Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the or this "Agreement") is
made and entered into as of January 27, 2004 by and between FOCUS ENHANCEMENTS,
INC., a Delaware corporation ("Buyer"), and VISUAL CIRCUITS CORPORATION, a
Minnesota corporation ("Seller" or the "Company"). Buyer and Seller are the only
Parties to this Agreement and are collectively referred to herein as the
"Parties," each a "Party."
RECITALS
A. Seller's Board of Directors has adopted a plan of liquidation and
dissolution (the "Seller's Plan of Liquidation and Dissolution"), which
contemplates the wind-up of Seller's business affairs, liquidation or other
disposition of its assets, satisfaction or other disposition of its liabilities,
dissolution of Seller as a business entity and, upon such dissolution, transfer
of Seller's remaining assets to a liquidating trust for the benefit of its
stockholders.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer, in a transaction qualifying as a Tax-free sale of assets-for-stock
reorganization of Seller under Internal Revenue Code (the "Code") Section
368(a)(1)(C), substantially all of Seller's assets relating to, required for,
used in or otherwise constituting Seller's Business (as defined below) in
exchange for the assumption of certain liabilities relating to the Business and
the issuance of shares of Buyer's Common Stock as provided for herein.
C. The respective Boards of Directors of each of Buyer and Seller have
determined that this Agreement and the transactions contemplated hereby are in
furtherance of and consistent with their respective business strategies and in
the best interests of their respective stockholders.
D. Concurrently with the execution and delivery by the Parties of this
Agreement, as a material inducement to each of Buyer and Seller to enter into
this Agreement, each of Xxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxxx and Xxxxxx X.
XxXxxxxxx (each, a "Key Employee" and collectively, the "Key Employees") has
executed and delivered to Buyer separate employment agreements attached to this
Agreement respectively as Exhibit X-0, Xxxxxxx X-0 and Exhibit A-3 hereto (the
"Employment Agreements"), the effectiveness of which agreements is subject only
to the Closing (as defined in Section 2.3 below).
E. Concurrently with the execution and delivery by the Parties of this
Agreement, as a material inducement to each of Buyer and Seller to enter into
this Agreement, each of the Key Employees has executed and delivered to Buyer
separate non-competition agreements attached to this Agreement respectively as
Exhibit B-1, Exhibit B-2 and Exhibit B-3 hereto (the "Non-Competition
Agreements"), the effectiveness of which agreements is subject only to the
Closing.
F. Concurrently with the execution and delivery by the Parties of this
Agreement, as a material inducement to each of Buyer and Seller to enter into
this Agreement, each of the Key Employees has executed and delivered to Buyer
separate confidential information and invention assignment agreements attached
to this Agreement respectively as Exhibit C-1, Exhibit C-2
1
and Exhibit C-3 hereto (the "Executive Confidentiality/Invention Agreements"),
the effectiveness of which agreements is subject only to the Closing.
G. Concurrently with the execution and delivery by the Parties of this
Agreement, as a material inducement to Buyer to enter into this Agreement, each
of the Subject Company Shareholders (as defined below) has executed and
delivered to Buyer a Voting and Proxy Agreement (the "Voting and Proxy
Agreement(s)") with Buyer and Seller attached to this Agreement as Exhibits X-0,
X-0, X-0, X-0 and D-5, which become effective on the date hereof.
H. Concurrently with the execution and delivery of this Agreement, as a
material inducement to Buyer and Seller to enter into this Agreement, each of
the Technical Transferred Employees (as defined below) has executed and
delivered to Buyer, and Buyer has executed and delivered to each of the
Technical Transferred Employees, an offer of employment letter (the "Technical
Employee Offer Letter(s)") attached to this Agreement as Exhibits E-1, E-2, E-3
and E-4.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, each of
which is incorporated in this Agreement as an essential term hereof, and the
covenants, promises 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 1
PURCHASE OF ASSETS AND ASSUMPTION OF CERTAIN LIABILITIES
1.1 Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement and except for the Excluded Assets as defined in Section 1.2,
Seller agrees to transfer, convey, assign and deliver to Buyer on the Closing
Date (as defined in Section 2.3 below), and Buyer agrees to buy from Seller,
free and clear of all encumbrances, all of Seller's right, title and interest in
and to all of the following assets wherever situated as of the Closing Date
(collectively, the "Acquired Assets") relating to Seller's digital media
technology and networking business (the "Business"):
1.1.1 all versions of Seller's hardware, software and service
products for the Business, which are listed by each such category on
Schedule 1.1.1 hereto, including all copies of the object code and all
copies of all source code for each version of said software and service
products, in source code and object code form, from which such software
and service products are derived (collectively, the "Products"), and
all of Seller's right, title and interest in and to any engineering,
product, test and manufacturing documentation or material used in the
Business, and any and all know-how, show-how, netlists, schematics,
bills of materials, design documentation, or other proprietary Seller
or Third Party documentation or software that is related to or used in
or proposed to be used in the Business or in connection with the
Products (collectively, the "Technology");
1.1.2 all of Seller's right, title and interest in and to (i)
the copyrights in all versions of the Products, in and to all of the
Technology, and in and to the items described in Section 1.1.7 below,
whether or not those copyrights are registered, with
2
those that are registered listed on Schedule 1.1.2 hereto
(collectively, the "Transferred Copyrights" and individually, a
"Transferred Copyright"), (ii) any and all patents related to the
Products, the Business or the Technology, including applications in
progress, applications, provisional patents, continuations,
continuations in part, extensions and counterparts, all of which are
listed and described on Schedule 1.1.2 hereto (the "Transferred
Patents"), (iii) the trademarks used in the Business as described on
Schedule 1.1.2 hereto, together with all electronic copies and other
master copies of the foregoing (the "Transferred Trademarks"), together
with the goodwill associated with those trademarks, and (iv) any and
all rights in semiconductor mask-works, trade secrets, and any other
intangible rights in and to the Business, the Products or the
Technology, including rights to use specific URLs, all of which URLs
are listed and described on Schedule 1.1.2 hereto (the "Transferred
Domain Names").
The Products, the Technology, the Transferred Copyrights, the
Transferred Patents, the Transferred Trademarks and the Transferred
Domain Names, are referred to collectively herein as the "Transferred
Intellectual Property;"
1.1.3 all of Seller's past, present and future claims against
any Person relating to items included in the Acquired Assets,
including, without limitation, all causes in action and unliquidated
rights under manufacturers' and vendors' warranties or guarantees, but
only to the extent such claims do not relate to any liabilities
retained by Seller and not assumed by Buyer;
1.1.4 the current assets set forth and as described in
Schedule 1.1.4 (the "Acquired Current Assets"), all of which shall be
estimated as of the Closing Date pursuant to the preparation and
delivery of the Statement of Estimated Closing Net Working Capital (as
defined in Section 2.2.1 below);
1.1.5 all governmental permits, licenses or approvals owned or
held by Seller associated with the ownership, use or operation of the
Acquired Assets;
1.1.6 all contracts, licenses, instruments or other agreements
or rights to use the technology of Third Parties held by Seller
relating to the Business as described on Schedule 1.1.6, and all other
items used by Seller in connection with the development, manufacture,
testing, marketing or sale of the Acquired Assets or relating to the
Business, all of which are listed and described in Schedule 1.1.6 and,
to the extent transferable, all warranty rights and claims against
Third Parties relating to or arising under the Business (together with
those contracts, licenses and agreements, which are listed and
described in Schedule 1.1.9, the "Assigned Contracts");
1.1.7 all drawings, creative materials, advertising and
promotional materials, marketing materials, studies, reports, equipment
repair, maintenance or service records relating to the Business,
whether written or electronically stored or otherwise recorded;
1.1.8 all the tangible property, equipment, and fixed assets
of Seller, all of which are listed and described on Schedule 1.1.8,
including all personal property, equipment, computers and inventory
used in the Business;
3
1.1.9 any and all maintenance, product, service, distribution
and/or other agreements to provide Products and/or services to Third
Parties who are Seller customers, and any other similar agreements, all
of which are listed and described in Schedule 1.1.9 (together with
those contracts, licenses and agreements described in Section 1.1.6
above, also the "Assigned Contracts");
1.1.10 Seller's insurance policies and prepaid premiums
(including all rights and interests therein and the proceeds thereof)
on the lives of the Key Employees, Transferred Technical Employees and
of any Transferred Employees, all of which are listed and described on
Schedule 1.1.10 (the "Transferred Insurance Policies"); and
1.1.11 the right to use and register with any Governmental
Body the name(s) "Visual Circuits," "Visual Circuits Corporation" or
any variation of "Visual Circuits."
1.2 Assets and Properties Not to be Transferred. On and after the
Closing, Seller shall retain and Buyer shall not acquire the following assets
and properties (the "Excluded Assets"):
1.2.1 Seller's corporate franchise;
1.2.2 Seller's rights arising from, in connection with or
incident to the transactions contemplated by this Agreement, including
the Collateral Agreements, the Non-Disclosure Agreement Amendment and
the Amended Non-Disclosure Agreement;
1.2.3 Seller's title and ownership of its bank accounts and
brokerage accounts;
1.2.4 the current assets set forth and as described in
Schedule 1.2.4, all of which shall be estimated as of the Closing Date
pursuant to the preparation and delivery of the Statement of Estimated
Closing Net Working Capital (the "Excluded Current Assets");
1.2.5 those Seller's insurance policies (including all rights
and interests therein and proceeds thereof), that are not Transferred
Insurance Policies;
1.2.6 pension, profit sharing or savings plans and trusts and
the assets thereof and any other benefit plan of Seller;
1.2.7 Seller's rights, title and interest under the
outstanding contracts, agreements, licenses, leases and similar
documents or instruments with Third Parties that are not Assigned
Contracts, including leasehold improvements under the Minnesota
Facility lease;
1.2.8 all Tax attributes or credits (including net operating
losses) arising from Seller's operation of the Business prior to the
Closing Date which do not transfer to Buyer by operation of law,
claims, causes of action, interests, rights of rebate and refunds
(including Tax refunds) to the extent that each of the foregoing relate
to any taxable period (or portion thereof) ending on or before the
Closing Date (the "Pre-Closing Tax
4
Period") relating to or arising out of the foregoing Excluded Assets or
arising out of the liabilities to be retained by Seller pursuant to
Section 1.3 below;
1.2.9 the following books and records of the Business:
1.2.9.1 copies of: all business records of the
Business (including employment records of Key Employees,
Technical Transferred Employees and Transferred Employees) and
the software embodiments thereof on electronic or magnetic
form and all software applications to maintain such business
records of the Business; and
1.2.9.2 originals of: Tax Returns, financial
statements, employee benefit plans and associated statements
and records, stockholder records, records and plans relating
to warrants and stock options, banking records and other
records evidencing financial borrowing or investment
transactions prior to the Closing, personnel records of all
current and former Seller Employees that are not Key
Employees, Technical Transferred Employees or Transferred
Employees, Seller's corporate record book, Seller's insurance
policies, all contracts, agreements, licenses, leases
(including the lease on the Minnesota Facility) and similar
documents and instruments that are not Assigned Contracts, and
any records, documents or other instruments arising from, in
connection with or incident to an Excluded Asset or an
Excluded Liability.
1.2.10 any and all rights, claims or actions of Seller against
any officer, director, Employee or agent of Seller; and
1.2.11 the computer hardware and software presently used by
Seller's chief financial officer set forth on Schedule 1.2.11.
1.3 Limited Assumption of Seller Liabilities; Excluded Liabilities.
1.3.1 At and upon the Closing, Buyer shall assume and perform
(i) the current liabilities set forth and described in Schedule 1.3.1,
all of which shall be estimated as of the Closing Date pursuant to the
preparation and delivery of the Statement of Estimated Net Working
Capital (the "Assumed Current Liabilities") and obligations of Seller
related to the ongoing operations of the Business (the "Current
Liabilities") including all warranty work, and (ii) the obligations of
Seller under and pursuant to the Assigned Contracts (collectively, the
Assumed Current Liabilities and the obligations under and pursuant to
the Assigned Contracts are referred to herein as "Assumed
Liabilities"). The Assumed Liabilities shall not include any of
Seller's lease obligations with respect to Seller's currently leased
facilities in Minnesota (the "Minnesota Facility").
1.3.2 Buyer shall not assume nor perform any other liabilities
or obligations of Seller, except as specifically set forth herein.
Except as specifically set forth herein, Buyer shall and does not
assume, agree to perform, discharge or indemnify Seller against or
otherwise have any liability or obligation which is or was directly or
indirectly associated with or related to the Business and/or the
Acquired Assets prior to the Closing
5
Date, including, without limitation, the current liabilities set forth
and described in Schedule 1.3.2 (the "Excluded Current Liabilities"),
any Taxes, whenever arising, of Seller or any of its affiliates for any
period, or relating or attributable to the Acquired Assets or the
operation of the Business during the Pre-Closing Tax Period ("Seller's
Taxes"), or any Benefits Liabilities (collectively, all of which are
referred to as the "Excluded Liabilities").
1.4 Instruments of Transfer. The sale, assignment, transfer, conveyance
and delivery of the Acquired Assets shall be made by such bills of sale, patent
and trademark assignment documentation and other recordable instruments of
assignment, transfer and conveyance as Buyer shall reasonably request.
1.5 Sales and Other Taxes. Seller shall be responsible for, and shall
pay or cause to be paid, any and all sales, use, documentary, recording and
similar transfer Taxes attributable to the purchase of the Acquired Assets
contemplated by this Agreement. Buyer shall cooperate with Seller to the extent
reasonably requested to minimize such Taxes. Seller shall be responsible for,
and shall pay or cause to be paid, all of Seller's Taxes, including, without
limitation, the portion of any real or personal property Taxes or other similar
Taxes allocated to the Pre-Closing Tax Period on a per diem basis.
ARTICLE 2
PURCHASE PRICE AND THE CLOSING
2.1 Price Amount and Share Consideration. As consideration for the
Acquired Assets, on the Closing Date Buyer shall issue to Seller and the Escrow
Agent (i) registered and freely tradable shares of Buyer's Common Stock valued
in the aggregate at Eight Million Five Hundred Thousand Dollars ($8,500,000)
(the "Calculated Share Consideration"), subject to the upward adjustment at the
Closing described in Section 2.2.2 below (the "Price Amount"), and (ii) One
Hundred Fifty Thousand (150,000) registered and freely tradable shares of
Buyer's Common Stock (the "Stated Share Consideration") with each of the
Calculated Share Consideration and the Stated Share Consideration subject to (A)
the Estimated Closing Net Working Capital Adjustment described in Section 2.2.1
below, and (B) the Final Closing Net Working Capital Adjustment set forth in
Section 2.2 below (collectively, the Calculated Share Consideration and the
Stated Share Consideration shall be referred to herein as the "Share
Consideration").
2.1.1 The exact number of shares of Buyer's Common Stock to be
issued by Buyer for the Calculated Share Consideration shall be
computed on or before the Closing Date by dividing the Price Amount,
less the Estimated Closing Net Working Capital Adjustment, by the
Calculated Share Consideration Price (defined in and computed pursuant
to Section 2.1.2); provided, however, that in no event shall the
Calculated Share Consideration, regardless of the foregoing
computation, be less than two million seven hundred fifty thousand
(2,750,000) shares or more than four million five hundred thousand
(4,500,000) shares.
6
2.1.2 The Price Amount shall be computed by determination of
the average of the closing Nasdaq Small Cap Market selling price of
Buyer's Common Stock for a period of the twenty (20) trading days
preceding and ten (10) trading days following, the later of the date of
(i) this Agreement, or (ii) Buyer's public announcement of the
execution of this Agreement by both Parties (which shall not be later
than two (2) business days after the date of this Agreement) (the
"Share Consideration Price").
2.1.3 On the Closing Date, Buyer shall issue the Share
Consideration to Seller as follows:
2.1.3.1 ninety percent (90%) of the shares of Buyer's
Common Stock constituting the Share Consideration computed in
accordance with Section 2.1.1 shall be issued to Seller and/or
Seller's designee shareholders as provided in Seller's written
instructions to Buyer at least ten (10) days prior to the
Closing Date (the "Closing Shares"); and
2.1.3.2 ten percent (10%) of the shares of Buyer's
Common Stock constituting the Share Consideration (the "Escrow
Shares"), subject to any increase in Escrow Shares pursuant to
Section 2.2.3.3 below, shall be placed in escrow (the
"Escrow") with US Bank National Association as Third Party
escrow agent (the "Escrow Agent") for a period of twelve (12)
months from and after the Closing Date (subject to the
extension provisions for claims made by Buyer pursuant to the
Escrow Agreement, as defined below) (the "Escrow Period"),
pursuant to the escrow agreement in the form set forth as
Exhibit F to this Agreement (the "Escrow Agreement")
indemnifying Buyer in accordance with Article 9 hereof.
2.2 Net Working Capital and Cash Adjustments.
2.2.1 Estimated Closing Net Working Capital Adjustment. Not
less than three (3) days prior to the Closing Date, Seller shall
deliver to Buyer a statement of the Estimated Closing Net Working
Capital (the "Statement of Estimated Closing Net Working Capital")
determined on a basis consistent with the methodology to be employed in
the calculation of the Closing Net Working Capital pursuant to Section
2.2.3 below in the form set forth as, and in accordance with the
directives set forth in, Schedule 2.2.1 (such estimate, the "Estimated
Closing Net Working Capital"). In furtherance of the foregoing, Seller
shall also concurrently deliver to Buyer a detailed schedule of
Seller's Reorganization Expenses (segregated by professional services
and the amount paid to each of the professional advisors), certified to
be accurate by an officer of Seller, the total of which shall equal the
amount in the account "Prepaid Expense - Seller's Reorganization
Expense" as set forth in the Statement of Estimated Closing Net Working
Capital. To the extent that the Estimated Closing Net Working Capital
is less than Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Target Closing Net Working Capital"), the Price Amount will be
decreased by such shortfall. Subsequent to Closing, the provisions of
Section 2.2.3 will apply (the "Estimated Closing Net Working Capital
Adjustment").
7
2.2.2 Estimated Closing Cash Adjustment. Not less than three
(3) days prior to the Closing Date, Seller shall deliver to Buyer a
statement of Estimated Closing Cash (the "Statement of Estimated
Closing Cash") which shall show all cash of the Company estimated as of
the end of business on the Closing Date (the "Estimated Closing Cash").
To the extent that the Estimated Closing Cash (or Final Closing Cash,
as defined in Section 2.2.3.3 below, taking into account any prior
adjustment taken pursuant to the calculation of Estimated Closing Cash
at the Closing) is equal to or less than Two Hundred Twenty Thousand
Dollars ($220,000), Seller shall be entitled to retain such amount, and
the Price Amount shall be increased up to $30,000, by the amount of the
difference between $220,000 and the lesser of Estimated Closing Cash or
Final Closing Cash. Subsequent to the Closing, the Estimated Closing
Cash shall be reconciled to the actual cash balance (the "Closing
Cash") in accordance with Section 2.2.3.3 below (the "Closing Cash
Adjustment"), which adjustment may result in an addition or reduction
to the Price Amount adjustment made at the Closing as set forth in
Section 2.2.3.3(ii) and the paragraphs and Schedules corresponding
thereto. In the event the calculation of Estimated Closing Cash is in
excess of $220,000, Seller shall remit such excess (Estimated Closing
Cash minus $220,000) to Buyer within two (2) business days after the
Closing Date. Any remittance of cash to Buyer by Seller shall be made
in accordance with Buyer's written instructions that are received by
Seller at least two (2) business days prior to the required remittance
date.
2.2.3 Closing Net Working Capital Adjustment; Closing Cash
Adjustment.
