaser
or Purchaser Parent shall give or cause its Affiliates to give Sellers
reasonable notice prior to transferring, discarding or destroying any such books
and records relating to Tax matters and, if Sellers so request, Purchaser shall
allow or cause its Affiliates to allow Sellers to take possession of such books
and records.
(g) Purchaser and Purchaser Parent agree that they will not, and
will not cause or permit the Company to, (i) take any action not contemplated by
this Agreement (e.g., the Section 338(h)(10) election, filing of post-Closing
returns) on or after the Closing Date, including but not limited to the
distribution of any dividend or the effectuation of any redemption, that could
give rise to any Tax liability of Sellers, (ii) make or change any Tax election,
amend any Tax Return or take any position on any Tax Return in respect of Tax
Returns filed prior to the Closing Date that results in any increased Tax
liability or reduction of any net operating loss, net capital loss, investment
tax credit, charitable deduction or any other credit or attribute that could
increase Taxes (including, without limitation, deductions and credits related to
alternative minimum taxes) of Sellers without Sellers' approval (which will not
be unreasonably withheld) or (iii) settle or compromise any Tax Contest in
respect of any Tax period (or portion thereof) ending on or before the close of
business on the Closing Date, except as may be required by applicable law
without Sellers' approval (which will not be unreasonably withheld).
5.12 Assignment of Proceeds from Bankruptcy Claims. Effective as of the
date hereof, the Company assigns to Parent all proceeds from those certain
claims in bankruptcy set forth on Exhibit F attached hereto. Promptly upon
receipt of any such proceeds, the Company shall deliver the total amount of such
proceeds to Parent by wire transfer of immediately available funds.
5.13 Services of Mardan Afrasiabi. During the period from the date hereof
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Closing Date, neither Purchaser, Purchaser Parent nor any
affiliate thereof shall, except to the extent that Parent shall otherwise
consent in writing (which consent may be granted in Parent's sole and absolute
discretion), directly employ, engage as independent contractor, consultant,
agent or otherwise, Mardan Afrasiabi for any purpose whatsoever; provided
however that Purchaser or Purchaser Parent shall be entitled to utilize the
services of Mardan Afrasiabi to the extent that such utilization does not
adversely affect Xx. Xxxxxxxxx'x duties as President and Chief Operating Officer
of the Company. Notwithstanding the foregoing, Parent agrees and acknowledges
that Purchaser Parent has entered or will enter into an employment agreement
with Xx. Xxxxxxxxx that will become effective upon Closing.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE PARTIES' PERFORMANCE
6.1 Conditions to the Performance of Each Party. The respective
obligations of each party to this Agreement to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(a) No Order. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order which (i) is in
effect and (ii) has the effect of making the transactions contemplated hereby
illegal.
6.2 Deliveries by Sellers. At or prior to the Closing, Sellers shall
deliver, or cause to be delivered, to Purchaser and Purchaser Parent, all duly
and properly executed, the following:
(a) The certificate, dated as of the Closing Date, executed on
behalf of Sellers, contemplated by Sections 6.5(a) and 6.5(b).
(b) All minute books, stock transfer books, stock certificate
books, and corporate certificates, and all corporate seals and financial and
accounting books and records of the Company.
6.3 Deliveries by Purchaser. At or prior to the Closing, Purchaser
and Purchaser Parent shall have delivered to Sellers, duly and properly
executed, the following:
(a) The certificate dated as of the Closing Date, on behalf of
Purchaser and Purchaser Parent, contemplated by Sections 6.4(a) and 6.4(b).
(b) The Notes as provided in Section 1.2 of this Agreement.
6.4 Additional Conditions to the Obligations of Sellers. The obligation
of Sellers to consummate and effect the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, any of which may be waived, in writing,
exclusively by Sellers:
(a) Representations and Warranties. The representations and
warranties of Purchaser and Purchaser Parent contained in this Agreement shall
be true and correct as of the Closing Date with the same force and effect as if
made on the Closing Date (except that those representations and warranties which
address matters only as of a particular date shall have been true and correct
only on such date); provided, however, that any inaccuracies in such
representations and warranties will be disregarded if the inaccuracies in the
aggregate would result in damages to Purchaser and Purchaser Parent of less than
$150,000. Sellers shall have received a certificate with respect to the
foregoing signed on behalf of Purchaser and Purchaser Parent by an authorized
executive officer of Purchaser and Purchaser Parent.
(b) Agreements and Covenants. Purchaser and Purchaser Parent shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Sellers shall have received a
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certificate with respect to the foregoing signed on behalf of Purchaser and
Purchaser Parent by an authorized executive officer of Purchaser and an
authorized executive officer of Purchaser Parent.
(c) No Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred any Material Adverse Effect with respect to
Purchaser or Purchaser Parent.
6.5 Additional Conditions to the Obligations of Purchaser and Purchaser
Parent. The obligations of Purchaser and Purchaser Parent to consummate and
effect the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Purchaser and
Purchaser Parent:
(a) Representations and Warranties. The representations and
warranties of Sellers contained in this Agreement as delivered as of the date
hereof shall be true and correct as of the Closing Date with the same force and
effect as if made on the Closing Date (except that those representations and
warranties which address matters only as of a particular date shall have been
true and correct only on such date); provided, however, that any inaccuracies in
such representations and warranties will be disregarded if the inaccuracies in
the aggregate would result in damages to the Company of less than $150,000.
Purchaser and Purchaser Parent shall have received a certificate with respect to
the foregoing signed by Sellers.
(b) Agreements and Covenants. Sellers shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Closing Date. Purchaser and
Purchaser Parent shall have received a certificate to such effect signed by
Sellers.
(c) Resignations of Officers and Directors. Sellers shall have
delivered to Purchaser and Purchaser Parent executed resignations of each of the
officers and directors of the Company.
(d) Third-Party Consents. All consents of third parties set forth
on Section 6.5(d) of the Parent Disclosure Schedule (each a "Necessary Consent"
and together the "Necessary Consents") shall have been obtained, made or given
and shall be in full force and effect.
(e) Stockholder Vote. The Parent Stockholder Approval shall have
been obtained. Parent shall have delivered to its stockholders all documents and
information required under the Exchange Act in connection with the approval of
this Agreement and the transactions contemplated by this Agreement, and any
waiting periods required by the Exchange Act shall have been satisfied.
(f) No Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred any Material Adverse Effect with respect to the
Company.
(g) Regulatory Approvals. All required regulatory approvals with
respect to the transactions contemplated by this Agreement shall have been
obtained.
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(h) Delivery of Stock Certificates. Sellers shall have delivered
to Purchaser and Purchaser Parent evidence of cancellation of all prior stock
certificates of the Company and a stock certificate of the Company in the name
of Purchaser representing all of the outstanding equity of the Company.
(i) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Entity is to become a
party or is otherwise involved: (i) challenging or seeking to restrain or
prohibit the consummation of the Share Purchase; (ii) relating to the Share
Purchase and seeking to obtain from Purchaser, Purchaser Parent, Sellers or the
Company, any damages or other relief; (iii) seeking to prohibit or limit in any
material respect Purchaser's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the stock of the Company;
or (iv) that would materially and adversely affect the right of Purchaser or the
Company to own the assets or operate the business of the Company.
(j) No Other Litigation. There shall not be pending any legal
proceeding: (i) challenging or seeking to restrain or prohibit the consummation
of the Share Purchase or any of the other transactions contemplated by this
Agreement or alleging that the execution of this Agreement or the consummation
of the Share Purchase or other transactions results or would result in a breach
of fiduciary duty by the directors or officers of Parent or the Company; (ii)
relating to the Share Purchase and seeking to obtain from Purchaser, Purchaser
Parent or the Company, any damages or other relief; or (iii) seeking to prohibit
or limit in any material respect Purchaser's ability to vote, receive dividends
with respect to or otherwise exercise ownership rights with respect to any the
stock of the Company.
(k) Corporate Records. Parent shall have delivered to Purchaser
all of the minute books and stock ledgers for the Company in the Company's or
Parent's possession.