2.2.3.1 Between sixty (60) and ninety (90) days after
the Closing Date, Seller shall prepare and deliver to Buyer a
(i) statement of the Closing Net Working Capital (the
"Statement of Closing Net Working Capital"), and (ii)
statement of Closing Cash (the "Statement of Closing Cash").
During such period, Buyer shall have observation rights with
respect to the preparation of the Statement of Closing Net
Working Capital and the Statement of Closing Cash. The
Statement of Closing Net Working Capital shall be based upon
the books and records of Seller and shall be prepared in
accordance with GAAP and the form set forth as, and in
accordance with the directives set forth in, Schedule 2.2.1.
The Statement of Closing Cash shall be based upon the books
and records of Seller and shall be prepared in conformity with
the form and in accordance with the directives set forth in
the various Schedules 2.2.3.3 hereof.
2.2.3.2 The Statement of Closing Net Working Capital
and the Statement of Closing Cash shall respectively be final
and binding on the Parties unless Buyer shall, within
forty-five (45) days following the delivery of the date when
Buyer has received both the (i) Statement of Closing Net
Working Capital, and (ii) Statement of Closing Cash, deliver
to Seller written notice of disagreement with either or both
of such statements, which notice(s) shall describe the nature
of any such disagreement in reasonable detail, identify the
specific items involved and the dollar amount of each such
disagreement. Buyer shall provide reasonable supporting
documentation for each of the specific items involved
concurrently with the delivery of the respective notice(s).
After the end of such forty-five (45) day period, Buyer may
not introduce additional
8
disagreements with respect to any item in the Statement of
Closing Net Working Capital or the Statement of Closing Cash.
If Buyer shall raise any objections within the aforesaid
forty-five (45) day period, then Buyer and Seller shall
attempt to resolve the objections. If Buyer and Seller are
unable to resolve all objections within forty-five (45) days
of receipt by Seller of Buyer's written notice of
disagreement, or such longer period as may be agreed by Buyer
and Seller, then, within forty-five (45) days thereafter,
Buyer and Seller jointly shall select an arbitrator from a
nationally recognized independent public accounting firm that
is not the independent auditor of either Buyer or Seller. If
Buyer and Seller are unable to select an arbitrator within
such time period, the American Arbitration Association shall
make such selection (the Person so selected by either the
Parties or the American Arbitration Association shall be
referred to herein as the "Accounting Arbitrator"). The
Accounting Arbitrator will consider only those items and
amounts set forth in the Statement of Closing Net Working
Capital and/or the Statement of Closing Cash as to which the
Parties have disagreed within the time periods and on the
terms specified above and must resolve the matter in
accordance with the terms and provisions of this Agreement. In
submitting a dispute to the Accounting Arbitrator, each of the
Parties shall concurrently furnish, at its own respective
expense, to the Accounting Arbitrator and the other Party such
documents and information as the Accounting Arbitrator may
request. Each Party may also furnish to the Accounting
Arbitrator such other information and documents as it deems
relevant, with copies of such submission and all such
documents and information being concurrently given to the
other Party. Neither Party shall have or conduct any
communication, either written or oral, with the Accounting
Arbitrator without the other Party, respectively, either being
present or receiving a concurrent copy of any written
communication. The Accounting Arbitrator shall conduct one
conference concerning the objections and disagreements between
Buyer and Seller, at which conference each Party shall have
the right to (i) present its documents, materials and other
evidence (previously provided to the Accounting Arbitrator and
the other Party), and (ii) have present its or their advisors,
accountants, counsel and other representatives. Such
conference shall take place either telephonically and/or at
the offices of the Accounting Arbitrator, in the Accounting
Arbitrator's discretion, and not exceed more than three (3)
days, eight (8) hours each day, of hearings, or such other
period of time reasonably determined by the Accounting
Arbitrator to be required. The Accounting Arbitrator shall
resolve each item of disagreement based solely on the
presentations and supporting material provided by the Parties
and not pursuant to any independent review (the foregoing,
however, shall not preclude the Accounting Arbitrator from
independent research of facts or determining proper
application of GAAP or the terms of this Agreement, as the
case may be, with respect to the subject matter of the
objections and disagreement between the Parties). The
Accounting Arbitrator shall issue a detailed written report
that sets forth the resolution of all items in dispute and
that contains, as applicable, a (i) final Statement of Closing
Net Working Capital, and/or (ii) final Statement of Closing
Cash, according to the dispute(s) noticed. Such report(s)
shall be final and binding upon the Parties (and their
successors and permitted
9
assigns). The Accounting Arbitrator shall circulate a
preliminary report(s) for the comment of the Parties. The fees
and expenses of the Accounting Arbitrator incurred in
connection with the determination of the disputed items by the
Accounting Arbitrator shall be borne equally by Buyer and
Seller. Buyer and Seller shall cooperate fully with the
Accounting Arbitrator and respond on a timely basis to all
requests for information or access to documents or personnel
made by the Accounting Arbitrator or by other Parties hereto,
all with the intent to fairly and in good faith resolve all
disputes relating to the Statement of Closing Net Working
Capital and/or Statement of Closing Cash as promptly as
reasonably practicable.
2.2.3.3 If the amount representing:
(i) Closing Net Working Capital as reflected
in the Statement of Closing Net Working Capital as
finally determined in accordance with this Section
2.2 (the "Final Closing Net Working Capital") is:
(A) less than the Estimated Closing
Net Working Capital, and the Final Closing
Net Working Capital is $750,000 or less,
then the Price Amount shall be decreased on
a dollar-for-dollar basis by the lesser of
the difference between (x) the Final Closing
Net Working Capital and $750,000, or (y) the
Final Closing Net Working Capital and the
Estimated Closing Net Working Capital, as
set forth in the examples to Section
2.2.3.3(i)(A) set forth in Schedule
2.2.3.3(i);
(B) more than the Estimated Closing
Net Working Capital, and the Estimated
Closing Net Working Capital was $750,000 or
less (if estimated working capital was
$750,000 or more, use $750,000), then the
Price Amount shall be increased on a
dollar-for-dollar basis by the amount of the
difference between (x) the Final Closing Net
Working Capital (which amount for purposes
of this calculation shall not exceed
$750,000), and (y) the Estimated Closing Net
Working Capital (which shall not exceed
$750,000 for purposes of this calculation),
as set forth in the examples to Section
2.2.3.3(i)(B) set forth in Schedule
2.2.3.3(i);
(ii) Closing Cash as reflected in the
Statement of Closing Cash as finally determined in
accordance with this Section 2.2 (the "Final Closing
Cash") is:
(A) greater than $220,000, and
there (i) are Seller's Reorganization
Expenses, and (ii) was no adjustment to the
Price Amount pursuant to Section 2.2.2, then
the difference between Final Closing Cash
and $220,000, plus the amount of Seller's
Reorganization Expenses, shall reduce the
amount of cash that may be retained by
Seller. The foregoing shall be computed
10
and proofed by the method and in the form
set forth in Schedule 2.2.3.3(ii)(A); or
(B) greater than $220,000, and
there (i) are Seller's Reorganization
Expenses, and (ii) was an adjustment on the
Closing Date to the Price Amount based on
the calculation of Estimated Closing Cash
pursuant to Section 2.2.2, the sum of (x)
the difference between the Final Closing
Cash and $220,000, plus (y) the sum of (1)
the adjustment to the Price Amount which
increased Calculated Share Consideration on
the Closing Date pursuant to Section 2.2.2,
and (2) the amount of Seller's
Reorganization Expenses, shall reduce the
amount of cash that may be retained by
Seller. The foregoing shall be computed and
proofed by the method and in the form set
forth in Schedule 2.2.3.3(ii)(B); or
(C) equal to or less than $220,000,
and there (i) are Seller's Reorganization
Expenses, and (ii) was no adjustment on the
Closing Date to the Price Amount pursuant to
Section 2.2.2, then (x) the amount of
Seller's Reorganization Expenses, minus (y)
any increase to the Price Amount (to a
maximum of $30,000) due to the difference
between $220,000 and Final Closing Cash. The
foregoing shall reduce the amount of cash
that may be retained by Seller and the
foregoing shall be computed and proofed in
the form set forth in Schedule
2.2.3.3(ii)(C); or
(D) equal to or less than $220,000,
there was an adjustment to the Price Amount
and both Estimated Closing Cash and Final
Closing Cash are $190,000 or less, and there
are Seller's Reorganization Expenses, then
the amount of Seller's Reorganization
Expenses shall reduce the amount of cash
that may be retained by Seller. The
foregoing shall be computed and proofed by
the method and in the form set forth in
Schedule 2.2.3.3(ii)(D); or
(E) equal to or less than $220,000,
there was an adjustment to the Price Amount
and both Estimated Closing Cash and Final
Closing Cash are $190,000 or more and
Estimated Closing Cash is greater than Final
Closing Cash, and there are Seller's
Reorganization Expenses, then the sum of (i)
Seller's Reorganization Expenses, minus (ii)
the difference between Final Closing Cash
and Estimated Closing Cash shall reduce the
amount of cash that may be retained by
Seller. The foregoing shall be computed and
proofed by the method and in the form set
forth in Schedule 2.2.3.3(ii)(E); or
(F) equal to or less than $220,000,
there was an adjustment to the Price Amount
and both Estimated Closing Cash and Final
Closing Cash are $190,000 or more and
Estimated
11
Closing Cash is less than Final Closing
Cash, and there are Seller's Reorganization
Expenses, then the sum of (i) Seller's
Reorganization Expenses, plus (ii) the
difference between Final Closing Cash and
Estimated Closing Cash shall reduce the
amount of cash that may be retained by
Seller. The foregoing shall be computed and
proofed by the method and in the form set
forth in Schedule 2.2.3.3(ii)(F); or
(G) equal to or less than $220,000,
there was an adjustment to the Price Amount
and Estimated Closing Cash is less than or
equal to $190,000 and Final Closing Cash is
greater than $190,000, and there are
Seller's Reorganization Expenses, then the
sum of (i) Seller's Reorganization Expenses,
plus (ii) the difference between Final
Closing Cash and $190,000 shall reduce the
amount of cash that may be retained by
Seller. The foregoing shall be computed and
proofed by the method and in the form set
forth in Schedule 2.2.3.3(ii)(G); or
(H) equal to or less than $220,000,
there was an adjustment to the Price Amount
and Estimated Closing Cash is greater than
$190,000 and Final Closing Cash is less than
$190,000, and there are Seller's
Reorganization Expenses, then the sum of (i)
Seller's Reorganization Expenses, minus (ii)
the difference between Estimated Closing
Cash and $190,000 shall reduce the amount of
cash that may be retained by Seller. The
foregoing shall be computed and proofed by
the method and in the form set forth in
Schedule 2.2.3.3(ii)(H).
If the calculation set forth in Section 2.2.3.3(i) above
results in a decrease or increase in the Price Amount, then the amount
of such decrease or increase shall be divided by the Share
Consideration Price to compute the number of shares of Buyer's Common
Stock (computed to the next whole share) to be claimed by Buyer or
Seller, as applicable, in settlement of the adjustment (the "Final
Closing Net Working Capital Adjustment"). Upon such final determination
(i) if the Price Amount is decreased, then Buyer shall have the right
to claim the shares computed from the Escrow Agent and the Escrow Agent
shall be authorized to distribute such shares from the Escrow Shares in
accordance with the procedures set forth in the Escrow Agreement, or
(ii) if the Price Amount is increased, then Buyer shall issue the
additional shares and share certificates of Buyer's Common Stock as
Share Consideration (i) ninety percent (90%) to Seller, and (ii) ten
percent (10%) to the Escrow Agent within five (5) business days after
such determination.
If the calculation set forth in Section 2.2.3.3(ii) above
results in a reduction of the cash allowed to be retained by Seller,
then upon such final determination Seller shall, within five (5)
business days after such determination, remit to Buyer the amount of
such reduction (less any amount previously remitted by Seller in
accordance with Section 2.2.2) in accordance with Buyer's written
instructions
12
that are received by Seller at least two (2) business days prior to the
required remittance date.
2.3 The Closing. The transactions contemplated by this Agreement shall
be consummated (the "Closing") at the offices of Manatt, Xxxxxx & Xxxxxxxx, LLP,
1001 Page Xxxx Xxxx, Xxxxxxxx #0, Xxxx Xxxx, Xxxxxxxxxx 00000, at 10:00 a.m.
local time on or before June 30, 2004, or at such other time or place as the
Parties shall mutually agree (the "Closing Date"). The Closing shall be
effective at 12:01 a.m. on the Closing Date.
2.3.1 Actions at the Closing. At the Closing:
2.3.1.1 Buyer shall deliver to Seller one or more
stock certificates, as directed by Seller in writing at least
three (3) days prior to the Closing Date, representing (in the
aggregate) the Closing Shares in accordance with Section
2.1.3.1 above;
2.3.1.2 Buyer shall deliver to the Escrow Agent a
stock certificate representing the Escrow Shares in accordance
with Section 2.1.3.2 above;
2.3.1.3 Seller shall execute and deliver to Buyer the
Xxxx of Sale and Assignment of Acquired Assets (Exhibit G),
the Assignment of Copyrights (Exhibit H), the Patent
Assignment (Exhibit I), the Trademark Assignment (Exhibit J),
the Registered Domain Name Assignment (Exhibit K), the
Assignment and Assumption Agreement (Exhibit L), the Real
Property Sublease Agreement (Exhibit M), and all other bills
of sale, endorsements, assignments and other instruments as
Buyer shall reasonably request or as necessary or appropriate
to sell, convey, assign, transfer and deliver to Buyer good
title, free and clear of all liens or encumbrances to all the
Acquired Assets and to evidence the due execution, delivery
and performance of the Agreement and satisfaction of the
conditions to the obligations of Buyer under this Agreement
(collectively, the "Collateral Agreements");
2.3.1.4 Seller shall deliver to Buyer (i) UCC
termination statements duly executed by the holders of all
security interests with respect to all outstanding UCC-1
financing statements evidencing security interests in any of
the Acquired Assets, and (ii) evidence, satisfactory to Buyer,
of termination and/or release of all security agreements,
security interests or guarantees affecting or relating to the
Acquired Assets to the extent reasonably required to provide
Buyer with clear title to the Acquired Assets;
2.3.1.5 Seller and Buyer shall execute and deliver
the Escrow Agreement;
2.3.1.6 Buyer shall execute and deliver to Seller the
Assignment and Assumption Agreement and the Real Property
Sublease Agreement;
2.3.1.7 Each of Buyer and Seller shall deliver the
items required under Articles 7 and 8, respectively; and
13
2.3.1.8 Each of Buyer and Seller shall deliver such
documents and instruments as reasonably requested and required
by the other Party as is customary for a transaction of this
kind and type in order to properly effect the transactions
contemplated hereby.
2.4 Certain Restrictions on Sale of Share Consideration. Seller shall
be free to re-distribute the Share Consideration upon its receipt from Buyer in
order to satisfy Seller's liabilities and obligations to Seller's shareholders,
subject to compliance with applicable securities laws and the contractual
restrictions set forth in this Section 2.4. The stock certificates representing
Closing Shares shall bear appropriate legends to implement the following
transfer restrictions (and Buyer's transfer agent shall be instructed
accordingly). If, after the Closing, Seller so distributes all or any portion of
the Closing Shares to its shareholders, then neither Xxxxx X. Xxxxxx nor Xxxxxx
X. Xxxxxxxx shall sell more than (i) twenty-five percent (25%) of his respective
Closing Shares during the first ninety (90) days after the Closing, (ii) fifty
percent (50%) of his respective Closing Shares during the first one hundred
eighty (180) days after the Closing, and (iii) seventy-five percent (75%) of his
respective Closing Shares during the first two hundred seventy (270) days after
the Closing. After such 270 days following the Closing, all restrictions on
sales of the Share Consideration shall terminate. The foregoing restrictions
with respect to Messrs. Parish and Xxxxxxxx on sales during the 270-day period
following the Closing shall not apply to: (i) any sale or disposition pursuant
to a tender offer made to substantially all of Buyer's stockholders, or (ii) any
sale or disposition of Buyer's Common Stock in a merger, reorganization,
recapitalization, business combination, or similar transaction approved by
Buyer's stockholders.
2.5 Purchase Price Allocation. Promptly following the Closing, Buyer
shall prepare a mutually agreed allocation of the purchase price in accordance
with Section 1060 of the Code. Buyer shall consult with Seller on same before
finalizing such allocation. Each of the Parties agrees to report this
transaction for state, federal and other Tax purposes in accordance with this
final allocation of the purchase price and not to file any Tax Return or report
or otherwise take a position with federal, state or other tax authorities which
is inconsistent with such allocation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES REGARDING
SELLER, BUSINESS AND ACQUIRED ASSETS
Except as set forth in the Disclosure Schedules of the Seller Disclosure Letter
(which shall specifically reference the Sections of this Agreement to which the
Disclosure Schedule therein applies as set forth in this Article 3), Seller
represents and warrants to Buyer as follows as of the date of this Agreement and
the Closing Date (except as specifically represented as to a specific date set
forth herein):
3.1 Good Standing and Authority.
3.1.1 Seller is a corporation organized, existing and in good
standing under the laws of the State of Minnesota, and is in good
standing and qualified to do business as a foreign corporation in the
states set forth in Disclosure Schedule 3.1.1.
14
3.1.2 Seller has all requisite corporate power and authority
to enter into this Agreement and the Collateral Agreements and to
consummate the transactions contemplated hereby and thereby. At the
Closing, the execution and delivery of this Agreement by Seller and the
consummation by Seller of the transactions contemplated by this
Agreement shall have been duly authorized by all requisite corporate
action of Seller, including, but not limited to, approval of the
transaction by the stockholders of Seller and any creditor whose
consent is required by contract or Applicable Law. Subject to the
approval of the stockholders of the Company in accordance with
Applicable Law, this Agreement has been duly executed and delivered by
and shall constitute the valid and binding obligations of Seller
enforceable in accordance with its terms, subject to and limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and
other Applicable Laws and equitable principles relating to or affecting
creditor's rights.
3.2 Title to and Condition and Sufficiency of Acquired Assets. Except
as set forth in Disclosure Schedule 3.2, Seller has good and marketable title to
all of the Acquired Assets, all of the Acquired Assets are free and clear of
restrictions on or conditions to transfer or assignment, and at the Closing,
Seller shall sell, convey, assign, transfer and deliver to Buyer title to the
Acquired Assets, free and clear of any mortgages, liens, pledges, encumbrances,
claims, conditions and restrictions, of any nature whatsoever, direct or
indirect, whether accrued, absolute, contingent or otherwise. Except as set
forth in Disclosure Schedule 3.2, the Acquired Assets constitute all of the
assets, properties, rights, contracts and Intellectual Property Rights (as
defined in Section 3.5.1) that are necessary or required for the continued
conduct of the Business, without (i) the need to purchase, license or acquire
any other material asset or property, (ii) violating any contractual rights of
any Third Party, or (iii) infringing, misappropriating or misusing any software
or Intellectual Property Rights of any Third Party. Except as set forth in
Disclosure Schedule 3.2, the Acquired Assets are all located at Seller's
principal place of business in the City of Xxxxxxx, State of Minnesota.
3.3 Noncontravention. Except as set forth in Disclosure Schedule 3.3,
neither the execution or the delivery of this Agreement, nor the consummation of
the transactions contemplated by this Agreement, shall (i) violate any
Applicable Law, Injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Body to which Seller or the Acquired Assets is
subject or any provision of the articles of incorporation or bylaws of Seller,
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any Person the right to accelerate, terminate,
modify or cancel, or require any notice under any agreement, contract, lease,
license, instrument, lien, security interest or other arrangement to which
Seller is a party or by which Seller is bound or to which any of the Acquired
Assets is subject (or result in the imposition of any security interest upon any
of its assets) except where such violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice or
security interest would not have a Material Adverse Effect on the Acquired
Assets or on the ability of Seller to consummate the transactions contemplated
by this Agreement. Except as set forth in Disclosure Schedule 3.3, Seller does
not need to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Body in order for the
Parties to consummate the transactions contemplated by this Agreement.