(l) Opinion. Akerman Senterfitt and/or counsel for the Company
located in Texas shall have delivered to Purchaser and Purchaser Parent the
opinions substantially in the form set forth in Exhibit G (subject to customary
assumptions, qualifications and exceptions).
(m) Key Employees. Mardan Afrasiabi shall have, at Purchaser
Parent's discretion, either accepted employment with Purchaser or remained
employed with the Company under employment terms including customary
non-solicitation and non-competition provisions.
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations and Warranties. All representations and
warranties of Sellers contained in this Agreement shall survive the Closing Date
and continue until the date that is thirty-six (36) months following the Closing
Date, after which time such representations and warranties shall terminate;
provided, however, that the representations and warranties of Parent contained
in Sections 2.14 and 2.16 of this Agreement shall survive the Closing Date and
continue until the date that is seven years following the Closing Date. The
termination of representations and warranties provided herein shall not affect
the rights of any Indemnified Party (as defined below) in respect of any claim
made by such Indemnified Party in a Claim
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Notice (as defined below) received by Sellers pursuant to and in compliance with
the provisions of this Article VII prior to the respective expiration dates
specified above. All covenants and agreements that by their terms are to be
performed after the Closing shall expire upon the completion of performance or
waiver thereof. The right to indemnification, payment of Purchaser's Losses (as
defined below) or other remedy based on such representations, warranties,
covenants, and obligations will not be affected by any investigation conducted
with respect to, or any Knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation. The waiver of
any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Purchaser's Losses, or other remedy
based on such representations, warranties, covenants, and obligations.
7.2 Indemnification.
(a) Subject to the limitations set forth in Section 7.3 of this
Agreement, Sellers shall indemnify, save and hold harmless Purchaser, Purchaser
Parent and their affiliates (including, after the Closing, the Company) (each a
"Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified
Parties") from and against and in respect of all claims, costs, liabilities,
obligations, fines, penalties, awards, damages and expenses (including
reasonable attorney's fees and expenses) ("Purchaser's Losses") arising out of,
resulting from or relating to: (i) any breach of, or inaccuracy in, any
representation or warranty made by Sellers contained in this Agreement or any
certificate delivered by Sellers pursuant to this Agreement; (ii) any breach or
failure to perform by Sellers of any covenant, agreement or obligation of
Sellers contained in this Agreement, (iii) the existence of any warrant to
purchase securities of the Company held by Xxxxxxxx & Struggles, Inc.; (iv) any
difference in the capitalization of the Company from that set forth in Section
2.3 of this Agreement, (v) any failure of the Company to obtain all right, title
and interest in the software entitled "MONIES", (vi) any failure prior to the
Closing Date of the Company to secure the release of all security interests held
by Comerica Bank Texas (or any affiliates thereof) or Cenvill Recreation, Inc.
in assets of the Company, and the termination of all financing statements
related thereto, (vii) the existence of an option held by Xxxxxx Xxxxxxxxx as of
the date hereof for shares of capital stock of the Company in excess of 937,000
shares of Company Common Stock and the existence of an option held by Xxxx
Xxxxxxxxx as of the date hereof for shares of capital stock of the Company,
(viii) the Company's termination of the Digex Messaging Agreement and (ix) the
Company's repurchase of shares of Xxxxx X. Xxxxx and any claims by Xx. Xxxxx as
to any right to equity of the Company (collectively, "Purchaser's Indemnified
Claims"); provided however that the limitation on indemnification provided in
Section 7.3(a) shall not be applicable with respect to the indemnity provided in
Sections 7.2(a)(iii) and (vii).
(b) Purchaser and Purchaser Parent shall indemnify, save and hold
harmless Sellers and Parent's affiliates (each a "Seller Indemnified Party" and
collectively, the "Seller Indemnified Parties" and together with the Purchaser
Indemnified Parties, the "Indemnified Parties" ) from and against and in respect
of all claims, costs, liabilities, obligations, fines, penalties, awards,
damages and expenses (including reasonable attorney's fees and expenses)
("Sellers' Losses" and together with Purchaser's Losses, "Losses") arising out
of, resulting from
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or relating to: (A) any breach of, or inaccuracy in, any representation or
warranty made by Purchaser or Purchaser Parent contained in this Agreement or
any certificate delivered by Purchaser or Purchaser Parent pursuant to this
Agreement; and (B) any breach or failure to perform by Purchaser or Purchaser
Parent of any covenant, agreement or obligation of Purchaser or Purchaser Parent
contained in this Agreement (collectively, "Sellers' Indemnified Claims").
(c) For purposes of this Article VII, all Losses shall be reduced
dollar for dollar by (i) the amount of any insurance coverage with respect
thereto, in each case which reduce such Losses that would otherwise be
sustained, and (ii) the amount of any other payments made under this Article VII
that relate to the same facts and circumstances giving rise to such Losses. In
addition, Losses shall not under any circumstances include any consequential
(including any loss of revenue or profit), punitive or exemplary Losses. Any
party entitled to indemnification hereunder shall take all reasonable steps to
mitigate Losses upon and after becoming aware of any event that could reasonably
be expected to give rise to such Losses.
(d) Each of (i) the Sellers and (ii) Purchaser and Purchaser
Parent is an "Indemnifying Party" and together are the "Indemnifying Parties".
7.3 Limitations on Indemnification. The rights to indemnification
hereunder are subject to the following limitations:
(a) Purchaser Indemnified Parties shall not be entitled to
indemnification hereunder with respect to any of Purchaser's Indemnified Claims
unless the aggregate amount of Purchaser's Losses with respect to Purchaser's
Indemnified Claims exceeds $150,000, in which event the indemnity provided for
in Section 7.2(a) shall apply only to the aggregate amount of Purchaser's Losses
that exceeds such limitation.
(b) Seller Indemnified Parties shall not be entitled to
\ indemnification hereunder with respect to any of Sellers' Indemnified Claims
unless the aggregate amount of Sellers' Losses with respect to Sellers'
Indemnified Claims exceeds $150,000, in which event the indemnity provided for
in Section 7.2(b) shall apply only to the aggregate amount of Sellers' Losses
that exceeds such limitation.
(c) Notwithstanding anything to the contrary contained herein,
none of the Sellers shall be responsible for the payment of Purchaser's Losses
pursuant to this Article VII in excess of the amount of the proceeds of the
Purchase Price actually received by any such Seller hereunder; notwithstanding
anything to the contrary contained herein, neither Purchaser nor Purchaser
Parent shall be responsible for the payment of Sellers' Losses pursuant to this
Article VII in excess of the amount of the proceeds of the Purchase Price
actually received by Sellers hereunder.
7.4 Exclusive Remedy. The rights of the parties for indemnification
relating to this Agreement or the transactions contemplated hereby shall be
strictly limited to those contained in this Article VII, and such
indemnification rights shall be the exclusive remedies of the parties subsequent
to the Closing Date with respect to any matter arising under or in connection
with this Agreement.
7.5 Procedure for Claims Between Parties. If a claim for Losses is to be
made by an
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Indemnified Party, the Indemnified Party shall give written notice (a "Claim
Notice") to the Indemnifying Party, as soon as practicable after the Indemnified
Party becomes aware of any fact, condition or event which may give rise to
Losses for which indemnification may be sought under this Article VII, other
than Tax Claims as provided in Section 7.7 below. Any failure to submit any such
Claim Notice in a timely manner to the Indemnifying Party shall not relieve such
Indemnifying Party of any liability hereunder, except to the extent that such
Indemnifying Party is actually prejudiced by such failure. Notwithstanding
anything contained in this Section 7.5 to the contrary, any claim for
indemnification hereunder that is not asserted by notice given as herein
provided that specifically identifies a particular breach and the underlying
facts and Losses relating thereto during the applicable period of survival as
set forth in Section 7.1 may not be pursued and is hereby irrevocably waived
upon and after the expiration of such period of survival. Each Claim Notice
shall set forth (a) the specific representation, warranty or covenant alleged to
have been breached, (b) the nature and amount of the claim asserted, together
with sufficient facts relating thereto so that the Indemnifying Party may
reasonably evaluate such claim and (c) a calculation or good faith estimate, if
such can be reasonably calculated, of the aggregate Losses to which the
Indemnified Party believes it is entitled in connection with the claim. If in
the case of a claim submitted by a Purchaser Indemnified Party, within fifteen
(15) days after receipt of the Claim Notice (the "Notice Period"), Sellers do
not give written notice to the Purchaser Indemnified Party or Purchaser
Indemnified Parties announcing their intent to contest such claim, the claim
shall be deemed accepted and the principal amounts of the 36 Month Notes shall
be automatically reduced, pro rata, by the amount of the claim; provided,
however, if the then current principal amounts of the 36 Month Notes are not
sufficient to pay the Losses, Parent shall, within five (5) days after
expiration of the Notice Period, deliver to the Purchaser Indemnified Party the
amount of Losses set forth in the Claim Notice which amount has not been paid
pursuant to an adjustment to the principal amounts of the 36 Month Notes. In the
event, however, that Sellers contest the assertion of a claim by giving such
written notice to the Purchaser Indemnified Party within the Notice Period, then
the parties shall act in good faith to reach agreement regarding such claim.