15
3.4 Compliance with Applicable Law; Litigation. Seller is in compliance
with all Applicable Laws the violation of which would have a Material Adverse
Effect on the Acquired Assets or on the ability of Seller to consummate the
transactions contemplated by this Agreement. There is no action, suit,
Proceeding or, to the Knowledge of Seller, investigation in progress or pending
before any Governmental Body, and there is no threat thereof against or relating
to Seller or its properties, assets or Business, nor, to the Knowledge of
Seller, is there any basis for any such claim, suit or other Proceeding which
might have a Material Adverse Effect on the Acquired Assets. Except as set forth
in Disclosure Schedule 3.4, there is no suit, action or other Proceeding, or to
the Knowledge of Seller any investigation, commenced, pending or threatened
against or affecting Seller in or before any Governmental Body, in which it is
sought to restrain, prohibit or otherwise adversely affect the ability of Seller
to perform any or all of the obligations required of it under this Agreement or
the consummation of the transactions contemplated by this Agreement.
3.5 Intellectual Property.
3.5.1 For purposes of this Agreement, "Intellectual Property
Rights" means patents (including any and all claims under patents,
applications for patents, continuations, continuations-in-part,
counterparts and reissues), copyrights (registered and unregistered),
trade marks, service marks and trade names (registered and
unregistered), semiconductor mask work rights, rights in databases,
trade secret rights and any and all similar rights under any
jurisdiction.
3.5.2 Schedule 1.1.2 to this Agreement lists all trademarks
and applications therefor, tradenames, copyright registrations and
applications therefor, patents, patent applications and unfiled
disclosures that are related to or used in connection with the Business
(the "Registered Intellectual Property"). Except as set forth on
Disclosure Schedule 3.5.2: (i) trademark applications, patent
applications and copyrights within the Registered Intellectual Property
are currently in compliance with all legal requirements, (ii) all
issued trademarks and patents constituting Registered Intellectual
Property are, to the Knowledge of Seller, valid and enforceable, (iii)
no (A) Transferred Trademark or trademark constituting Registered
Intellectual Property has been or is now involved in any cancellation
Proceeding and, to the Knowledge of Seller, no action or Proceeding is
threatened with respect to such trademarks by any Third Party
contesting Seller's rights to same, and (B) no copyright has been or is
now being contested by any Third Party, and, to the Knowledge of
Seller, no action or Proceeding is threatened with respect to such
copyright by any Third Party, and (iv) no patent or patent application
constituting Registered Intellectual Property is now, to the Knowledge
of Seller, involved in any interference, reissue, re-examination,
opposition or any other Proceeding contesting Seller's rights to same.
3.5.3 Except as set forth on Disclosure Schedule 3.5.3, Seller
exclusively owns, or to the extent indicated in Schedule 1.1.2 has the
right to non-exclusive use pursuant to a written license or agreement,
all Intellectual Property Rights related to or used in the Business.
16
3.5.4 Except as indicated in Schedule 1.1.2 and as set forth
on Disclosure Schedule 3.5.4, Seller has taken commercially reasonable
steps to protect its Intellectual Property Rights used in or related to
the Business.
3.5.5 Except as set forth on Disclosure Schedule 3.5.5, all of
Seller's Employees that have participated in the development of the
Intellectual Property Rights related to or used in the Business have
entered into employee agreements with Seller assigning all right, title
and interest in Intellectual Property Rights created within the scope
of their employment to Seller. Disclosure Schedule 3.5.5 lists all
Third Party consultants or contractors that have participated in the
development of the Intellectual Property Rights related to or used in
the Business. Except as set forth on Disclosure Schedule 3.5.5, all
such Third Parties have entered into agreements with Seller assigning
all right, title and interest in the Intellectual Property therein to
Seller and, pursuant to such agreements or Applicable Law, Seller owns
all of the right, title and interest of its Employees and Third Party
contractors and consultants to the Intellectual Property Rights in the
Acquired Assets.
3.5.6 Except as set forth on Disclosure Schedule 3.5.6, to the
Knowledge of Seller, (i) the operation and conduct of the Business does
not infringe upon, or otherwise violate the rights of any Third Party
with respect to any Intellectual Property Rights, (ii) no Proceedings
have been instituted or threatened, nor has any claim been made, nor
does Seller know with reasonable certainty of any basis for any such
claims to be threatened or made against Seller alleging any such
infringement or violation.
3.5.7 Except as set forth on Disclosure Schedule 3.5.7, to the
Knowledge of Seller, no Third Party has infringed upon or
misappropriated, or diluted or otherwise violated any Intellectual
Property Rights in the Products or otherwise used in or related to the
Business, and no such claims have been brought against any Third Party
by Seller.
3.5.8 Disclosure Schedule 3.5.8 sets forth the Intellectual
Property Rights presently used in the Business that have heretofore
been assigned, transferred, licensed or otherwise made available to any
Third Party, including under any license agreements.
3.5.9 With respect to each item of Transferred Intellectual
Property and Intellectual Property Rights related to or used in the
Business, except as set forth on Disclosure Schedule 3.5.9, (i) Seller
owns all such items free and clear of any security interest, (ii) the
item is not subject to any outstanding Injunction, judgment, order,
decree, ruling or charge, (iii) no action, suit, Proceeding, hearing,
charge, complaint, claim or demand, or to the Knowledge of Seller any
investigation, is pending or is threatened which challenges the
legality, validity, enforceability, use or ownership of the item, and
to the Knowledge of Seller, there is no reasonable basis therefor, and
(iv) Seller has not agreed to indemnify any Person for or against any
infringement or misappropriation with respect to the item.
3.5.10 Schedule 1.1.2 identifies each item of Transferred
Intellectual Property and Intellectual Property Rights used in or
related to the Business that is owned by a Third Party and is used
pursuant to license or agreement. Except as set forth on
17
Disclosure Schedule 3.5.10, Seller has provided Buyer with correct and
complete copies of all such licenses and agreements, and Seller is in
compliance with all material terms of all such licenses or agreements.
Except as set forth on Disclosure Schedule 3.5.10, to the Knowledge of
Seller, with respect to each such Third Party license or agreement, (i)
the underlying item is not subject to any outstanding Injunction,
judgment, order, decree, ruling or charge, (ii) no action, suit,
Proceeding, hearing, investigation, charge, complaint, claim or demand
is pending or is threatened which challenges the legality, validity,
enforceability, use or ownership of such Third Party license or
agreement, (iii) Seller has not granted any sublicense or similar right
with respect to such Third Party license or agreement, and (iv) with
respect to Seller, the Third Party license or agreement is legal,
valid, binding, enforceable and in full force and effect and will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the
transactions contemplated by this Agreement, subject to Applicable Laws
of bankruptcy, insolvency, moratorium, and other Applicable Laws and
equitable principles generally affecting creditor's rights.
3.5.11 Except as set forth on Disclosure Schedule 3.5.11, the
software included in the Transferred Intellectual Property does not
include, contain or depend on a link established at runtime to any
software made available as "open source" software (i.e., under a
license that requires the source code version of the software, together
with any improvements or derivative works, to be made generally
available) and does not contain any software code owned by a Third
Party.
3.5.12 Except as set forth on Disclosure Schedule 3.5.12, the
software delivered to Buyer as part of the Products is all of the
software that comprises the Products (including previous versions and
any software from which the Products were derived, in both source code
and object code form), all components, modules and programs
constituting the Products, and all software that Seller has used to
compile, develop or maintain the Products.
3.5.13 Except as set forth on Disclosure Schedule 3.5.13 and
to the Knowledge of Seller, the Products transferred under this
Agreement do not contain known worms, Trojan horses and other
infections or harmful routines. Disclosure Schedule 3.5.13 sets forth
any and all bugs, errors, or problems of which Seller has Knowledge
that could reasonably be expected to materially disrupt the operation
of the Products or have an adverse impact on the operation of other
software programs or operating systems used by the Products.
3.6 Agreements, Contracts and Commitments. Except as otherwise
contemplated by this Agreement or as set forth on Disclosure Schedule 3.6,
Seller is not a party to, or bound by:
3.6.1 any agreement, contract, or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise relating directly or indirectly to the Business, any
Acquired Asset or any Key Employee;
18
3.6.2 other than indemnification or guaranty provisions set
forth in the Assigned Contracts, any agreement of indemnification or
guaranty relating directly or indirectly to the Business, any Acquired
Asset or any Key Employee;
3.6.3 any agreement for which completion of performance by
Seller (without giving effect to the transactions contemplated hereby)
under the terms of such agreement would be reasonably likely to result
in a Material Adverse Effect on the Business or any Acquired Asset;
3.6.4 any agreement (or group of related agreements) that
imposes any restrictions on the marketing, license and distribution of
the Products);
3.6.5 any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money by Seller or extension of credit to Seller under
which any Person has imposed any lien on any of the Acquired Assets;
3.6.6 any distribution, joint marketing, development,
partnership or joint venture agreement relating to the Business or the
Acquired Assets;
3.6.7 any agreement pursuant to which Seller has granted, or
may grant in the future, to any Person a source code license or option
or other right to use or acquire source code affecting the Business or
any Acquired Asset;
3.6.8 any employment agreement, non-competition,
non-solicitation or other agreement, with the exception of stock option
agreements, warrant grants or agreements and similar incentive
compensation arrangements which utilize equitable interests in the
Company, with any Key Employee, Technical Transferred Employee or
Transferred Employee;
3.6.9 any agreement, contract or commitment containing any
covenant limiting in any respect the right of Seller to engage in any
line of business or to compete with any Person; or
3.6.10 any agreement pursuant to which Seller has agreed to,
or assumed, any obligation or duty to warrant, indemnify, hold harmless
or otherwise assume or incur any obligation or liability with respect
to the infringement or misappropriation by Seller or any Person of the
Intellectual Property.
Except as set forth on Disclosure Schedule 3.6, (i) Seller has not breached,
violated or defaulted under any of the terms of or conditions of any Assigned
Contract, (ii) each of the Assigned Contracts is in full force and effect and,
to the Knowledge of Seller, is not subject to any default thereunder by any
Person obligated to Seller pursuant thereto, and (iii) to the Knowledge of
Seller, following the Closing, Buyer shall be permitted to exercise all of
Seller's rights under the Assigned Contracts to the same extent Seller would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which Seller would otherwise be
required to pay.
19
3.7 Insurance. Except as set forth on Disclosure Schedule 3.7, (i)
there is no claim by Seller pending under any insurance policy or fidelity bond
covering the Acquired Assets, (ii) all premiums that are due and payable under
all such policies and bonds have been paid, (iii) Seller is otherwise in
compliance with the terms of all such policies and bonds, and (iv) policies of
insurance and bonds are of the type and in amounts customarily carried by
Persons conducting businesses similar to those of Seller in the jurisdictions in
which Seller operates.
3.8 Tax Matters. Except as set forth on Disclosure Schedule 3.8:
3.8.1 To the extent relevant to the Acquired Assets or the
Business, Seller has prepared and timely filed all required federal,
state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes concerning or
attributable to Seller, the Acquired Assets or the operations of the
Business and such Returns are true and correct and have been completed
in accordance with Applicable Law.
3.8.2 To the extent failure to do so could adversely affect
Buyer's use or ownership of the Acquired Assets or operation of the
Business, Seller (i) has paid all Taxes it is required to pay, and (ii)
has withheld with respect to its Employees 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 on wages paid to them.
3.8.3 To the extent failure to do so could adversely affect
Buyer or Buyer's use or ownership of the Acquired Assets or operation
of the Business, Seller has not been delinquent in the payment of any
Tax, nor is there any Tax deficiency outstanding, assessed or proposed
against Seller, nor has Seller executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
3.8.4 To the Knowledge of Seller, no audit or other
examination of any Return of Seller by any Governmental Body is
presently in progress, nor has Seller been notified of any request for
such an audit or other examination.
3.8.5 Seller does not have, and knows no factual basis for the
assertion of any claim for any liabilities for unpaid Taxes for which
Buyer would become liable as a result of the transactions contemplated
by this Agreement and the Collateral Agreements.
3.8.6 To the Knowledge of Seller, (i) there are no liens on
the Acquired Assets relating to or attributable to Taxes, and (ii)
Seller knows of no reasonable basis for the assertion of any claim
relating or attributable to Taxes which, if adversely determined, would
result in any lien on the Acquired Assets.
3.9 Employee and Labor Matters.
3.9.1 Except as contemplated by this Agreement or as set forth
on Disclosure Schedule 3.9.1, to the Knowledge of Seller: (i) no Key
Employee has any present intention to terminate his employment with
Seller prior to the Closing, (ii) no Key
20
Employee has received an offer to join a business that may reasonably
be expected to be competitive with the Business or Buyer's business,
and (iii) no Key Employee is a party to or is bound by any
confidentiality agreement, non-competition agreement or other contract
(with any Person) that may reasonably be expected to have an adverse
effect on the performance by such Key Employee of any of his duties or
responsibilities as an employee of Buyer subsequent of the consummation
of the transactions contemplated by this Agreement and the Collateral
Agreements.
3.9.2 Disclosure Schedule 3.9.2 contains a list of each plan,
program, policy, practice or contract providing for employment,
compensation, deferred compensation, severance, retirement, relocation,
repatriation, expatriation, termination pay, performance awards, stock
or stock-related awards, fringe benefits or other benefits, including
each "employee benefit plan" within the meaning of Section 3(3) of the
United States Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which is or has been maintained, contributed to, or
required to be contributed to by Seller or any affiliate within the
meaning of Section 414(b) or (c) of the Code and the regulations
thereunder ("ERISA Affiliate") for the benefit of any employee or with
respect to which Buyer may have any liability, obligation or
commitment.
3.9.3 Except as set forth on Disclosure Schedule 3.9.3, (i) no
work stoppage or labor strike against Seller or any ERISA Affiliate is
pending, or, to the Knowledge of Seller, threatened involving any of
its Employees, (ii) Seller and any ERISA Affiliate does not know of any
activities or Proceedings of any labor union to organize any of its
Employees, (iii) there are no actions, suits, claims, labor disputes or
grievances pending, or, to the Knowledge of Seller or any ERISA
Affiliate, threatened relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges
of unfair labor practices or discrimination complaints, and (iv)
neither Seller nor any ERISA Affiliate is a party to, or bound by, any
collective bargaining agreement or union contract with respect to any
Employees and no collective bargaining agreement is currently being
negotiated by Seller or any ERISA Affiliate.
3.9.4 Except as set forth on Disclosure Schedule 3.9.4, Seller
and any ERISA Affiliate (i) are in compliance in all respects with all
Applicable Laws respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with
respect to the Employees, (ii) have withheld and reported all amounts
required by Applicable Law or by agreement to be withheld and reported
with respect to wages, salaries, and other payments to the Employees,
(iii) are not liable for any arrears of wages or any Taxes or any
penalty for failure to comply with any of the foregoing, and (iv) are
not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any Governmental Body, with respect to
unemployment compensation benefits, social security or other benefits
or obligations for Employees of Seller.
3.9.5 Except as set forth on Disclosure Schedule 3.9.5: (i)
Seller has performed in all material respects all obligations required
to be performed by it under each Seller Plan and each Seller Plan has
been established and maintained in all material respects in accordance
with its terms and in compliance with all applicable legal
21
requirements, including ERISA and the Code, (ii) at no time has Seller
or any ERISA Affiliate contributed to or been obligated to contribute
to any multi-employer plan (as defined in Section 3(37) of ERISA), to
any multiple employer plan, or to any plan described in Section 413 of
the Code, (iii) neither Seller nor any ERISA Affiliate has ever
sponsored, participated in or contributed to any pension plan that is
subject to Title IV of ERISA or Section 412 of the Code, and (iv) no
Seller Plan provides, or has any liability to provide, life insurance,
medical or other employee benefits to any Key Employee upon his
retirement or termination of employment for any reason, except as may
be required by statute, and neither Seller nor any of its ERISA
Affiliates has ever represented, promised or contracted (whether in
oral or written form) to any Key Employee (either individually or as a
group) that such Key Employee (or any other Person) would be provided
with life insurance, medical or other employee welfare benefits upon
their retirement or termination of employment, except to the extent
required by statute.
3.10 Powers of Attorney. Except as set forth on Disclosure Schedule
3.10, there are no outstanding powers of attorney executed on behalf of Seller
in respect of the Business or the Acquired Assets.
3.11 Books and Records. Except as set forth on Disclosure Schedule 3,11
(i) the books and records of Seller related to the Business and the Acquired
Assets (A) are accurate in all material respects, (B) have been materially
maintained in accordance with Applicable Laws and with generally accepted
practices and standards in the jurisdiction(s) in which Seller operates, (C) are
in Seller's possession or under its control, and (ii) the Acquired Assets
include all rights necessary to maintain records of the Business in the hands of
Seller, and Buyer shall not be dependent upon any other rights or to enable it
to continue to maintain the same consistent with the current practices of
Seller.
3.12 Product Warranties; Defects; Liabilities. Except as set forth on
Disclosure Schedule 3.12, (i) each Product manufactured, sold, licensed, leased
or delivered by Seller has been in conformity with all applicable contractual
commitments and all express and implied warranties except where the failure to
be in such conformity would not have a Material Adverse Effect with respect to
Seller, (ii) Seller does not have any liability (and to the Knowledge of Seller,
there is no current reasonable basis for any present or future action, suit,
Proceeding, hearing, investigation, charge, complaint, claim or demand against
any Product giving rise to any liability) for replacement or repair thereof or
other damages in connection therewith, and (iii) no Product manufactured, sold,
licensed, leased or delivered by Seller is subject to any guaranty, warranty or
other indemnity beyond the applicable standard terms and conditions of sale,
license or lease or beyond that implied or imposed by Applicable Law.
3.13 Indebtedness; Guarantees. Except as set forth on Disclosure
Schedule 3.13, Seller has no indebtedness for money borrowed or for the deferred
purchase price of property or services, capital lease obligations, conditional
sale or other title retention agreements relating to the Acquired Assets or the
Business. Except as set forth on Disclosure Schedule 3.6 above, Seller is not a
guarantor or otherwise liable for any liability or obligation of any Person.
3.14 Insolvency. No insolvency Proceedings of any character, including
bankruptcy, receivership, reorganization, composition or arrangement with
creditors, voluntary or
22
involuntary, affecting the Business or any of the Acquired Assets are pending or
are threatened, and Seller has not made any assignment for the benefit of
creditors, or taken any other action which would constitute the basis for the
institution of such insolvency Proceedings. Upon consummation of the
transactions contemplated by this Agreement, Seller shall have, realizable
assets that exceed its liabilities, and upon consummation of the transactions
contemplated by this Agreement, Seller shall be able to pay its debts and other
obligations as they become due.
3.15 Financial Statements. Seller has furnished to Buyer true and
correct copies of the audited financial statements of Seller for the fiscal
years ended September 30, 2001, September 30, 2002, and September 30, 2003. Each
of such audited financial statements, including any notes thereto, fairly
presents the financial position of Seller as of its respective date, and the
results of operations for the periods covered in accordance with United States
generally accepted accounting principles, as applied consistently (except as may
be noted in the notes to such financial statements) by Seller ("GAAP")
throughout the periods indicated and as at the respective dates of such
financial statements. Seller has also furnished to Buyer true and correct copies
of the internally generated monthly financial statements of Seller since
September 30, 2003 (the "Balance Sheet Date"). Such internal monthly financial
statements of Seller fairly present the financial position of Seller as of their
respective dates in accordance with GAAP throughout the periods indicated and as
at the respective dates of such internal financial statements, except that such
internal financial statements are subject to year-end adjustments and lack
footnotes and other required presentation items.