7.6 Defense of Third Party Claims. If any lawsuit or enforcement action
subject to indemnification hereunder is filed against any Indemnified Party by a
third party, written notice thereof shall be given to the Indemnifying Party as
promptly as practicable (other than Tax Claims) as provided in Section 7.5. The
failure of any Indemnified Party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the extent that the
Indemnifying Party is actually prejudiced by such failure. Notwithstanding
anything contained in this Section 7.6 to the contrary, any claim for
indemnification hereunder that is not asserted by notice given as herein
provided that specifically identifies a particular breach and the underlying
facts and Losses relating thereto during the applicable period of survival as
set forth in Section 7.1 may not be pursued and is hereby irrevocably waived
upon and after the expiration of such period of survival. After such notice, the
Indemnifying Party shall be entitled, if it so elects, at its own cost, risk and
expense (a) to take control of the defense and investigation of such lawsuit or
action, (b) to employ and engage attorneys of its own choice to handle and
defend the same unless the named parties to such action or proceeding include
both the Indemnifying Party and the Indemnified Party, and the Indemnified Party
has been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Indemnifying Party, in which event the Indemnified Party
shall be entitled, at the Indemnifying Party's cost, risk and expense, to
separate counsel of its
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own choosing, and (c) to compromise or settle such claim. The Indemnified Party
shall cooperate with the Indemnifying Party and its attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom which cooperation shall include, to the extent reasonably
requested by the Indemnifying Party, the retention, and the provision to the
Indemnifying Party, of records and information reasonably relevant to such
third-party claim, and making employees of the Indemnified Party and its
affiliates available on a mutually convenient basis to provide additional
information and explanation of any materials provided hereunder. The parties
shall cooperate with each other in any notifications to insurers. If the
Indemnifying Party fails to assume the defense of such claim within ten days
after notice, the Indemnified Party against which the claim has been asserted
(upon delivering notice to such effect to the Indemnifying Party) has the right
to undertake, at the Indemnifying Party's cost, risk and expense, the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the Indemnifying Party. If the Indemnified Party assumes the defense of the
claim, the Indemnified Party will keep the Indemnifying Party reasonably
informed of the progress of any such defense, compromise or settlement. The
Indemnifying Party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 7.6 and any final judgment
(subject to any right of appeal), and the Indemnifying Party shall indemnify and
hold harmless the Indemnified Party from and against any Losses by reason of any
such settlement or judgment.
7.7 Tax Claims.
(a) Parent Tax Indemnity. Parent shall indemnify and hold the
Purchaser Indemnified Parties harmless from and against the following (net of
the amount of the net present value of any actual Tax savings whenever realized
arising from any increased deductions, losses, or credits then allowable or
decreases in income, gains or recapture of Tax credits then allowable (including
by way of amended Tax Returns) ("Tax Benefits") actually received by Purchaser
or the Company): (i) any liability for income Taxes imposed on the Company as a
member of the "affiliated group" of which Parent is the common parent that
arises under Treasury Regulation Section 1.1502-6(a) or comparable provisions of
foreign, state or local law; (ii) any liability for Taxes imposed on the
Company, or for which the Company may otherwise be liable, for any taxable year
or period that ends on or before the Closing Date and, with respect to any
period commencing before the Closing Date and ending after the Closing Date
("Straddle Period"), the portion of such Straddle Period deemed to end on and
include the Closing Date; and (iii) any and all Taxes of any Person (other than
the Company) imposed on the Company, as a transferee or successor, by contract
or pursuant to any law, rule or regulation, which Taxes relate to an event or
transaction occurring before the Closing Date.
(b) Procedure for Tax Claims. The Purchaser Indemnified Party
shall give written notice (a "Tax Claim Notice") to Parent of any claim for
indemnification pursuant to this Section 7.7 ("Tax Claim") including in
connection with any pending or threatened audits, notice of deficiency, proposed
adjustment, assessment, examination or other administrative or court proceeding,
suit or dispute. The failure of the Purchaser Indemnified Party to give timely
notice of a Tax Claim arising under this Section 7.7 shall not affect the rights
to indemnification hereunder, except to the extent that Parent is actually
prejudiced by such failure. Notwithstanding anything contained in this Section
7.7(b) to the contrary, any claim for indemnification hereunder that is not
asserted by a Tax Claim Notice as herein provided that
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specifically identifies a particular breach and the underlying facts and Losses
relating thereto during the applicable period of survival as set forth in
Section 7.1 may not be pursued and is hereby irrevocably waived upon and after
the expiration of such period of survival. Section 5.11 shall govern the rights
and responsibilities of the parties in respect of any proceedings relating to
Tax Claims.
(c) Resolution of all Tax Related Disputes. If Parent and
Purchaser cannot agree on the calculation of any amount relating to Taxes, such
dispute shall be resolved by a nationally recognized accounting firm mutually
acceptable to each of Parent and Purchaser, whose decision shall be final and
binding upon all persons involved and whose expenses shall be shared equally by
Parent and Purchaser.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date, by action taken or authorized by the terminating party or
parties, as applicable, and except as provided below:
(a) by mutual written consent of Sellers and Purchaser;
(b) by either Sellers or Purchaser, if the Closing shall not have
been consummated by February 28, 2005 (the "End Date"); provided, however, that
the right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the sale and transfer of the Shares pursuant to
Article I of this Agreement to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by either Sellers or Purchaser, if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action (including the
failure to have taken an action), in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Share Purchase, which order,
decree, ruling or other action is final and nonappealable;
(d) by Sellers, upon a breach of any representation, warranty,
covenant or agreement on the part of Purchaser or Purchaser Parent set forth in
this Agreement, or if any representation or warranty of Purchaser or Purchaser
Parent shall have become untrue, in either case such that the conditions set
forth in Section 6.4(a) or Section 6.4(b) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in Purchaser's or Purchaser
Parent's representations and warranties or breach by Purchaser or Purchaser
Parent is curable by Purchaser or Purchaser Parent prior to the End Date through
the exercise of reasonable efforts, then Sellers may not terminate this
Agreement under this Section 8.1(d) prior to fifteen (15) days following the
delivery of written notice from Sellers to Purchaser and Purchaser Parent of
such breach (it being understood that Sellers may not terminate this Agreement
pursuant to this Section 8.1(d) if it shall have materially breached this
Agreement or if such breach by Purchaser or Purchaser Parent is cured so that
such conditions would then be satisfied); and
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(e) by Purchaser or Purchaser Parent (i) upon a breach of any
representation, warranty, covenant or agreement on the part of Sellers set forth
in this Agreement, or (ii) if any representation or warranty of Sellers made and
delivered as of the date hereof shall have become untrue, in either case such
that the conditions set forth in Sections 6.5(a) or 6.5(b) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue or (iii) in the event that any of the
conditions set forth in Sections 6.5(c), 6.5(d), 6.5(e) or 6.5(j) would not be
satisfied as of the End Date; provided that if such inaccuracy in Seller's
representations and warranties or breach by Sellers or failure of such condition
to be satisfied is curable by Sellers prior to the End Date through the exercise
of reasonable efforts, then Purchaser and Purchaser Parent may not terminate
this Agreement under this Section 8.1(e) prior to fifteen (15) days following
the delivery of written notice from Purchaser or Purchaser Parent to Sellers of
such breach or failure of condition (it being understood that Purchaser and
Purchaser Parent may not terminate this Agreement pursuant to this Section
8.1(e) if it shall have materially breached this Agreement or if such breach by
Sellers is cured so that such conditions would then be satisfied).