3.16 Absence of Undisclosed Liabilities. Except as set forth on
Disclosure Schedule 3.16, other than the Assumed Liabilities, those liabilities
disclosed as of the Balance Sheet Date, and those liabilities arising in the
Ordinary Course of Business since the Balance Sheet Date, Seller has no
liabilities, contingent or otherwise.
3.17 Absence of Changes. Except as set forth on Disclosure Schedule
3.17, between the Balance Sheet Date and the date of this Agreement:
3.17.1 Seller has conducted the Business only in the Ordinary
Course of Business;
3.17.2 there has been no Material Adverse Change;
3.17.3 Seller has not mortgaged, pledged or otherwise
encumbered any of the Acquired Assets;
3.17.4 Seller has not sold, assigned, licensed, leased,
transferred or conveyed, or committed itself to sell, assign, license,
lease, transfer or convey, any of the Acquired Assets;
3.17.5 there has been no destruction of, damage to or loss of
any of the Acquired Assets;
3.17.6 Seller has not accelerated, terminated, modified or
cancelled any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) involving the
Business;
23
3.17.7 except for the liabilities identified on the Seller
Disclosure Letter, has not delayed or postponed the payment of material
accounts payable and other liabilities relating to the Business;
3.17.8 Seller has not cancelled, compromised, waived or
released any right or claim (or series of related rights and claims)
relating to the Business;
3.17.9 Seller has not entered into any capital commitments in
relation to any of the Acquired Assets or the Business;
3.17.10 no litigation has been commenced or threatened and to
the Knowledge of Seller, no reasonable basis exists for any litigation,
Proceeding or investigation against Seller or, to the Knowledge of
Seller, any officer or director of Seller or any Key Employee,
Technical Transferred Employee or Transferred Employee, which is
related to the Business or the Acquired Assets;
3.17.11 there has been no notice of any claim or potential
claim of ownership by any Person other than Seller of the Intellectual
Property or of infringement by the Business of any other Person's
Intellectual Property Rights;
3.17.12 Seller has not received written notice of any claim or
potential claim, and to the Knowledge of Seller, no reasonable basis
exists for any claim or potential claim that Seller has infringed the
Intellectual Property Rights of any Person or entity; and
3.17.13 there has been no agreement by Seller or any
Employees, agents or affiliates of Seller to do any of the things
described in the preceding clauses of this Section 3.17 (other than
negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement).
3.18 Certain Business Practices. Neither Seller nor any of its
directors, officers, agents or Employees has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.19 Minnesota Bulk Sales Law. The State of Minnesota does not impose a
"bulk sales law" or its equivalent, and no filings or other compliance measures
related to bulk sales are required to effect the transactions contemplated by
this Agreement in accordance with Applicable Laws of the State of Minnesota.
3.20 Brokers. Except for the engagement of Delphi Financial
Corporation, which has been employed by Seller to render financial advice and a
fairness opinion, Seller has not employed or engaged any broker, finder, agent,
investment banker or other Third Party with respect to financial advisory
duties, nor has Seller otherwise dealt with any other Person purporting to act
in the capacity of any such financial advisor, in connection with the
transactions contemplated hereby.
24
3.21 Information Supplied. None of the information supplied or to be
supplied by Seller, its auditors, attorneys, financial advisors or other
consultants or advisors for inclusion in (i) the registration statement on Form
S-4, and any amendment thereto, to be filed under the Securities Act of 1933, as
amended (the "Securities Act") with the SEC by Buyer in connection with the
issuance of the Share Consideration (the "S-4"), or (ii) the proxy statement and
any amendment or supplement thereto to be distributed in connection with
Seller's meeting of shareholders to vote upon this Agreement and the
transactions contemplated hereby (the "Proxy Statement" and, together with the
prospectus included in the S-4, the "Proxy Statement/Prospectus") will, in the
case of the Proxy Statement/Prospectus and any amendment or supplement thereto,
at the time of the meeting of shareholders of Seller to vote upon this Agreement
and the transactions contemplated hereby, or, in the case of the S-4, as amended
or supplemented, at the time it becomes effective and at the time of any
post-effective amendment thereto, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading to shareholders of Seller with respect to the
transactions contemplated by this Agreement. Seller makes no representation with
respect to information supplied by Buyer specifically for inclusion therein.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the "Schedule of Exceptions" prepared by Buyer and
attached hereto, Buyer represents and warrants to Seller as follows:
4.1 Organization. Buyer is a corporation organized, existing and in
good standing under the laws of the State of Delaware and is in good standing
and qualified to do business as a foreign corporation in the State of California
and the State of Oregon.
4.2 Authority. Buyer has all requisite corporate power and authority to
enter into this Agreement and the Collateral Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all requisite corporate action on the
part of Buyer, including the reservation of all Buyer Common Stock to be issued
pursuant to this Agreement. This Agreement has been duly executed and delivered
by and constitutes the valid and binding obligation, enforceable in accordance
with its terms, of Buyer, subject to and limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other Applicable Laws and equitable
principles relating to or generally affecting the enforcement of creditor's
rights.
4.3 Share Consideration and Capitalization.
4.3.1 Buyer's Common Stock to be issued as Share Consideration
pursuant to this Agreement has been duly reserved and authorized for
issuance and such Common Stock, when issued to Seller in accordance
with this Agreement, shall be validly issued, fully paid and
non-assessable, registered in accordance with the Securities Act, and
shall be issued in compliance with all Applicable Laws subject to any
restrictions on transfer contemplated by this Agreement.
25
4.3.2 The authorized capital stock of Buyer consists of
100,000,000 shares of Buyer's Common Stock, par value $0.01 per share
and 3,000,000 shares of Buyer's Preferred Stock, $0.01 par value per
share, of which 920,000 shares are designated Series A Preferred Stock,
2,000 shares are designated Series B Preferred Stock, 500 shares are
designated Series C Preferred Stock, and 2,077,500 shares are not
designated. As of December 31, 2003, (i) 42,303,185 shares of Buyer's
Common Stock were issued and outstanding, (ii) 1,904 shares of Buyer's
Series B Preferred Stock were issued and outstanding, (iii) no shares
of Buyer's Series A Preferred Stock or Series C Preferred Stock were
outstanding, (iv) stock options for the purchase of 5,188,150 shares of
Buyer's Common Stock were granted and outstanding and an additional
5,188,150 shares of Buyer's Common Stock were reserved for issuance
under stock option plans and agreements, and (v) warrants for the
purchase of 429,500 shares of Buyer's Common Stock were issued and
outstanding.
4.4 Authorization. At or prior to the Closing, any and all additional
corporate action on the part of Buyer, its officers, directors and stockholders
necessary for the authorization, execution, delivery and performance of this
Agreement, the Collateral Agreements, and the consummation of the transactions
contemplated herein and therein, and for the authorization, issuance and
delivery of the Share Consideration, shall be, or shall have been, taken. At the
Closing, the Collateral Agreements, when executed and delivered by Buyer and all
other parties respectively signatory thereto, shall constitute the legal, valid
and binding obligations of Buyer, enforceable against Buyer in accordance with
their respective terms, subject to and as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other Applicable Laws and equitable
principles relating to or affecting the enforcement of creditor's rights. Buyer
has, or will have at the Closing, all requisite legal and corporate power to
enter into this Agreement and the Collateral Agreements, to sell the shares of
Buyer's Common Stock constituting the Share Consideration hereunder, and to
carry out and perform its obligations under the terms of this Agreement and the
Collateral Agreements.
4.5 Compliance with Law. Buyer is in compliance with all Applicable
Laws, and has not violated any Applicable Laws, to the extent any such violation
might have a Material Adverse Effect upon Buyer. Buyer has all licenses,
permits, certificates and authority from Governmental Bodies which are necessary
for the conduct of its business, which the failure to obtain would have a
Material Adverse Effect upon Buyer.
4.6 Governmental Consents. No consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations or
filings with any Governmental Body, stock exchange or Nasdaq are required on the
part of Buyer in connection with the execution, delivery or performance of this
Agreement and the Collateral Agreements and the consummation of the transactions
contemplated herein and therein, except for (i) the filing of the Proxy
Statement/Prospectus with the Securities and Exchange Commission ("SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the Securities Act and the declaration of the effectiveness thereof by the
SEC and compliance with various state securities or "blue sky" laws, (ii) the
filing with Nasdaq of a "Notification Form: Listing of Additional Shares" with
respect to the Share Consideration, if and to the extent required prior to the
Closing by the Listing Qualifications Division of Nasdaq, and (iii) such other
consents or approvals of the SEC, any stock exchange or Nasdaq which, if not
obtained or made, would not
26
have a Material Adverse Effect on the value of Buyer's Common Stock and would
not have a Material Adverse Effect on the business condition of Buyer.
4.7 Compliance with Other Instruments. Buyer is not in violation of any
provision of its certificate of incorporation or bylaws or of any provision of
any mortgage, indenture, contract, agreement, instrument, judgment, decree,
order, statute, rule or regulation applicable to Buyer, the default or violation
of which would have a Material Adverse Effect on Buyer. The execution, delivery
and performance of and compliance with this Agreement and the Collateral
Agreements and the sale and delivery of the Share Consideration pursuant to the
terms hereof and thereof, will not result in any violation of or be in conflict
with or constitute a default under any such provision, result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of Buyer, or result in the suspension, revocation, impairment, forfeiture
or non-renewal of any licenses, permits, certificates or other authority from
any Governmental Body which is necessary for the conduct of its business or
applicable to the operations or any of its assets or properties, which the
failure to maintain would have a Material Adverse Effect upon Buyer.
4.8 Litigation. As of the date of this Agreement, (i) there are no
pending actions, suits, Proceedings, investigations or claims against Buyer
which would have a Material Adverse Effect on Buyer or its business, (ii) nor,
to Buyer's Knowledge, are there any such pending actions, suits, Proceedings,
investigations, or claims threatened, orally or in writing, against Buyer, (iii)
nor, to Buyer's Knowledge, is there any basis for any such claim. Buyer is not a
party to, nor, to Buyer's Knowledge, subject to the provisions of, any order,
writ, Injunction, judgment or decree of any court or Governmental Body that is
material, as such term is commonly understood, to Buyer or its business. The
foregoing includes, without limitation, actions pending or threatened in writing
(or any basis therefor known to Buyer) involving the prior employment of any of
Buyer's employees, their use in connection with Buyer's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. There
is no action, suit, Proceeding or investigation by Buyer or which Buyer
currently intends to initiate that is (i) material, as such term is commonly
understood, to Buyer or its business, and (ii) either currently pending or, to
Buyer's Knowledge, contemplated.
4.9 Taxes. Buyer has timely filed, or caused to be timely filed, all
federal, state and local Tax Returns for income Taxes, franchise Taxes, sales
Taxes, withholding Taxes, property Taxes and all other Taxes of every kind
whatsoever required by law to be filed, and all such Tax Returns are complete
and accurate and in accordance with all legal requirements applicable thereto.
Buyer has paid all Taxes and other assessments due, except those contested by it
in good faith that are listed in the Schedule of Exceptions. Any provision for
Taxes of Buyer as shown in its financial statement filings with the SEC is
adequate for Taxes due or accrued as of the date thereof. Buyer has not elected
pursuant to the Code to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a Material Adverse Effect on Buyer, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets. Since the filing of its most recent
Form 10-Q with the SEC, Buyer has not incurred any Taxes, assessments or
governmental
27
charges other than in the Ordinary Course of Business, and Buyer has made
adequate provisions on its books of account for all Taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. Buyer has withheld or collected from each payment made to each of
its employees, the amount of all Taxes (including, but not limited to, federal
income Taxes, Federal Insurance Contribution Act Taxes and Federal Unemployment
Tax Act Taxes) required to be withheld or collected therefrom, and has paid the
same to the proper Tax receiving officers or authorized depositories.
4.10 Disclosure. Buyer has furnished or made available to Seller a true
and complete copy of each statement, report, schedule, registration statement
and definitive proxy or information statement filed by Buyer with the SEC since
December 31, 2000 (the "Buyer SEC Documents"), which are all the documents
(other than preliminary material) that Buyer was required to file with the SEC
since such date. As of their respective filing dates, the Buyer SEC Documents
complied in all material respects with the requirements of the Exchange Act, the
Securities Act, or the Xxxxxxxx-Xxxxx Act (to the extent applicable at the time
such filings were made or amended prior to the date of mailing of the Proxy
Statement/Prospectus), as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Buyer SEC Documents, and none of the Buyer SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Buyer included in the Buyer SEC
Documents (the "Buyer Financial Statements") comply as to form in all material
respects with all applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Buyer
as at the dates thereof and the results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal,
recurring audit adjustments not material in scope or amount). There have been no
changes to Buyer's accounting policies or the methods of making accounting
estimates or changes in estimates that are material to Buyer Financial
Statements, except as described in the notes thereto.
4.11 Information Supplied. At the time of the meeting of shareholders
of Seller to vote upon the Seller's Plan of Liquidation and Dissolution and this
Agreement, the Collateral Documents and the transactions contemplated hereby or,
in the case of the S-4, as amended or supplemented, at the time it becomes
effective and at the time of any post-effective amendment thereto which occurs
prior to the mailing of the Proxy Statement/Prospectus for such meeting, none of
the information supplied or to be supplied by Buyer, its auditors, attorneys,
financial advisors or other consultants or advisors for inclusion in (i) the
S-4, or (ii) the Proxy Statement/Prospectus and any amendment or supplement
thereto to be distributed in connection with Seller's meeting of shareholders to
vote upon the Seller's Plan of Liquidation and Dissolution and this Agreement,
the Collateral Documents and the transactions contemplated hereby, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading or necessary
to correct any statement in any earlier filing with the SEC of such Proxy
Statement/Prospectus or any amendment or supplement thereto or any earlier
communication (including the Proxy Statement/Prospectus) to shareholders of
Seller with respect to the S-4 or the transactions contemplated by this
28
Agreement. The Proxy Statement/Prospectus will comply as to form in all material
respects with the provisions of all Applicable Laws, including the provisions of
the Exchange Act, the Securities Act and the Xxxxxxxx-Xxxxx Act, and the rules
and regulations of the SEC thereunder, except that this paragraph shall not
apply with respect to information supplied by Seller specifically for inclusion
therein.
4.12 Brokers. Other than vFinance Investments, Inc., vFinance
Consulting and their affiliates, Buyer has not employed or engaged any broker,
finder, agent, investment banker or other Third Party with respect to financial
advisor duties, nor has Buyer otherwise dealt with any other Person purporting
to act in the capacity of any such financial advisor, in connection with the
transactions contemplated hereby.
4.13 Buyer Stockholder Consent. No consent or approval of the
stockholders of Buyer is required (i) to enter into this Agreement and
consummate the transactions contemplated hereby, or (ii) to issue the Share
Consideration.
ARTICLE 5
COVENANTS OF SELLER
Seller covenants and agrees as follows:
5.1 Approval and Consummation of Transaction; Cooperation Clause.
Subject to the provisions of Section 6.5 hereof, promptly after the declaration
of effectiveness of the S-4 for registration of the Share Consideration, Seller
shall deliver to its stockholders an information and Proxy Statement/Prospectus
which shall contain, among other things, the recommendation of Seller's Board of
Directors to adopt and approve both (i) the Seller's Plan of Liquidation and
Dissolution, and the authority of Seller to act in accordance with the Seller's
Plan of Liquidation and Dissolution, and (ii) this Agreement, the Collateral
Documents and the transactions contemplated by this Agreement. Except as
expressly permitted by Section 6.5 below, Seller's Board of Directors shall not
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to Buyer, its recommendation that Seller's stockholders vote
in favor of the adoption and approval of the Seller's Plan of Liquidation and
Dissolution. Finally, subject to the approval by Seller's stockholders of the
Seller's Plan of Liquidation and Dissolution and the provisions of Section 6.5
below, Seller shall (i) use all commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under Applicable Laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
and (ii) execute and deliver, or cause to be executed and delivered, such
additional or further bills of sale, endorsements, assignments, consents and
other instruments as Buyer may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement and to put Buyer in
possession of the Acquired Assets acquired under this Agreement. To such end, at
any time, and from time to time, after the Closing, Seller shall, promptly upon
request by Buyer, execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Buyer may
reasonably request in order more effectively to transfer, convey and assign to
Buyer, or to confirm Buyer's title to, the Acquired Assets, and/or to put Buyer
in possession and control thereof. All such documents shall be in form
reasonably satisfactory to
29
Buyer's legal counsel. After the Closing, any out-of-pocket expenses related to
the foregoing shall be borne by the Party incurring such expense.
5.2 Discharge of Debts. To the extent necessary and required to
transfer, convey, assign and deliver the Acquired Assets to Buyer on the Closing
Date free and clear of all liens and encumbrances, Seller shall hereafter
promptly and fully satisfy and discharge all of its debts, liabilities and
obligations when due, or shall obtain full releases from the same or make
sufficient provisions to pay the same or to be released therefrom, all to the
satisfaction of Buyer. Seller shall not make any distribution of its assets to
its stockholders until all liabilities and obligations incurred on or prior to
the Closing, and all liabilities and obligations arising out of any contract,
agreement or other arrangement entered into on or prior to the Closing, have
been paid and discharged in full or an amount sufficient therefor has been set
aside for payment thereof.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access.
6.1.1 Pending the Closing. During the period commencing on the
date of this Agreement and continuing through the Closing Date, upon
reasonable prior notice from Buyer to Seller, Buyer shall be permitted
to make a full and complete investigation of the assets, business, and
books and records of Seller. For such purpose, Seller shall (i) afford
to Buyer and its representatives, at all reasonable times during normal
business hours, full and complete access to Seller's personnel,
professional advisors, properties, contracts, books and records and
other documents and data, (ii) furnish Buyer and its representatives
with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (iii)
furnish Buyer and its representatives with such additional financial
documentation (including Tax Returns and supporting documentation),
audit work papers (if in the actual or constructive possession of
Seller, directly or indirectly), if any, operating and other data and
financial information as Buyer may reasonably request, in each case
relating to the Business. All information gained by Buyer through such
investigation concerning the Business and affairs of Seller shall be
kept confidential in accordance with the Parties' (i) Amendment to
Mutual Non-Disclosure Agreement dated October 6, 2003, (the
"Non-Disclosure Agreement Amendment") and (ii) Amended and Restated
Mutual Non-Disclosure Agreement dated effective July 21, 2003 (the
"Amended Non-Disclosure Agreement"). No information or knowledge
obtained in any investigation pursuant to this Section 6.1.1 shall
affect or be deemed to modify any representation or warranty contained
in this Agreement or the conditions to the obligations of the Parties
to consummate the transactions contemplated by this Agreement;
provided, however, that in the event that Buyer obtains information of
a breach, or potential breach, of a representation or warranty of
Seller, Buyer shall promptly notify Seller of such breach or potential
breach.
6.1.2 Post-Closing Cooperation. Following the Closing, each
Party shall afford the other Party and its representatives, during
normal business hours, reasonable access to the books, records and
other data relating to the Business in its possession with
30
respect to periods prior to the Closing and the right to make copies
and extracts therefrom, to the extent that such access may be
reasonably required by the other Party in connection with: (i) the
preparation of Tax Returns, (ii) the determination or enforcement of
rights and obligations under this Agreement or any Collateral
Agreement, (iii) compliance with the requirements of any Governmental
Body, or (iv) in connection with any actual or threatened
investigation, claim, action, or Proceeding. If at any time after the
Closing any further action is necessary to carry out the purposes of
this Agreement, each Party will take such further action (including the
execution and delivery of such further instruments and documents) as
any other Party reasonably may request, at the sole cost of the Party
being so requested.