8.2 Notice of Termination; Effect of Termination. Any termination of
this Agreement under Section 8.1 above will be effective immediately upon the
delivery of a valid written notice of the terminating party to the other party
hereto. In the event of the termination of this Agreement as provided in Section
8.1, this Agreement shall be of no further force or effect, except (a) as set
forth in Section 5.2, this Section 8.2, Section 8.3, Section 8.4 and Article IX,
each of which shall survive the termination of this Agreement and (b) nothing
herein shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
8.3 Termination Fee.
(a) Parent shall pay Purchaser a termination fee of $200,000 upon
the termination of this Agreement by Purchaser or Purchaser Parent pursuant to
Section 8.1(e).
(b) In the event that the conditions set forth in Section 6.1 and
Section 6.5 shall have been satisfied, and Purchaser Parent is unwilling to
comply with its obligations to deliver the Purchase Price, Purchaser or
Purchaser Parent shall pay Parent a termination fee of $200,000 upon the
termination of this Agreement by Sellers pursuant to Section 8.1(d).
(c) Each party hereto acknowledges and agrees that the termination
fee payable pursuant to this Section 8.3 will not constitute liquidated damages.
8.4 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby, including fees and
expenses of financial advisors, financial sponsors, legal counsel and other
advisors, shall be paid by the party incurring such expenses whether or not the
transactions contemplated by this Agreement are consummated; provided, however,
that (i) if this Agreement is terminated pursuant to Section 8.1(e), Parent
shall reimburse Purchaser and Purchaser Parent for all fees and expenses of
financial advisors, financial sponsors, legal counsel and other advisors
incurred by Purchaser or
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Purchaser Parent up to such date and (ii) if this Agreement is terminated
pursuant to Section 8.1(d), Purchaser or Purchaser Parent shall reimburse Parent
for all fees and expenses of financial advisors, financial sponsors, legal
counsel and other advisors incurred by Parent up to such date; and provided,
further, that Parent will bear any and all expenses of regulatory and/or
stockholder approvals that are required to complete the transactions
contemplated by this Agreement.
8.5 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto, by action taken or authorized by Sellers, Purchaser and
Purchaser Parent at any time, by execution of an instrument in writing signed on
behalf of each of Sellers, Purchaser and Purchaser Parent.
8.6 Extension; Waiver. At any time prior to the Closing Date either
party hereto, may, to the extent legally allowed: (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto; and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, (b) on the date of confirmation of receipt (or, the first business
day following such receipt if the date is not a business day) of transmission by
telecopy or facsimile, or (c) on the date of confirmation of receipt (or, the
first business day following such receipt if the date is not a business day) if
delivered by a nationally recognized courier service. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(i) if to Purchaser or Purchaser Parent, to:
Palo Alto Acquisition Corporation
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxx Xxxxxx
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx Venture Law Group
000 Xxxxxxxxxxx Xxxx
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Xxxxx Xxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
(ii) if to Sellers, to:
nStor Technologies, Inc.
1601 Forum Place; Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxx, Vice President
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to:
Akerman Senterfitt
Las Olas Centre II
000 Xxxx Xxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xx. Xxxxxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
9.2 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a section of this Agreement unless otherwise indicated. For purposes of this
Agreement, the words "include," "includes" and "including," when used herein,
shall be deemed in each case to be followed by the words "without limitation."