6.2 Operation of Business by Seller. Between the date of this Agreement
and the Closing Date, unless otherwise agreed in writing by Buyer, Seller shall:
6.2.1 except as otherwise allowed or required pursuant to the
terms of this Agreement, conduct the Business in the ordinary course of
business consistent with past practice (including with respect to
quantity and frequency) (the "Ordinary Course of Business");
6.2.2 pay the debts and Taxes of the Business when due;
6.2.3 pay or perform other obligations of the Business when
due in the Ordinary Course of Business;
6.2.4 use commercially reasonable, good faith efforts to
preserve intact the current business organization of Seller relating to
the Business, keep available the services of the Key Employees,
Technical Transferred Employees and Transferred Employees, and maintain
its relations and goodwill with the suppliers, customers, distributors,
licensors, licensees, landlords, trade creditors, employees, agents and
others having relationships with Seller relating to the Business, all
with the goal of preserving unimpaired the goodwill and ongoing
business of the Business as of the Closing;
6.2.5 confer with Buyer concerning the Business or operational
matters as they affect such Business as reasonably requested by Buyer;
6.2.6 use commercially reasonable, good faith efforts to
maintain all of the Acquired Assets in their current condition,
ordinary wear and tear excepted and, in the event of any damage to or
destruction of any of the Acquired Assets prior to the Closing Date,
promptly replace, repair or restore such Acquired Assets;
6.2.7 maintain Seller's books and records in the Ordinary
Course of Business; and
6.2.8 report to Buyer concerning any event or occurrence not
in the Ordinary Course of Business or any material event involving the
Business, the Technology, any Acquired Asset, any Key Employee,
Technical Transferred Employee or Transferred Employee.
31
Buyer acknowledges that (i) Seller's operation of its Business is not, and is
not anticipated prior to the Closing to become, profitable, and (ii) the
announced sale of the Business may cause Third Parties to require changes in the
manner that Seller does business with such Third Parties (including with respect
to quantity and frequency).
6.3 Conduct Prior to Closing. Except as otherwise expressly permitted
by this Agreement, excluding all transactions entered into and services provided
in the Ordinary Course of Business, Seller shall not, without the prior written
consent of Buyer:
6.3.1 take any action to impair, encumber, create a lien
against or otherwise adversely affect the Business or the Acquired
Assets;
6.3.2 sell or otherwise transfer or dispose of any of the
Acquired Assets to any Third Party;
6.3.3 enter into any contract relating to (i) the sale or
distribution of the Transferred Intellectual Property or (ii) any of
the Acquired Assets;
6.3.4 materially change pricing or royalties charged to
existing customers or licensees of the Business;
6.3.5 enter into any strategic arrangement or relationship,
joint venture, development or joint marketing arrangement or other
marketing agreement relating to the Business;
6.3.6 hire any employees relating to the Business;
6.3.7 materially amend or modify, or violate the terms of, any
of the Assigned Contracts to the detriment of Seller or Buyer;
6.3.8 declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of
any of its capital stock; or
6.3.9 take, or agree in writing or otherwise to take, any of
the actions described in Sections 6.3.1 through 6.3.8 above, or any
other action that would prevent Seller from performing or cause Seller
not to perform its covenants under this Agreement.
6.4 Confidentiality. The Parties hereby incorporate by reference into
this Agreement all terms and conditions of both the (i) Non-Disclosure Agreement
Amendment, and (ii) the Amended Non-Disclosure Agreement. Each of the Parties
agrees that the information obtained in any investigation pursuant to Section
6.1 of this Agreement, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated by this
Agreement, shall be governed by the terms of the Non-Disclosure Agreement
Amendment and the Amended Non-Disclosure Agreement.
6.5 Exclusivity and Acquisition Proposals. Other than as specifically
permitted in this Section 6.5, from and after the date of this Agreement until
the earlier to occur of the
32
Closing or termination of this Agreement pursuant to its terms, Seller shall
immediately terminate any discussions or negotiations with any Person, other
than Buyer, relating to any proposal for the acquisition of Seller, the
Business, the sale of Seller's securities (other than under employee benefit
plans), or assets of Seller (an "Acquisition Proposal"). Unless otherwise
permitted under this Section 6.5, Seller specifically shall not, and Seller
shall use all reasonable commercial efforts to cause its directors, officers,
employees, stockholders, financial advisors, agents and affiliates not to,
directly or indirectly, (i) solicit, conduct discussion with or engage in
negotiation with any Person (other than Buyer and its affiliates, agents and
representatives) relating to an Acquisition Proposal, (ii) provide information
concerning Seller or the Business and assets of Seller to, or afford access to
the properties, books or records of Seller to, any Person (other than Buyer and
its affiliates, agents and representatives), or enter into any agreement or
understanding with, any Person (other than Buyer and its affiliates, agents, and
representatives) relating to, constituting or reasonably likely to lead to an
Acquisition Proposal, or (iii) approve, endorse or recommend an Acquisition
Proposal of any Person (other than that of Buyer as set forth in and as
consistent with this Agreement).
6.5.1 As promptly as practicable after receipt of any
Acquisition Proposal or request for nonpublic information or inquiry
which it reasonably believes would lead to an Acquisition Proposal, as
the case may be, Seller shall immediately notify Buyer thereof, and
shall provide Buyer with information as to the identity of the Person
making any such Acquisition Proposal or request for nonpublic
information and the specific terms of same, unless the identity of the
proposing and/or requesting Person must be held confidential as a
result of any previously executed (before the date hereof)
nondisclosure agreement(s) with a Third Party.
6.5.2 Notwithstanding anything to the contrary contained in
this Section 6.5, in the event that Seller receives an unsolicited,
bona fide written Acquisition Proposal from a Third Party (other than
Buyer and its affiliates, agents and representatives) that Seller's
Board of Directors concludes in good faith (following receipt of the
advice of outside counsel and an outside financial advisor) is, or is
likely to result in, a Superior Proposal (as defined in Section 6.5.4
below), Seller may take any of the following actions if and to the
extent Seller's Board of Directors concludes in good faith (following
receipt of the advice of outside counsel) that Seller's failure to do
so is reasonably likely to result in a breach of the fiduciary
obligations of Seller's directors under Applicable Law:
6.5.2.1 Furnish information concerning Seller or the
Business and assets of Seller, and afford access to the
properties, books or records of Seller to the Third Party
making such Acquisition Proposal; provided, however, that (i)
concurrently with such action Seller must give Buyer written
notice of its (Seller's) intention to take such action, (ii)
Seller must receive from the Third Party making such
Acquisition Proposal an executed confidentiality or
nondisclosure agreement containing customary limitations on
the use and disclosure of all information, written and oral,
received from Seller under this Section 6.5.2.1, the terms of
which are at least as restrictive as the terms contained in
the Amended Non-Disclosure Agreement, and (iii)
contemporaneously with furnishing said information to the
Third Party making the Acquisition Proposal,
33
Seller must also provide Buyer with such information to the
extent such information has not been previously so provided to
Buyer; and
6.5.2.2 Engage in negotiations with the Third Party
with respect to the Acquisition Proposal; provided, however,
that concurrently with entering into negotiations with such
Third Party, Seller gives Buyer written notice of its
(Seller's) intention to enter into negotiations with such
Third Party.
6.5.3 In response to the receipt of a Superior Proposal, (i)
Seller's Board of Directors may withhold, withdraw, amend or modify its
approval and, if previously made to Seller's stockholders, its
recommendation in favor of this Agreement, the Collateral Documents and
the transactions contemplated by this Agreement, and (ii) the Subject
Company Shareholders shall be fully and completely released from their
respective obligations to vote their shares of Seller's voting stock in
favor of the same pursuant to the Voting and Proxy Agreement(s), but
only if the following conditions (A) through (F) inclusive are met: (A)
the Superior Proposal has not been withdrawn, (B) Seller's stockholders
have not yet voted with respect to or otherwise not yet consented to
the approval of the Seller's Plan of Liquidation and Dissolution, this
Agreement and the Collateral Documents and the transactions
contemplated by this Agreement, and (C) Seller has (1) provided Buyer
with written notice which expressly verifies Seller's receipt of a
Superior Proposal, explains the material terms of such Superior
Proposal, discloses the identity of the Third Party making such
Superior Proposal, and states that Seller's Board of Directors is
vacating its previous approval of this Agreement and the sale of the
Acquired Assets hereunder, and (2) provided Buyer with a copy of all
written materials delivered to the Third Party making said Superior
Proposal, (D) Seller has not breached in any material respect any of
the provisions of this Section 6.5, (E) Seller's Board of Directors has
determined in good faith (after consultation with Seller's outside
counsel) that such course of action is necessary for compliance with
the directors' fiduciary duties under Applicable Law, and (F) Seller
has negotiated, and its Board of Directors has determined to enter
into, a definitive agreement relating to such Superior Proposal.
6.5.4 For purposes of this Section 6.5, "Superior Proposal"
means any Acquisition Proposal which Seller's Board of Directors (i)
determines in good faith is reasonably likely to be consummated, taking
into account all legal, financial, regulatory and other aspects
thereof, including, but not limited to, the Third Party making such
Acquisition Proposal, and (ii) believes in good faith is more favorable
to Seller's stockholders from a financial point of view than the
transactions contemplated under this Agreement.
6.5.5 If under this Section 6.5, Seller's Board of Directors
(i) is permitted to under this Section 6.5, and (ii) in fact does
approve, recommend and enter into a definitive agreement with respect
to a Superior Proposal made by a Third Party other than Buyer, both
Buyer and Seller shall have the immediate and independent right to
terminate this Agreement. The Parties agree that damages shall be
difficult to ascertain with any certainty in the event that a Superior
Proposal is accepted by Seller but recognize that such damages will be
substantial to Buyer. Consequently, the Parties agree that $850,000
34
is a proper measure of such damages and have voluntarily agreed that
such amount is their best estimate thereof. In the event that Seller or
Buyer terminates this Agreement, upon the occurrence of the events
described in both (i) and (ii) immediately above, Seller shall, within
forty-five (45) days following such termination, pay in cash to Buyer
as a termination fee and as Buyer's sole remedy under this Agreement, a
lump sum of Eight Hundred Fifty Thousand Dollars ($850,000). Upon
Buyer's receipt of such payment within the forty-five (45) day time
period, Seller shall have no further liability to Buyer hereunder.
6.6 Notification of Certain Matters. Each Party shall use its good
faith efforts to give prompt notice to the other Party of (a) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of such Party contained in this
Agreement to be materially untrue or inaccurate at or prior to the Closing, and
(b) any material failure of such Party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, except for and subject to a Party's
supplementation right set forth in Section 11.16, that the delivery of any
notice pursuant to this Section 6.6 shall not (i) limit or otherwise affect any
remedies available to the other Party, or (ii) constitute an acknowledgment or
admission of a breach of this Agreement by either Party.
6.7 Public Disclosure. Subject to the public disclosure obligations of
Buyer under Applicable Laws, other than with the other Party's written consent,
no Party shall issue any statement or communication to any Third Party (whether
or not in response to an inquiry) regarding the subject matter of this Agreement
or the transactions contemplated hereby, including, if this Agreement is
terminated and the reasons therefor. If Buyer, and/or its counsel, in good faith
based on Applicable Laws, determines that Buyer is required to make a public
announcement of the subject matter of this Agreement, Buyer shall advise Seller
of such proposed announcement and consult with Seller on same. Otherwise, all
xxxxxx xxxxx releases describing the terms of this Agreement or describing the
Business as conducted by Seller shall be prepared by Buyer, not inconsistent
with the information included in any prior press release referred to above, but
subject to Seller's approval, not to be unreasonably withheld, before release to
any Third Party. Notwithstanding the foregoing, if this Agreement is terminated,
the fact of such termination alone may be disclosed by Buyer or Seller without
breach of this Section 6.7.
6.8 Covenants Regarding Key Employees, Technical Transferred Employees
and Transferred Employees.
6.8.1 Prior to the Closing Buyer shall make an offer of
employment to each of Seller's employees set forth on Schedule 6.8.1
(the "Transferred Employees") pursuant to and substantially in the form
of Exhibit N hereof, which also includes the form of Buyer's
confidential information and invention assignment agreement (each of
which must be executed and delivered to Buyer in order for the
Transferred Employee to become employed by Buyer). Seller and Buyer
agree that Schedule 6.8.1 shall be brought current immediately prior to
the Closing Date to assure that each then current employee of Seller
who was hired by Seller after the date of this Agreement, consistent
35
with Seller's covenants herein, receives an offer of employment from
Buyer prior to the Closing.
6.8.2 Immediately prior to the Closing, to become effective at
and upon the Closing, Seller shall terminate (i) the employment of all
Key Employees, Technical Transferred Employees and Transferred
Employees, and (ii) all employment contracts and any other arrangements
with the Key Employees, Technical Transferred Employees and/or
Transferred Employees. Seller shall remain solely responsible for
satisfying, discharging or performing all such liabilities, debts,
contracts and obligations it owes to Key Employees, Technical
Transferred Employees and Transferred Employees in accordance with
their respective terms, except to the extent such liabilities, debts,
contracts and obligations are included in the Assumed Liabilities used
to compute the Closing Net Working Capital. Immediately after the
Closing, to the extent then due and payable Seller shall pay to the Key
Employees, Technical Transferred Employees and Transferred Employees
any and all liabilities relating to or arising out of their employment
or termination of employment, including any payments and benefits due
to same pursuant to accrued wages, salary, bonus, commission and/or all
other forms of compensation, excluding, however, vacation time, sick
time, personal time, medical leave time, and/or their equivalents.
6.8.3 Seller agrees and acknowledges that the selling group
(as defined in Treasury Regulation Section 54.4980B-9, Q&A-3(a)) of
which Seller is a part shall continue to offer a group health plan to
Employees after the Closing and, accordingly, that Seller and such
selling group shall be solely responsible for providing continuation
coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA") to those individuals who are M&A qualified
beneficiaries (as defined in Treasury Regulation Section 54.4980B-9,
Q&A-4(a)) with respect to the transactions contemplated by this
Agreement. Seller shall indemnify, defend and hold harmless Buyer for,
from and against any and all claims, liabilities, losses, costs and
expenses (including attorney's fees) relating to, arising out of, or
resulting from any and all COBRA obligations, liabilities and claims
related to such M&A qualified beneficiaries and all other qualified
beneficiaries (as defined in Code Section 4980B(g)(1)) with respect to
Seller's group health plans. Seller further agrees and acknowledges
that in the event that such selling group ceases to provide any group
health plan to any Employee prior to the expiration of the continuation
coverage period for such M&A qualified beneficiaries (pursuant to
Treasury Regulation Section 54.4980B-9, Q&A-8(c)), then Seller shall
provide Buyer with written notice of such cessation as far in advance
of such cessation as is reasonably practicable (and, in any event, at
least 30 days prior to such cessation).
6.8.4 Seller shall pay and remit to its health insurance
provider(s) in a timely fashion any and all applicable premiums that
shall or would otherwise apply with respect to providing health
insurance to the Closing to the Key Employees, Technical Transferred
Employees and the Transferred Employees.
6.8.5 Upon the effective date of their respective agreements
with Buyer, which effective date shall be at the Closing, the Key
Employees, Technical Transferred
36
Employees and the Transferred Employees shall be eligible to receive
benefits consistent with Buyer's standard human resources policies.
Nothing in this Section 6.8 shall be construed to entitle any Key
Employee, Technical Transferred Employee or Transferred Employee to
continue his or her employment with Buyer or any affiliate of Buyer for
any period of time and Buyer's employment of all Key Employees,
Technical Transferred Employees and Transferred Employees shall be
terminable "at-will," except as may be otherwise expressly provided in
any such respective Key Employee's, Technical Transferred Employee's or
Transferred Employee's written agreement with Buyer.
6.8.6 Seller agrees that (i) acceptance of an offer of
employment from Buyer by a Key Employee, Technical Transferred Employee
or Transferred Employee shall not in and of itself violate any
provision of the employee confidentiality and invention assignment
agreement between such Key Employee, Technical Transferred Employee or
Transferred Employee and Seller or any other agreement related in any
way to Seller's employment of such Key Employee, Technical Transferred
Employee or Transferred Employee (the "Seller Confidentiality
Agreement"), (ii) following such Key Employee's, Technical Transferred
Employee's or Transferred Employee's commencement of employment with
Buyer, neither Buyer nor the subject Key Employee, Technical
Transferred Employee nor Transferred Employee shall be required to
disclose or assign to Seller any inventions by such Key Employee,
Technical Transferred Employee or Transferred Employee in the
performance of his or her employment duties with Buyer, and such
failure to disclose and assign same shall not constitute a breach of
the Seller Confidentiality Agreement, and (iii) Buyer's employment of
such Key Employee, Technical Transferred Employee or Transferred
Employee shall not constitute a breach of any non-competition agreement
or similarly restrictive obligation between such Key Employee,
Technical Transferred Employee or Transferred Employee and Seller.
Following such Key Employee's, Technical Transferred Employee's or
Transferred Employee's effective date of employment with Buyer, the
Parties agree that any intellectual property developed by such Key
Employee, Technical Transferred Employee or Transferred Employee in the
performance of his or her employment duties for Buyer shall be the
exclusive property of Buyer.
6.9 Registration of Share Consideration; Compliance with Securities
Laws.
6.9.1 As promptly as practicable after the date hereof, Buyer
shall prepare and file with the SEC the Proxy Statement/Prospectus and
any other documents required by the Exchange Act in connection with
this transaction, specifically the registration of the maximum number
of shares of Buyer's Common Stock that may be issued by Buyer to Seller
as Share Consideration pursuant to this Agreement. Buyer shall use its
commercially reasonable efforts to have the S-4 declared effective
under the Securities Act as promptly as practicable after such filing.
Buyer shall also take all action required to be taken under any
applicable state securities or "blue sky" laws in connection with the
issuance of the Share Consideration. Seller shall provide Buyer and its
counsel for inclusion in the S-4, in form and substance reasonably
satisfactory to Buyer and its counsel, such information concerning
Seller, the Business or Seller's Products as Buyer may reasonably
request, including, but not limited to the financial statements of
Seller identified in Section 3.15 above. Each Party shall use
commercially reasonable efforts to
37
respond to any comments that the SEC may forward regarding the S-4 and
to have the S-4 declared effective under the Securities Act, as
promptly as practicable after the filing of same. Buyer will notify
Seller promptly of the receipt of any comments from the SEC or its
staff for amendments or supplements to the S-4 or for additional
information, and Seller shall supply Buyer with all information
relating to Seller that Buyer or its counsel deem necessary to
appropriately respond to the SEC or to prepare an amendment or
supplement to the S-4 for filing.
6.9.2 Seller shall use commercially reasonable efforts to
cause to be delivered to Buyer a letter addressed to Buyer from
Seller's independent auditors, dated the date on which the S-4 shall
become effective and within two (2) business days prior to the Closing
Date, in form and substance reasonably satisfactory to Buyer and
customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar
to the S-4.
6.10 Legal Requirements. Seller and Buyer shall each take all
reasonable actions necessary to comply promptly with all Applicable Laws which
may be imposed on such Party with respect to the consummation of the
transactions contemplated by this Agreement and shall promptly cooperate with
and furnish information to the other Party in connection with any such
requirements imposed upon such Party regarding the consummation of the
transactions contemplated by this Agreement. Seller and Buyer shall take all
reasonable actions necessary to obtain (and shall cooperate with the other Party
in obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any governmental entity or other
Person, required, respectively, to be obtained or made by Seller or by Buyer in
connection with the taking of any action contemplated by this Agreement. After
the Closing, any out-of-pocket expenses related to the foregoing shall be borne
by the Party incurring such expense.