All references to plural terms shall include the singular and all references to
singular terms shall include the plural. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(b) For purposes of this Agreement, the term "Knowledge" shall
have the following meaning: (i) with respect to an individual, an individual
will be deemed to have knowledge of a particular fact or other matter if that
individual is actually aware of the fact or matter, (ii) with respect to Parent,
Parent will be deemed to have knowledge of a particular fact or other matter if
any officer, director or management level employee of Parent or the Company has,
or at any time had, knowledge of that fact or other matter (as determined in (i)
above); (iii) with respect to Purchaser, Purchaser will be deemed to have
knowledge of a particular fact or other matter if any officer, director or
management level employee of Purchaser has, or at any time had, knowledge of
that fact or other matter (as determined in (i) above); and (iv) with respect to
Purchaser Parent, Purchaser Parent will be deemed to have knowledge of a
particular fact or other matter if any officer, director or management level
employee of Purchaser Parent has, or at any time had, knowledge of that fact or
other matter (as determined in (i) above).
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(c) For purposes of this Agreement, the term "Material Adverse
Effect," means (a) with respect to the Company, a material adverse effect on (i)
the business of the Company, (ii) the financial condition and results of
operations of the Company, or (iii) the ability of Parent to consummate the
transactions contemplated by this Agreement or to perform its material
obligations under this Agreement, and (b) with respect to Purchaser, a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated by this Agreement or to perform its material obligations under this
Agreement; but a Material Adverse Effect with respect to a Person shall not
include any effect that is attributable to (x) general business, economic or
financial conditions affecting the industry or lines of business in which the
Person participates, (y) the announcement or pendency of the transactions
contemplated hereby or any change or effect arising out of actions contemplated
or required by this Agreement or any acts or omissions of the Person taken with
the prior consent of the other party to this Agreement, or (z) force majeure
events, disruptions of the financial markets or acts of terrorism, war or acts
of God.
(d) For purposes of this Agreement, the term "Person" shall mean
any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
9.3 Disclaimer of Projections. Except as specifically made in this
Agreement, Sellers makes no representation or warranty to Purchaser. In
particular, except as specifically made in this Agreement, Sellers make no
representation or warranty to Purchaser or Purchaser Parent with respect to (a)
any information presented at any management presentation conducted in connection
with the transactions contemplated hereby, or (b) any financial projection or
forecast, written or oral, relating to the Company. With respect to any such
projection or forecast delivered by or on behalf of Sellers and/or the Company,
each of Purchaser and Purchaser Parent acknowledges that (i) there are
uncertainties inherent in attempting to make such projections and forecasts,
(ii) it is familiar with such uncertainties, (iii) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it, and (iv) it shall have no
claim against Sellers with respect thereto.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Third-Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Parent Disclosure Schedule
(i) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (including the Term Sheet by and among Purchaser Parent, Parent and the
Company dated August 9, 2004); provided, that, the Confidentiality Agreement
shall continue in full force and effect and shall survive any termination of
this Agreement) and (ii) are not intended to confer upon any other Person any
rights or remedies hereunder.
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9.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the greatest extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
(including without limitation specific performance) upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy. The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party. Any purported assignment in violation of this Section 9.10
shall be void. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and its
successors and permitted assigns.
9.11 No Waiver. No failure or delay on the part of any party hereto in
the exercise of any right hereunder will impair such right or be construed to be
a waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor will any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. To the maximum
extent permitted by applicable law, no notice delivered to or demand made on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
9.12 Waiver of Jury Trial. SELLERS AND PURCHASER HEREBY IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE
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ACTIONS OF SELLERS OR PURCHASER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
PURCHASER:
PALO ALTO ACQUISITION CORPORATION
By: /s/ Xxxx Xxx Xxxxxx
----------------------------------
Name: Xxxx Xxx Xxxxxx
Title: Chief Financial Officer
PURCHASER PARENT:
SYMPHONY SERVICE CORP.
By: /s/ Xxxx Xxx Xxxxxx
----------------------------------
Name: Xxxx Xxx Xxxxxx
Title: Chief Financial Officer
SELLERS:
NSTOR TECHNOLOGIES, INC.
By: /s/ Xxxx Xxxxxx
----------------------------------
Name: Xxxx Xxxxxx
Title: Vice President
/s/ Mardan Afrasiabi
----------------------------------
Mardan Afrasiabi
/s/ Xxxx Xxxxxxxxx
----------------------------------
Xxxx Xxxxxxxxx