6.11 Bulk Sales Requirements. If Seller is required to comply with the
bulk sales laws of any jurisdiction (other than State of Minnesota, which does
not impose a bulk sales law), Seller shall so inform Buyer and its counsel and
provide all such information and execute and deliver such documents as Buyer may
reasonably request in order to enable Seller to comply with the bulk sales laws
of any jurisdiction where such compliance is required.
6.12 Additions to and Modification of Seller Disclosure Letter and
Schedule of Exceptions.
6.12.1 Concurrently with the execution and delivery of this
Agreement, Seller has delivered a Seller Disclosure Letter, which sets
forth the Disclosure Schedules that include all of the information
required by the relevant provisions of this Agreement as of the date
hereof. Seller acknowledges and agrees that the Seller Disclosure
Letter is the only operative document that modifies Seller's
representations and warranties identified in this Agreement regardless
of any due diligence review undertaken by Buyer. Seller may deliver to
Buyer a Supplement to the Seller Disclosure Letter in accordance with
the provisions of Section 11.16 hereof to reflect the then-current
circumstances and any resulting additions, deletions or modifications
to the Disclosure Schedules to this Agreement since the date of this
Agreement; provided, however, except for and subject to the provisions
of Section 11.16 of this Agreement, no such Supplement shall be deemed
38
to constitute an exception to any of Seller's representations and
warranties under Article 3, nor limit the rights and remedies of Buyer
under this Agreement for any breach by Seller of such representation
and warranties.
6.12.2 Concurrently with the execution and delivery of this
Agreement, Buyer has delivered a Schedule of Exceptions that includes
all of the information required by the relevant provisions of this
Agreement. Buyer acknowledges and agrees that the Schedule of
Exceptions is the only operative document that modifies Buyer's
representations and warranties identified in this Agreement regardless
of any due diligence review undertaken by Seller. At or prior to the
Closing, Buyer shall deliver to Seller a Supplement to the Schedule of
Exceptions to reflect the then-current circumstances and any resulting
additions, deletions or modifications to the exhibits to this Agreement
since the date of this Agreement; provided, however, except for and
subject to the provisions of Section 11.16 of this Agreement, no such
Supplement shall be deemed to constitute an exception to any of Buyer's
representations and warranties under Article 4, nor limit the rights
and remedies of Seller under this Agreement for any breach by Buyer of
such representations and warranties.
6.13 Assistance with Post-Closing Audit. Following the Closing, Seller
shall deliver to Buyer all of the financial and other information possessed by
and relating to Seller (as reasonably specified by Buyer in writing) that is
required to enable Buyer to file financial statements required by Item 7 of Form
8-K with respect to the transactions contemplated by this Agreement. Seller
shall provide Buyer and its independent public accountants access to such books,
records, work papers and data as may be reasonably requested by Buyer for the
purpose of Buyer's conduct of an audit or review of the financial statements of
the Business for such periods as Buyer may require for the satisfaction of such
Form 8-K requirements. Seller shall use reasonable commercial efforts to provide
all required certifications, representations, confirmations, records,
documentation, support, availability of appropriate personnel and
representatives, and the like as reasonably requested by Buyer and Buyer's
independent public accountants to complete Buyer's audit requirements by the due
dates required by applicable SEC regulations.
6.14 Actions and Omissions for "C" Reorganization. Buyer shall not take
or omit to take any action which does or could have the effect of disqualifying
the transactions contemplated by this Agreement for the favorable Tax treatment
and result desired under Code Section 368(a)(1)(C) and the regulations
thereunder, including (i) Buyer will not (has no plan or intention to) reacquire
any of its stock issued to Seller in the transactions contemplated by this
Agreement, (ii) following the transactions contemplated in this Agreement, Buyer
will continue the historic Business of Seller or use a significant portion of
Seller's historic Business assets in a business as required pursuant to Section
1.368-1(d) of the federal income tax regulations, (iii) Buyer will not sell or
otherwise dispose of any of the assets of Seller acquired in the transactions
contemplated by this Agreement, except for disposition made in the Ordinary
Course of Business, and (iv) no payments of the purchase price or the contingent
consideration hereunder shall be made by any consideration other than voting
common stock of Buyer. Buyer agrees to fully cooperate with Seller and its Tax
advisors with respect to information and assurances needed to obtain the Tax
opinion described in Section 7.5 hereof.
39
6.15 Payment of Assumed Liabilities. After the Closing, Buyer shall
timely and promptly, and in good faith, perform, pay or otherwise satisfy all
Assumed Liabilities, and shall honor all accruals of vacation, sick time,
personal time, medical leave time and/or their equivalents of or relating to the
Key Employees, Technical Transferred Employees and the Transferred Employees.
6.16 Post-Closing Transition Services. If Buyer desires post-Closing
transition services to be provided by Seller personnel outside of the scope of
the cooperation covenants set forth in this Agreement, Buyer shall contract for
such services directly with Seller and shall not directly engage, hire, attempt
to hire or otherwise employ any then current employee of Seller after the
Closing. Seller shall make commercially reasonable efforts to make such services
available to Buyer on a timely basis; however, the provision of such services
shall not cause Seller personnel to fail to properly and diligently perform
duties required by Seller. All charges for such services will be charged to
Buyer at Seller's hourly base salary cost plus twenty percent (20%). Buyer shall
pay all Seller invoices for such services within fifteen (15) days of
presentment.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at the
Closing of each of the following conditions:
7.1 Approvals.
7.1.1 Seller's shareholders shall have approved Seller's Plan
of Liquidation and Dissolution and this Agreement, the Collateral
Documents and the transactions contemplated by this Agreement in
accordance with (i) the articles of incorporation and bylaws of Seller,
and (ii) Applicable Law.
7.1.2 All consents, approvals and authorizations of orders,
registrations, declarations and filings with, and expirations of
waiting periods imposed by, any governmental entity, domestic or
foreign, necessary for the consummation of the transactions
contemplated by this Agreement, including, but not limited to, the
effective registration of the Share Consideration on the S-4, shall
have been obtained or filed or have occurred.
7.2 Representations, Warranties and Covenants. The representations and
warranties of Buyer in this Agreement shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on and as
of such date (giving effect to any Supplement to the Schedule of Exceptions),
except (i) for those representations and warranties that address matters only as
of a particular date (which representations and warranties shall have been
accurate as of such date), and (ii) for such inaccuracies that, either
individually or in the aggregate, have not had and could not reasonably be
expected to have a Material Adverse Effect on the assets, liabilities,
operations or financial condition of Buyer, and Buyer shall have
40
performed and complied with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Closing
Date.
7.3 Certificate of Buyer. Seller shall have been provided with a
certificate of Buyer executed by the President or Chief Financial Officer of
Buyer to the effect that, as of the Closing Date: (i) all representations and
warranties (as amended by any Supplement to the Schedule of Exceptions) made by
Buyer under this Agreement are true and complete, and (ii) all covenants,
obligations and conditions of this Agreement to be performed by Buyer on or
before such date have been so performed.
7.4 Effectiveness of S-4. The SEC shall have declared effective the S-4
registration statement for Buyer's registered offering of the maximum number of
shares of Buyer's Common Stock that may be issued by Buyer to Seller pursuant to
this Agreement as the Share Consideration, and no stop order shall have been
issued with respect to the S-4 and no Proceeding for such purpose shall have
been commenced.
7.5 Tax Opinion. Seller's tax advisors shall have issued a tax opinion
that the transaction(s) contemplated hereunder qualify or qualifies as a
tax-free reorganization of Seller under Code Section 368(a)(1)(C).
7.6 Legal Opinion. Seller shall have received from Manatt, Xxxxxx &
Xxxxxxxx, LLP, Buyer's counsel, a legal opinion in substantially the form
attached as Exhibit O.
7.7 No Litigation. No action, suit, or Proceeding shall be pending or
threatened before any government entity, domestic or foreign (other than one
initiated by Buyer), to restrain or prohibit, or to obtain specific damages in
respect of this Agreement or the consummation of the transactions contemplated
hereby and which (i) may have a Material Adverse Effect on the Acquired Assets
or the Business, and (ii) has a reasonable likelihood of success.
7.8 Deliveries. Buyer shall have delivered to Seller executed copies of
this Agreement and of each Collateral Agreement to be executed by it, and Buyer
shall also have delivered (i) a stock certificate representing the Closing
Shares in accordance with Sections 2.1.3.1 and 2.3.1.1 above to Seller, and (ii)
a stock certificate representing the Escrow Shares in accordance with Sections
2.1.3.2 and 2.3.1.2 above to the Escrow Agent.
7.9 Nasdaq. Buyer's Common Stock constituting the Share Consideration
shall, to the extent required by Nasdaq, be approved for listing by the Nasdaq
SmallCap Market, subject to official notice of issuance.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF BUYER
The obligations of Buyer to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at the
Closing of each of the following conditions:
41
8.1 Approvals. Seller shall have obtained the consent of its
shareholders to Seller's Plan of Liquidation and Dissolution and this Agreement,
the Collateral Documents and the transactions contemplated by this Agreement in
accordance with Applicable Laws and Seller's articles of incorporation and
bylaws then in effect. All consents, approvals, orders and authorizations of,
and registrations, declarations and filings with, and expirations of waiting
periods imposed by, any governmental entity, domestic or foreign, necessary for
the consummation of the transactions contemplated by this Agreement shall have
been obtained or filed or have occurred.
8.2 Representations, Warranties and Covenants. The representations and
warranties of Seller in this Agreement shall be true and correct on and as of
the Closing Date as though such representations and warranties were made on and
as of such date (giving effect to any Supplement to the Seller Disclosure
Letter), except (i) for those representations and warranties that address
matters only as of a particular date (which representations and warranties shall
have been accurate as of such date), and (ii) for such inaccuracies that, either
individually or in the aggregate, have not had and could not reasonably be
expected to have a Material Adverse Effect on the Acquired Assets or Business,
and Seller shall have performed and complied with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Closing Date.
8.3 Certificate of Seller. Buyer shall have been provided with a
certificate of Seller executed by the President or Chief Financial Officer of
Seller to the effect that, as of the Closing Date: (i) all representations and
warranties (as amended by any Supplement to the Seller Disclosure Letter) made
by Seller under this Agreement are true and complete, and (ii) all covenants,
obligations and conditions of this Agreement to be performed by Seller on or
before such date have been so performed.
8.4 Deliveries. Seller shall have (a) delivered to Buyer executed
copies of this Agreement and each Collateral Agreement to be executed by it, (b)
delivered, transferred, assigned or licensed to Buyer (as the case may be) all
of the Acquired Assets described in Section 1.1 above, and (c) delivered all
other items required for it to deliver to Buyer under Sections 2.2 and 2.3
above.
8.5 Payment of Outstanding Liabilities. To the extent necessary and
required to transfer, convey, assign and deliver the Acquired Assets to Buyer on
the Closing Date free and clear of all liens and encumbrances, Seller shall have
taken any and all necessary reasonable commercial actions to arrange to pay off
and/or obtain full releases from all of its liabilities and obligations, or
shall have made sufficient provisions to so pay or obtain releases, to the
reasonable commercial satisfaction of Buyer.
8.6 Termination or Release of Security Interests. Seller shall have
delivered to Buyer evidence, satisfactory to Buyer to the extent commercially
reasonable, of termination or release of all security agreements, security
interests or guarantees, if any, relating to the Acquired Assets.
42
8.7 UCC Termination Statements. Buyer shall have been furnished with
UCC termination statements with respect to all UCC-1 financing statements
evidencing security interests in any of the Acquired Assets.
8.8 Termination of Employees. As of and upon the Closing, Seller shall
have terminated each Key Employee, Technical Transferred Employee and
Transferred Employee effective at and upon the Closing and any existing
employment agreement between Seller and each (i) Key Employee (other than Xxxxx
X. Xxxxxx), (ii) Technical Transferred Employee, and (iii) Transferred Employee
shall have been terminated. In addition, as of the Closing Date, Seller shall
have terminated, waived and released its rights under any covenants regarding
non-competition, conflicting obligations and other rights under any contracts
with each Key Employee, Technical Transferred Employee and Transferred Employee.
8.9 Legal Opinion. Buyer shall have received from Xxxxxx and Xxxxxx,
P.A., Seller's counsel, a legal opinion in substantially the form attached as
Exhibit P.
8.10 No Material Adverse Effect. There shall not have occurred any
event or exist any circumstance or condition of any character (including,
without limitation, any bankruptcy or equivalent Proceeding involving Seller or
any other Proceeding challenging, threatening, or seeking to enjoin this
Agreement or any of the transactions contemplated hereunder) that has had or
could reasonably be expected to have a Material Adverse Effect on the Business
or Acquired Assets since the date of this Agreement.
8.11 Third Party Consents. Third Party consents necessary for Seller to
assign or transfer Seller's rights under the Assigned Contracts as set forth on
Schedule 8.11 hereto shall have been obtained by Seller to Buyer's commercially
reasonable satisfaction, not to be unreasonably withheld, delayed or conditioned
by Buyer.
8.12 Inventory Test. Seller's current inventory shall not exceed a
lower of cost or market amount of Five Hundred Thousand Dollars ($500,000) as
determined in accordance with the calculation of the Estimated Closing Net
Working Capital as described in Section 2.2.1 hereof.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement, or in any
certificate or other instrument delivered pursuant to this Agreement, shall
terminate one (1) year after the Closing Date; provided, however, that the
representations and warranties contained in Section 3.5 above shall terminate on
the thirty-six (36) month anniversary of the Closing and the representations and
warranties contained in Section 3.8 shall terminate sixty (60) days after the
last day of the statute of limitations period for any Third Party claim relating
thereto; provided, however, that the foregoing shall not preclude or prevent
Seller or its successor trust from dissolving its existence under Applicable
Law. The representations and warranties of Buyer contained in this Agreement, or
in any certificate or other instrument delivered pursuant to this Agreement,
shall
43
terminate one (1) year after the Closing Date; provided, however, that the
representations and warranties contained in Sections 4.9, 4.10 and 4.11 shall
terminate sixty (60) days after the last day of the statute of limitations
period. Covenants set forth in this Agreement shall survive until the
dissolution of Seller and the termination of Seller's successor trust, or upon
such earlier date as set forth herein.
9.2 Indemnification of Buyer. Seller agrees to defend, indemnify and
hold Buyer and its officers, directors, employees, agents, other representatives
and affiliates (collectively, the "Buyer Indemnified Parties"), harmless from
and against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses of investigation and
defense (subject to and limited by the provisions of Sections 9.2.4 hereof)
(hereinafter, individually a "Loss" and collectively "Losses") incurred or
sustained by such Persons, directly or indirectly, as a result of (a) any breach
or inaccuracy of a representation or warranty of Seller contained in this
Agreement or in any certificate, instrument, or other document delivered by
Seller pursuant to this Agreement, (b) any failure by Seller to perform or
comply with any covenant applicable to it contained in this Agreement or any of
the Collateral Agreements, (c) any Excluded Liabilities, including, without
limitation, any liabilities arising from or relating to Seller's operation of
the Business prior to the Closing, (d) any Warranty Claims in excess of the
amount reserved in the final Statement of Closing Net Working Capital, (e) any
Sales Returns in excess of the amount reserved in the final Statement of Net
Working Capital, or (f) fraud or willful misrepresentation with respect to this
Agreement; provided, however, that, except for claims made by Third Parties, any
Loss or Losses claimed under and pursuant to this Agreement shall not include
any incidental, consequential or special damages, including punitive damages.
9.2.1 The Parties agree that in the absence of liability for
Seller's Taxes, or Seller's fraud or willful misrepresentation with
respect to this Agreement, the Escrow Shares shall provide Buyer's sole
recourse against which to recover for Losses hereunder. Losses charged
against Escrow Shares shall be recoverable by Buyer by reducing the
Escrow Shares by that number of shares of Buyer's Common Stock
(forfeited Escrow Shares), which, based on the Share Consideration
Price, equal the aggregate dollar amount of such Losses (if prior to
the end of the Escrow Period, and provided that the value of the Escrow
Shares shall not be reduced below $0.00).
9.2.2 Unless claims have been made by Buyer for Losses prior
to the end of the Escrow Period (which are solely recoverable hereunder
from the Escrow Shares), no Losses shall be satisfied from the Escrow
Shares after the Escrow Period has expired. However, after (i) the
Escrow Period has expired, or (ii) no further Escrow Shares remain to
satisfy any Losses claimed by Buyer, then Buyer shall not initiate or
have claims for Losses against Seller except by reason of (x) liability
for Seller's Taxes, or (y) any Losses arising from Seller's claim of
fraud or willful misrepresentation with respect to this Agreement
(other than those that have been previously applied to reduce the
Escrow amount) in either of which circumstance, all such Losses shall
be recoverable by Buyer from Seller directly up to the value of the
Share Consideration.
9.2.3 Except as otherwise provided in this Agreement, Seller
shall not pay claims for Losses of Buyer from the Escrow unless and
until Buyer has made claims for
44
Losses that exceed the Allowed Deductible (as defined below). After
claims for Losses equal to the Allowed Deductible have been made, then
Buyer Losses for the Allowed Deductible and all additional Losses
incurred by Buyer shall be satisfied by the Escrow Shares in accordance
with the procedures set forth above; provided, however, that individual
claims comprising the Allowed Deductible which are made for Losses of
less than Five Thousand Dollars ($5,000) in each case (based upon the
time that such claims are first brought to Seller's or Buyer's
attention), shall not be satisfied from the Escrow Shares until all
such Losses total Fifty Thousand Dollars ($50,000), hereafter the
"Allowed Deductible." The Allowed Deductible shall be the first Fifty
Thousand Dollars ($50,000) of Losses that (i) are submitted by an
officer of Buyer in accordance with Section 9.4.1 below, or (ii) were
subject to an objection that has been resolved in accordance with
Section 9.5 below. Third Party expenses such as reasonable attorneys'
fees and costs shall be included in Losses that comprise the Allowed
Deductible.
9.2.4 Effect of Insurance. An Indemnified Party who has a
right to make a claim under any policy of insurance with respect to an
indemnified claim made by the Indemnified Party shall use commercially
reasonable efforts to make such claim on a prompt and competent basis
in the manner required by the insurance carrier. The Indemnified Party
shall use commercially reasonable efforts to promptly and diligently
pursue such claim and cooperate fully with the insurance carrier and
the Indemnifying Party in the prosecution of the claim or claims. If an
Indemnified Party receives insurance proceeds with respect to Losses
for which the Indemnified Party has made an indemnification claim prior
to the date on which the Indemnifying Party is required pursuant to
this Article 9 to pay such indemnification claim, the indemnification
claim shall be reduced by an amount equal to such insurance proceeds
received by the Indemnified Party less all reasonable out-of-pocket
costs incurred by the Indemnified Party in its pursuit of such
insurance proceeds. If such insurance proceeds are received by the
Indemnified Party after the date on which the Indemnifying Party is
required pursuant to this Article 9 to pay such indemnification claim,
the Indemnified Party shall, no later than five (5) days after the
receipt of such insurance proceeds, reimburse the Indemnifying Party in
an amount equal to such insurance proceeds (but in no event in an
amount greater than the Losses theretofore paid to the Indemnified
Party by the Indemnifying Party on account of such claims) less all
reasonable out-of-pocket costs incurred by the Indemnified Party in
obtaining such insurance proceeds. In either case, the Indemnifying
Party shall compensate the Indemnified Party for all costs incurred by
the Indemnified Party subsequent to either the reduction of any
indemnification claim as provided above, or the delivery of any such
insurance proceeds to the Indemnifying Party as provided above, as the
case may be, as a result of any such insurance, including, but not
limited to, retrospective premium adjustments, experience-based premium
adjustments (whether retroactive or prospective) and indemnification or
surety obligations of the Indemnified Party to any insurer. A claim for
such costs shall be made by an Indemnified Party by delivery of a
written notice to the Indemnifying Party requesting compensation and
specifying this Section 9.2.4 as the basis on which compensation for
such costs is sought, and the Indemnifying Party shall pay such costs
no later than thirty (30) days after receiving the written notice
requesting such compensation. Notwithstanding the foregoing, except to
the extent set forth in the first two sentences of this Section 9.2.4,
the Indemnified Party is not required to pursue a
45
recovery from an insurer as a precondition to the Indemnifying Party's
obligation to pay any indemnification claim as required by this Article
9. Under no circumstance shall the Indemnifying Party shall be entitled
to delay any payment beyond the respective payment dates for any
indemnification claims referred to in this Article 9 for the purpose of
awaiting receipt of insurance proceeds or credits therefor as provided
herein even if the Indemnified Party does not pursue its obligations
under the first two sentences of this Section 9.2.4.
9.2.5 Effect of Final Closing Net Working Capital Adjustment.
Notwithstanding any contrary provision or direction set forth in this
Agreement, other than for (i) those Losses set forth in Sections 9.2(d)
and 9.2(e) hereof, and (ii) any liabilities of the Business which (x)
arose, and were properly accruable under GAAP, prior to and as of the
Closing, and (y) are not reflected in the Final Closing Net Working
Capital Adjustment, no claims may be made by Buyer, for indemnification
or otherwise, with respect to the financial statements of Seller under
Section 3.15 of this Agreement or with respect to balance sheet
accounts that are set forth in the Statement of Closing Net Working
Capital that are subject to the Final Closing Net Working Capital
Adjustment. The Final Closing Net Working Capital Adjustment rendered
under this Agreement shall be conclusive, final and binding on the
Parties as to the financial statement accounts set forth therein.
9.3 Indemnification of Seller. Buyer agrees to defend, indemnify and
hold Seller and its shareholders, officers, directors, Employees, agents,
representatives and affiliates (collectively, the "Seller Indemnified Parties")
harmless from and against any Loss or Losses incurred or sustained by any Seller
Indemnified Party, directly or indirectly, as a result of (a) any breach or
inaccuracy of a representation or warranty contained in this Agreement or in any
certificate, instrument, or other document delivered by Buyer pursuant to this
Agreement, (b) any failure by Buyer to perform or comply with any covenant
applicable to it contained in this Agreement or the Collateral Agreements, (c)
any ongoing operations of the Business after the Closing, and (d) any Assumed
Liability that is assumed at and upon the Closing in accordance with Section
1.3.1.
9.4 Indemnification Procedures.
9.4.1 Non-Third Party Claim. If Buyer seeks indemnification
under this Article 9, Buyer shall promptly give notice thereof by
delivering an Officer's Certificate to Seller. Seller may object to
such claim by written notice to Buyer specifying the basis for such
objection, within thirty (30) days following Seller's receipt of notice
from Buyer regarding such claim. If no objection is made, the Escrow
Shares shall be reduced as described above in Section 9.2.3. For the
purposes of this Agreement, "Officer's Certificate" shall mean a
certificate signed by any officer of Buyer: (a) stating that Buyer has
paid, sustained, incurred or properly accrued, or reasonably
anticipates that it shall have to pay, sustain, incur or accrue Losses,
and (b) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid,
sustained, incurred or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach
of warranty or covenant or
46
Excluded Liability to which such item is related, including all
documentation arising from the foregoing.
9.4.2 Third Party Claim. If any of the Buyer Indemnified
Parties or the Seller Indemnified Parties intends to seek
indemnification pursuant to the provisions of Sections 9.2 or 9.3
hereof (each an "Indemnified Party"), the respective Indemnified Party
shall promptly give notice hereunder to the other Party (the
"Indemnifying Party") after obtaining written notice of any claim,
investigation, or the service of a summons or other initial or
continuing legal or administrative process or Proceeding in any action
instituted against the Indemnified Party as to which recovery or other
action may be sought against the Indemnified Party pursuant to Sections
9.2 or 9.3 hereof. The Indemnified Party shall permit the Indemnifying
Party to assume the defense of any such claim and any litigation
resulting from such claim; provided, however, that the Indemnified
Party shall not be required to permit such an assumption of the defense
of any claim or Proceeding which, if not first paid, discharged or
otherwise complied with, would result in a material interruption or
disruption of the business of the Indemnified Party, or any material
part thereof. Notwithstanding the foregoing, the right to
indemnification hereunder shall not be affected by any failure of the
Indemnified Party to give such notice (or by delay by the Indemnified
Party in giving such notice) unless, and then only to the extent that,
the rights and remedies of the Indemnifying Party shall have been
materially prejudiced as a result of the failure to give, or delay in
giving, such notice.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the obligations of the
Indemnifying Party hereunder as to such claim, investigation or
Proceeding shall include taking all steps necessary in the defense or
settlement of such claim, investigation or Proceeding and holding the
Indemnified Party harmless from and against any and all Losses arising
from, in connection with or incident to any settlement approved by the
Indemnifying Party or any judgment entered in connection with such
claim, investigation or Proceeding (subject to the remaining Allowed
Deductible, if any, which shall be paid by Buyer, and indemnification
limits set forth in this Agreement), except where, and only to the
extent that, the Indemnifying Party has been prejudiced by the actions
or omissions of the Indemnified Party. Notwithstanding the foregoing,
the assumption of the defense of any claim, investigation or Proceeding
by the Indemnifying Party shall not constitute an admission of
responsibility to indemnify or in any manner impair or restrict the
Indemnifying Party's rights to later seek to be reimbursed its costs
and expenses if indemnification under this Agreement with respect to
such claim, investigation or Proceeding was not required. The
Indemnifying Party shall not, in the defense of such claim or any
Proceeding resulting therefrom, consent to entry of any judgment (other
than a judgment of dismissal on the merits without costs) except with
the written consent of the Indemnified Party (which consent shall not
be unreasonably withheld, delayed or conditioned) or enter into any
settlement (except with the written consent of the Indemnified Party,
which consent shall not be unreasonably withheld, delayed or
conditioned) unless (i) there is no finding or admission of any
violation of Applicable Law and no material effect on any claims that
could reasonably be expected to be made against the Indemnified Party,
(ii) the sole relief provided is monetary damages that are
47
paid in full for Losses (subject to the remaining Allowed Deductible,
if any, which will be paid by Buyer, but which payment does not exceed
the indemnification limits set forth in this Agreement), and (iii) the
settlement shall include the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect to such
claim or litigation.
If the Indemnifying Party assumes the defense of such claim,
investigation or Proceeding resulting therefrom, the Indemnified Party
shall be entitled to participate in the defense of the claim, but
solely by observation and comment to the Indemnifying Party, and the
counsel selected by the Indemnified Party shall not appear on its
behalf in any Proceeding arising hereunder. The Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it to
participate in its defense unless any of the following shall apply: (i)
the employment of such counsel shall have been authorized in writing by
the Indemnifying Party, or (ii) the Indemnifying Party's legal counsel
shall advise the Indemnifying Party in writing, with a copy to the
Indemnified Party, that there is a conflict of interest that would make
it inappropriate under applicable standards of professional conduct to
have common counsel. If clause (i) or (ii) in the immediately preceding
sentence is applicable, then the Indemnified Party may employ separate
counsel at the expense of the Indemnifying Party to represent the
Indemnified Party and such Indemnified Party's counsel may appear on
its behalf in any Proceeding, notwithstanding the first sentence of
this paragraph. In no event, however, shall the Indemnifying Party be
obligated to pay the costs and expenses of more than one such separate
counsel for any one complaint, claim, action or Proceeding in any one
jurisdiction.
If the Indemnifying Party does not assume the defense of any
such claim by a Third Party or litigation resulting therefrom after
receipt of notice from the Indemnified Party, the Indemnified Party may
defend against such claim or litigation in such manner as it reasonably
deems appropriate. The Indemnified Party may not settle such claim or
litigation without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
Each Party shall cooperate in good faith and in all respects
with each Indemnifying Party and its representatives (including without
limitation its counsel) in the investigation, negotiation, settlement,
trial and/or defense of any Proceedings (and any appeal arising
therefrom) or any claim. The Parties shall cooperate with each other in
any notifications to and information requests of any insurers. No
individual representative of any Person, or their respective
Affiliates, shall be personally liable for any Loss or Losses under
this Agreement, except as specifically agreed to by said individual
representative.
9.5 Resolution of Article 9 Conflicts; Arbitration.
9.5.1 If Seller shall object in writing to any claim or claims
made in any Officer's Certificate to recover Losses within thirty (30)
days after delivery of such Officer's Certificate, Seller and Buyer
shall attempt in good faith to agree upon the rights of the respective
Parties with respect to each of such claims. If Seller and Buyer so
agree, a memorandum setting forth such agreement shall be prepared and
signed by both Parties.
48
9.5.2 If no such agreement can be reached after good faith
negotiation within sixty (60) days after delivery of the respective
Officer's Certificate, Buyer or Seller may demand arbitration of the
matter unless the amount of the Loss is at issue in pending litigation
with a Third Party, in which event arbitration shall not be commenced
until such amount is ascertained or both Parties agree to arbitration,
and in either such event the matter shall be settled by arbitration
conducted by one arbitrator agreeable to Buyer and Seller. If, within
thirty (30) days after submission of any dispute to arbitration, Buyer
and Seller cannot agree on one arbitrator, then the American
Arbitration Association shall select an arbitrator pursuant to its
rules; such arbitrator shall have not less than ten years experience in
arbitrating like kind commercial disputes.
9.5.3 Any such arbitration shall be held in Seattle,
Washington, under the rules then in effect of the American Arbitration
Association. The arbitrator shall determine how all expenses relating
to the arbitration shall be paid, including without limitation, the
respective expenses of each Party, the fees of the arbitrator and the
administrative fee of the American Arbitration Association. Other than
an exchange of documents and the right of each Party to make one
interrogatory request, no discovery shall be permitted in the
arbitration. The maximum number of hearing days by the arbitrator shall
not exceed five (5) or such other period of time reasonably determined
by the arbitrator to be required. The arbitrator shall issue a decision
with the findings of fact and reasoning for such decision and the award
within thirty (30) days of the last hearing date. The decision of the
arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be final, binding and conclusive upon the Parties.
Within thirty (30) days of a decision of the arbitrator requiring
payment by one Party to another, such Party shall make the payment to
such other Party. Any payments required to be made by Seller to Buyer
shall be made from the Escrow Shares, except as otherwise provided
hereunder.
9.5.4 Judgment upon any award rendered by the arbitrator may
be entered in any court having jurisdiction and shall be specifically
enforceable.
9.5.5 The provisions of this Section 9.5 shall: (i) not be
applicable either to (x) any disputes arising under the provisions of
Section 2.2 of this Agreement, or (y) any action taken pursuant to
Sections 11.8 or 11.9 of this Agreement, and (ii) apply solely to
disputes concerning Losses which are to be subject to the Escrow.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
10.1.1 by the written agreement of the Parties;
10.1.2 by either Buyer or Seller, if the Closing has not
occurred by June 30, 2004; provided, however, that the right to
terminate this Agreement under this
49
Section 10.1.2 shall not be available to any Party whose willful
failure to fulfill any obligation under this Agreement or other breach
of this Agreement has been the proximate cause of, or resulted in, the
failure of the Closing to occur on or before such date;
10.1.3 by Buyer, if it is not in material breach of its
obligations under this Agreement and there has been a material breach
of any representation, warranty, covenant or agreement contained in
this Agreement on the part of Seller and (i) Seller is not using its
commercially reasonable efforts to cure such breach, or has not cured
such breach within 15 days, after notice of such breach has been given
by Buyer to Seller in accordance with Section 11.1 (provided, however,
that, no cure period shall be required for any such breach which by its
nature cannot be cured), and (ii) as a result of such breach, one or
more of the conditions set forth in Article 8 cannot be satisfied at or
prior to the Closing;
10.1.4 by Seller, if it is not in material breach of its
obligations under this Agreement and there has been a material breach
of any representation, warranty, covenant or agreement contained in
this Agreement on the part of Buyer and: (i) Buyer is not using its
commercially reasonable efforts to cure such breach, or has not cured
such breach within 15 days, after notice of such breach has been given
by Seller to Buyer in accordance with Section 11.1 (provided, however,
that, no cure period shall be required for any such breach which by its
nature cannot be cured), and (ii) as a result of such breach, one or
more of the conditions set forth in Article 7 cannot be satisfied at or
prior to the Closing;
10.1.5 by Buyer, if there shall have occurred any event or
there shall exist any condition or circumstance of any character with
respect to Seller that has had a Material Adverse Effect;
10.1.6 by Seller, if there shall have occurred any event or
there shall exist any condition or circumstance of any character with
respect to Buyer that has had or is reasonably likely to have a
Material Adverse Effect;
10.1.7 by Buyer or Seller if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable
order, decree, judgment, Injunction or similar ruling, or shall have
taken any other action, having the effect of permanently restraining,
enjoining or otherwise prohibiting any of the transactions contemplated
by this Agreement;
10.1.8 by Buyer, if as of the Closing Date the Estimated
Closing Net Working Capital as set forth in the Statement of Estimated
Closing Net Working Capital described in Section 2.2.1 hereof is less
than Six Hundred Fifty Thousand Dollars ($650,000);
10.1.9 by Buyer or Seller pursuant to Section 6.5.5 above
(subject, in all cases, to Section 10.2); or
50
10.1.10 by either Buyer or Seller, as a recipient of a
Supplement pursuant to the termination right set forth in and pursuant
to the provisions of Section 11.16 hereof.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any Party
hereto or its affiliates, officers, directors, stockholders or shareholders, as
the case may be; provided, that each Party shall remain liable for any of its
respective breaches of this Agreement prior to its termination; provided,
further that if the termination results from the provisions of Section 10.1.9,
then Section 6.5.5 shall prevail as to Seller's liability to Buyer); and still
provided further, that the provisions of Section 6.4 above (Confidentiality),
Section 6.7 above (Public Disclosure), Article 11 below (General Provisions),
Article 12 below (Definitions) and Section 10.2 of this Agreement shall remain
in full force and effect and survive any termination of this Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 Notices. All notices or other communications which are required or
may be given pursuant to the terms of this Agreement shall be in writing and
shall be deemed duly given (i) upon receipt delivered personally to the
recipient, or (ii) one (1) business day after being sent to the recipient by
overnight delivery via a national commercial delivery service (charges prepaid),
or (iii) upon receipt after being mailed by certified or registered mail
(postage prepaid and return receipt requested), or (iv) one (1) business day
after being sent to the recipient by facsimile (with acknowledgment of complete
transmission) to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice). No facsimile
transmission shall be effective as aforesaid absent such notice being sent by
one of the other aforementioned methods in clauses (i)-(iii) immediately above.
A Party may subsequently change the address and addressee of any notice by
giving a notice in the manner described.
If to Buyer: Focus Enhancements, Inc.
0000 Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx Xxxxxxxx as Chief Financial Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to: Manatt, Xxxxxx & Xxxxxxxx, LLP
0000 Xxxx Xxxx Xxxx, Xxxx. # 0
Xxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
51
If to Seller: Visual Circuits Corporation
0000 Xxxx Xxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to: Xxxxxx and Xxxxxx, P.A.
2200 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
11.2 Expenses. Buyer and Seller shall each bear their own respective
expenses incurred in connection with the preparation and negotiation of this
Agreement and the Collateral Agreements including, without limitation, all
legal, accounting, financial advisory, consulting and all other fees and
expenses of Third Parties involving the negotiation and effectuation of the
terms and conditions of this Agreement, the Collateral Agreements and the
transactions contemplated hereby and thereby.
11.3 Entire Agreement. This Agreement, the Exhibits to this Agreement,
the Collateral Agreements, the Schedules, the Seller Disclosure Letter and the
Disclosure Schedules thereto, the Schedule of Exceptions, the Amended
Non-Disclosure Agreement, the Non-Disclosure Agreement Amendment, and the
documents and instruments and other agreements among the Parties referenced in
this Agreement constitute the entire agreement among the Parties with respect to
its subject matter and supersede, merge and void all prior agreements and
understandings both written and oral, among the Parties with respect to such
subject matter.
11.4 Severability. If any provision of this Agreement or the
application of such provision, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement shall continue in full force and effect and the application of such
provision to other Persons or circumstances shall be interpreted so as to effect
the intent of the Parties to the maximum extent possible. The Parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that shall achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
11.5 Other Remedies. Except as set forth in and limited by the terms of
this Agreement, any and all remedies in this Agreement expressly conferred upon
a Party shall be deemed cumulative with and not exclusive of any other remedy
conferred by this Agreement, and the exercise by a Party of any one remedy shall
not preclude the exercise of any other remedy under this Agreement. No Party or
other beneficiary of this Agreement shall have or exercise any remedies that are
not specifically granted or authorized pursuant to this Agreement.
52
11.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Minnesota, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Except for actions arising under Sections 2.2, 9.5, 11.8 and 11.9
of this Agreement, any disputes arising under this Agreement shall be venued in,
and the Parties hereby irrevocably submit to the exclusive jurisdiction of, the
state and federal courts located in Santa Xxxxx County, California for any and
all judicial Proceedings arising under or relating to this Agreement.
11.7 Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than (i) the Parties to this Agreement
and their respective successors and permitted assigns, and (ii) the Persons that
have the right to be indemnified hereunder pursuant to the provisions of
Sections 9.2 and 9.3 of this Agreement.
11.8 Equitable Remedies. The Parties agree that irreparable damage may
occur in the event that any of the provisions of this Agreement is or are not
performed in accordance with their specific terms or are otherwise breached, and
any Party shall be entitled to seek an Injunction or Injunctions to prevent
breaches of this Agreement and to seek specific performance to enforce the terms
and provisions of this Agreement in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which they are entitled
under this Agreement.
11.9 Arbitration. Except for any claim or dispute arising under the
provisions of (i) Section 2.2 with respect to an Accounting Arbitrator, (ii)
Article 9, and/or (iii) Section 11.8 hereof, any dispute between the Parties
which cannot otherwise be resolved, shall be submitted by Buyer or Seller to
arbitration before a single mutually acceptable arbitrator. If, within thirty
(30) days after submission of any dispute to arbitration, the Parties cannot
agree on one arbitrator, then the American Arbitration Association shall select
an arbitrator pursuant to its commercial rules and which arbitrator shall have
not less than ten years experience in arbitrating like kind commercial disputes.
Any such arbitration shall be held in Seattle, Washington under the rules then
in effect of the American Arbitration Association. The arbitrator shall
determine how all expenses relating to the arbitration shall be paid, including
without limitation, the respective expenses of each Party, the fees of the
arbitrator and the administrative fee of the American Arbitration Association.
Other than an exchange of documents and the right of each Party to make one
interrogatory request, no discovery shall be permitted in the arbitration, and
the maximum number of hearing days shall not exceed five (5). The arbitrator
shall issue a decision with the findings of fact and reasoning for such decision
and the award, judgment, decree or order awarded by the arbitrator within thirty
(30) days of the last hearing date. The decision of the arbitrator shall be
final, binding and conclusive upon the Parties. Judgment upon any award rendered
by the arbitrator(s) may be entered in any court having jurisdiction and shall
be specifically enforceable.
11.10 Counterparts and Facsimile/Electronic Signature. This Agreement
may be executed in one or more facsimiles, counterparts or electronic signature
counterparts of any form, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts, facsimiles
or electronic signatures have been executed by each of the Parties and delivered
to the other Party, it being understood that all Parties need not sign the same
counterpart, facsimile or form of electronic signature.
53
11.11 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns, but except as hereinafter provided in this Section, nothing
in this Agreement is to be construed as an authorization or right of any Party
to assign its rights and delegate its duties under this Agreement without the
prior written consent of the other Parties hereto. In its sole discretion Buyer
may assign its rights in and delegate its duties under this Agreement and the
transactions contemplated hereby to an Affiliate of Buyer. In the event of such
an assignment of rights and delegation of duties, all references to Buyer, as
applicable, to the assignment in this Agreement or any other transaction
document affected shall also be deemed to be references to the Person to which
this Agreement is assigned; provided, that no such assignment and delegation
shall relieve Buyer of its (i) obligation to issue the Share Consideration, and
(ii) other duties or obligations hereunder. In its sole discretion, after the
Closing, Seller may assign its rights in and delegate its duties under this
Agreement, the Collateral Agreements and any other documents and instruments
arising from the transactions contemplated hereby to a successor Person,
including a trust for the benefit of the shareholders of Seller, it being
understood that Seller has adopted a plan of dissolution and liquidation in
connection with this Agreement and will dissolve and liquidate within a twelve
(12) month period as required by Code Section 368(a)(1)(C). In the event of such
an assignment of rights and delegation of duties, all references to Seller, as
applicable, to the assignment of this Agreement or any other transaction
document affected shall also be deemed to be references to the Person to which
this Agreement is assigned.
11.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The words "including," "include" or "includes"
shall mean including without limitation. The Parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty or covenant
contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
11.13 Waiver. The terms, conditions, warranties, representations and
indemnities contained in this Agreement, including the documents, instruments
and agreements executed and delivered by the Parties pursuant hereto, may be
waived only by a written instrument executed by the Party waiving compliance.
Any such waiver shall only be effective in the specific instance and for the
specific purpose for which it was given, unless it so provides otherwise by its
terms, and shall not be deemed a waiver of any other provision hereof or of the
same breach or default upon any recurrence thereof. A Party's failure to
exercise or delay the exercise of any right hereunder shall not operate as a
waiver thereof nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
11.14 Headings. The headings of the articles, sections and subsections
of this Agreement are intended for the convenience of the Parties only and shall
in no way be held to explain, modify, construe, limit, amplify or aid in the
interpretation of the provisions hereof. The
54
terms "this Agreement," "hereof," "herein," "hereunder," "hereto" and similar
expressions refer to this Agreement as a whole and not to any particular
article, section, subsection or other portion hereof and include the Schedules,
Disclosure Schedules, Exhibits and Collateral Agreements hereto and any
document, instrument or agreement executed and/or delivered by the Parties
pursuant hereto.
11.15 Amendments. No purported amendment or modification of any
provision of this Agreement or any of the documents, instruments or agreements
to be executed by the Parties pursuant hereto shall be effective unless in a
writing specifically referring to this Agreement and signed by all of the
Parties hereto.
11.16 Supplementation of Disclosure Schedules. Seller and Buyer may
each respectively elect to deliver prior to or at the Closing a Supplement (a
"Supplement") to one or more of the Disclosure Schedules or the Schedule of
Exceptions previously delivered to the other in accordance with the procedures
set forth in this Section 11.16 as follows:
11.16.1 Any and all Supplements must be in writing and must be
delivered to the other Party as soon as practicable, but, to be
effective, in no event later than two (2) business days prior to the
Closing Date. The other Party shall be given the opportunity during the
two (2) business day period following the delivery of the proposed
Supplement to consider the Supplement. If the recipient Party does not
object to the contents of the Supplement within such two (2) business
day period, the Disclosure Schedule in question shall be deemed amended
as of the date of this Agreement by the Supplement. If the recipient
objects to a proposed Supplement, the sole remedy of such objecting
Party shall be termination of this Agreement in accordance with the
provisions of Section 10.1.10; provided, however, that such termination
right shall only be available if the matter(s) disclosed in the
Supplement could reasonably be determined to have a Material Adverse
Effect with respect to the disclosing Party (and, if the foregoing
prevents a termination due to the determination that the matter(s)
disclosed in the Supplement could not reasonably be determined to have
a Material Adverse Effect with respect to the disclosing Party, the
Disclosure Schedule or Schedule of Exceptions in question shall be
deemed amended, as described above, and, provided, further, the right
of a Party to provide a Supplement shall only be available if (i) the
Supplement was prepared in connection with or was made necessary by a
change in circumstance of which the Party proposing the Supplement was
unaware at the date of this Agreement, or (ii) the omission from the
original Disclosure Schedule was ministerial in nature and the
Supplement is not material to the disclosing Party; and
11.16.2 Any and all Supplements not delivered at least two (2)
business days prior to the Closing Date will not be deemed to (i) be
subject to the foregoing provisions of this Section 11.16, or (ii)
amend any Disclosure Schedule or Schedule of Exceptions unless the
recipient provides its written consent to the Supplement.
55
ARTICLE 12
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified:
"Accounting Arbitrator" has the meaning set forth in Section 2.2.3.2 of
this Agreement.
"Acquired Assets" has the meaning set forth in Section 1.1 of this
Agreement.
"Acquired Current Assets" has the meaning set forth in Section 1.1.4 of
this Agreement.
"Acquisition Proposal" has the meaning set forth in Section 6.5 of this
Agreement.
"Agreement" has the meaning set forth in the Preamble to this
Agreement.
"Allowed Deductible" has the meaning set forth in Section 9.2.3 of this
Agreement.
"Amended Non-Disclosure Agreement" has the meaning set forth in Section
6.1.1 of this Agreement.
"Applicable Law" or "Applicable Laws" means any and all laws (including
Environmental Laws), ordinances, constitutions, regulations, statutes, treaties,
rules, codes, licenses, certificates, franchises, permits, requirements and
Injunctions adopted, enacted, implemented, promulgated, issued, entered or
deemed applicable by or under the authority of any Governmental Body having
jurisdiction over a specified Person or any of such Person's properties or
assets.
"Assigned Contracts" has the meaning set forth in Sections 1.1.6 and
1.1.9 of this Agreement.
"Assumed Current Liabilities" has the meaning set forth in Section
1.3.1 of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 1.3.1 of
this Agreement.
"Balance Sheet Date" has the meaning set forth in Section 3.15 of this
Agreement.
"Benefits Liabilities" means any and all claims, debts, liabilities,
commitments and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever or however arising, including all costs and expenses relating thereto
arising under law, rule, regulation, permits, action or Proceeding before any
governmental entity, order or consent decree or any award of any arbitrator of
any kind relating to any Seller Plan (as defined below), employee program or
employee policy (whether written or otherwise), any employment agreement
(whether written or otherwise).
"Business" has the meaning set forth in Section 1.1 of this Agreement.
"Buyer" has the meaning set forth in the Preamble to this Agreement.
"Buyer Financial Statements" has the meaning set forth in Section 4.10
of this Agreement.
"Buyer Indemnified Parties" has the meaning set forth in Section 9.2 of
this Agreement.
"Buyer SEC Documents" has the meaning set forth in Section 4.10 of this
Agreement.
"Buyer's Common Stock" shall mean the common stock of Buyer, $0.01 par
value, 100,000,000 (one hundred million) shares of which are authorized on the
date hereof.
"COBRA" has the meaning set forth in Section 6.8.3 of this Agreement.
56
"Calculated Share Consideration" has the meaning set forth in Section
2.1 of this Agreement.
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
"Closing Cash" has the meaning set forth in Section 2.2.2 of this
Agreement.
"Closing Cash Adjustment" has the meaning set forth in Section 2.2.2 of
this Agreement.
"Closing Date" has the meaning set forth in Section 2.3 of this
Agreement.
"Closing Net Working Capital" means the difference between the Closing
Date current assets and the Closing Date current liabilities as calculated and
to be set forth in the column labeled "Estimated/Closing Net Working Capital" as
described by example on Schedule 2.2.1 to this Agreement. Any calculation of
Estimated Closing Net Working Capital and Closing Net Working Capital shall be
made in the form of, and in accordance with the directives and principles set
forth in, such Schedule 2.2.1.
"Closing Shares" has the meaning set forth in Section 2.1.3.1 of this
Agreement.
"Code" has the meaning set forth in the Recitals to this Agreement.
"Collateral Agreements" has the meaning set forth in Section 2.3.1.3 of
this Agreement.
"Company" has the meaning set forth in the Preamble to this Agreement.
"Current Liabilities" has the meaning set forth in Section 1.3.1 of
this Agreement.
"ERISA" has the meaning set forth in Section 3.9.2 of this Agreement.
"ERISA Affiliate" has the meaning set forth in Section 3.9.2 of this
Agreement.
"Employee" means any current or former or retired employee of Seller or
any subsidiary of Seller.
"Employment Agreements" has the meaning set forth in the Recitals to
this Agreement.
"Escrow" has the meaning set forth in Section 2.1.3.2 of this
Agreement.
"Escrow Agent" has the meaning set forth in Section 2.1.3.2 of this
Agreement.
"Escrow Agreement" has the meaning set forth in Section 2.1.3.2 of this
Agreement.
"Escrow Period" has the meaning set forth in Section 2.1.3.2 of this
Agreement.
"Escrow Shares" has the meaning set forth in Section 2.1.3.2 of this
Agreement.
"Estimated Closing Cash" has the meaning set forth in Section 2.2.2 of
this Agreement.
"Estimated Closing Net Working Capital" has the meaning set forth in
Section 2.2.1 of this Agreement.
"Estimated Closing Net Working Capital Adjustment" has the meaning set
forth in Section 2.2.1 of this Agreement.
"Exchange Act" has the meaning set forth in Section 4.6 of this
Agreement.
"Excluded Assets" has the meaning set forth in Section 1.2 of this
Agreement.
"Excluded Current Assets" has the meaning set forth in Section 1.2.4 of
this Agreement.
"Excluded Current Liabilities" has the meaning set forth in Section
1.3.2 of this Agreement.
57
"Excluded Liabilities" has the meaning set forth in Section 1.3.2 of
this Agreement.
"Executive Confidentiality/Invention Agreements" has the meaning set
forth in the Recitals to this Agreement.
"Final Closing Cash" has the meaning set forth in Section 2.2.3.3(ii)
of this Agreement.
"Final Closing Net Working Capital" has the meaning set forth in
Section 2.2.3.3(i) of this Agreement.
"Final Closing Net Working Capital Adjustment" has the meaning set
forth in Section 2.2.3.3 of this Agreement.
"GAAP" has the meaning set forth in Section 3.15 of this Agreement.
"Governmental Body" means any:
(i) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other
government;
(iii) governmental or quasi governmental authority of any
nature (including any governmental agency, branch, board, commission,
department, instrumentality, office or other entity, and any court or
other tribunal);
(iv) multinational organization or body; and/or
(v) body exercising, or entitled or purporting to exercise,
any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Injunctions" means any and all writs, rulings, awards, directives,
injunctions (whether temporary, preliminary or permanent), judgments, decrees or
orders (whether executive, judicial or otherwise) adopted, enacted, implemented,
promulgated, issued, entered or deemed applicable by or under the authority of
any Governmental Body.
"Indemnified Party" shall have the meaning set forth in Section 9.4.2
of this Agreement.
"Indemnifying Party" shall have the meaning set forth in Section 9.4.2
of this Agreement. "Intellectual Property Rights" has the meaning set forth in
Section 3.5.1 of this Agreement.
"Key Employees" or "Key Employee" has the meaning set forth in the
Recitals to this Agreement.
"Knowledge" means, with respect to an individual who is a natural
being, an individual's actual knowledge (following due inquiry and
investigation) of a fact or matter. With respect to an entity that is a Party to
this Agreement, "Knowledge" shall be solely attributed to the knowledge of an
officer, director or management employee of such Party, and as applicable to the
context used in this Agreement.
"Loss" or "Losses" has the meaning set forth in Section 9.2 of this
Agreement.
"Material Adverse Effect" or "Material Adverse Change" means, in
connection with any Person, any event, change or effect that is materially
adverse, individually or in the aggregate, to the condition (financial or
otherwise), properties, Acquired Assets, liabilities, revenues, income,
58
business, operations, or results of operations taken as a whole; provided,
however, that in no event shall any of the following constitute a material
adverse change, or be deemed to have a material adverse effect in the condition
(financial or otherwise), properties, assets, liabilities, revenues, income,
business, operations, or results of operations of any such Person or such
Person's business: (i) any change or effect of the continuing losses being
incurred or to be incurred by the Company or Buyer between the date hereof and
the Closing which arise from the operation of its respective business in the
ordinary course, (ii) any change or effect resulting from conditions affecting
the industry in which the Company or Buyer respectively operates or from changes
in general business or economic conditions, (iii) any change or effect resulting
from the announcement or pendency of any of the transactions contemplated by
this Agreement, (iv) any change or effect resulting from compliance by the
Company or Buyer or their respective shareholders with the terms of, or the
taking of any action contemplated or permitted by, this Agreement or any of the
Collateral Agreements, or (v) any change or effect resulting from any change in
Applicable Law.
"Minnesota Facility" has the meaning set forth in Section 1.3.1 of this
Agreement.
"Non-Competition Agreements" has the meaning set forth in the Recitals
to this Agreement.
"Non-Disclosure Agreement Amendment" has the meaning set forth in
Section 6.1.1 of this Agreement.
"Officer's Certificate" has the meaning set forth in Section 9.4.1 of
this Agreement.
"Ordinary Course of Business" has the meaning set forth in Section
6.2.1 of this Agreement.
"Party" or "Parties" has the meaning set forth in the Preamble to this
Agreement.
"Person" means any individual, corporation (including any non profit
corporation), general, limited or limited liability partnership, limited
liability company, joint venture, estate, trust, association, organization, or
other entity or Governmental Body.
"Pre-Closing Tax Period" has the meaning set forth in Section 1.2.8 of
this Agreement.
"Price Amount" has the meaning set forth in Section 2.1 of this
Agreement.
"Proceeding(s)" means any suit, litigation, arbitration, hearing,
audit, investigation or other action (whether civil, criminal, administrative or
investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"Products" has the meaning set forth in Section 1.1.1 of this
Agreement.
"Proxy Statement" has the meaning set forth in Section 3.21 of this
Agreement.
"Proxy Statement/Prospectus" has the meaning set forth in Section 3.21
of this Agreement.
"Registered Intellectual Property" has the meaning set forth in Section
3.5.2 of this Agreement.
"Returns" has the meaning set forth in Section 3.8.1 of this Agreement.
"S-4" has the meaning set forth in Section 3.21 of this Agreement.
"SEC" has the meaning set forth in Section 4.6 of this Agreement.
"Sales Returns" means goods sold by Seller prior to the Closing that
are returned in accordance with Seller's product return policy and which are
accepted as a return by Buyer in the
59
Ordinary Course of Business, the amount of which shall be computed as the
difference between the amount of (i) the credit to the applicable account
receivable or cash paid by Buyer for the sales return, and/or discount(s) given
on account of the sales return, and (ii) the inventory carry-value of the
returned product.
"Securities Act" has the meaning set forth in Section 3.21 of this
Agreement.
"Seller" has the meaning set forth in the Preamble to this Agreement.
"Seller Confidentiality Agreement" has the meaning set forth in Section
6.8.6 of this Agreement.
"Seller Disclosure Letter" means the document that contains the
Disclosure Schedules to this Agreement which modify the representations and
warranties hereof, and each of which is an essential term of this Agreement and
is incorporated by reference herein.
"Seller Indemnified Parties" has the meaning set forth in Section 9.3
of this Agreement.
"Seller Plan" means any employee benefit plan under ERISA as defined in
Section 3.9.2.
"Seller's Plan of Liquidation and Dissolution" has the meaning set
forth in the Recitals to this Agreement.
"Seller's Reorganization Expenses" means the amount of professional
fees (for legal, accounting, tax, financial advisory and similar services) paid
by Seller in connection with the transactions contemplated by this Agreement
prior to the Closing.
"Seller's Taxes" has the meaning set forth in Section 1.3.2 of this
Agreement.
"Share Consideration" has the meaning set forth in Section 2.1 of this
Agreement.
"Share Consideration Price" has the meaning set forth in Section 2.1.2
of this Agreement.
"Stated Share Consideration" has the meaning set forth in Section 2.1
of this Agreement.
"Statement of Closing Cash" has the meaning set forth in Section
2.2.3.1 of this Agreement.
"Statement of Closing Net Working Capital" has the meaning set forth in
Section 2.2.3.1 of this Agreement.
"Statement of Estimated Closing Cash" has the meaning set forth in
Section 2.2.2 of this Agreement.
"Statement of Estimated Closing Net Working Capital" has the meaning
set forth in Section 2.2.1 of this Agreement.
"Subject Company Shareholders" means the following stockholders of the
Company: Xxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxxx and Xxxxxx
Xxxxxxxx.
"Superior Proposal" has the meaning set forth in Section 6.5.4 of this
Agreement.
"Supplement" has the meaning set forth in Section 11.16 of this
Agreement.
"Target Closing Net Working Capital" has the meaning set forth in
Section 2.2.1 of this Agreement.
"Tax" or, collectively, "Taxes," means any and all taxes, assessments
and other governmental charges, duties, impositions and liabilities imposed by
any Governmental Body, including taxes
60
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, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other Person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
"Technical Employee Offer Letter(s)" has the meaning set forth in the
Recitals to this Agreement.
"Technical Transferred Employees" means Xxxxx Xxxxx, Xxxx Xxxxxxxx,
Xxxxx Xxxxxxxx and Xxxxx Xxxxxx.
"Technology" has the meaning set forth in Section 1.1.1 of this
Agreement.
"Third Party" or "Third Parties" shall mean any Person who is not (x) a
Party to this Agreement, or (y) an Indemnified Party pursuant to Section(s) 9.2
and/or 9.3 of this Agreement.
"Transferred Copyright" or "Transferred Copyrights" has the meaning set
forth in Section 1.1.2 of this Agreement.
"Transferred Domain Names" has the meaning set forth in Section 1.1.2
of this Agreement.
"Transferred Employees" has the meaning set forth in Section 6.8.1 of
this Agreement.
"Transferred Insurance Policies" has the meaning set forth in Section
1.1.10 of this Agreement.
"Transferred Intellectual Property" has the meaning set forth in
Section 1.1.2 of this Agreement.
"Transferred Patents" has the meaning set forth in Section 1.1.2 of
this Agreement.
"Transferred Trademarks" has the meaning set forth in Section 1.1.2 of
this Agreement.
"Voting and Proxy Agreement(s)" has the meaning set forth in the
Recitals to this Agreement.
"Warranty Claims" means valid claims properly made under Seller's
product warranty for products sold by Seller prior to the Closing. Warranty work
under and for such warranty shall be computed at the actual cost to Buyer,
without xxxx-up, to honor the warranty obligation in the Ordinary Course of
Business.
[SIGNATURE PAGE FOLLOWS]
61
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date first above written.
BUYER:
FOCUS ENHANCEMENTS, INC.
a Delaware corporation
By: /s/ Xxxxx Xxxxx
---------------------------
Xxxxx Xxxxx
President and Chief Executive Officer
SELLER:
VISUAL CIRCUITS CORPORATION
a Minnesota corporation
By: /s/ Xxxxx Xxxxxx
---------------------------
Xxxxx X. Xxxxxx
Chief Executive Officer
