STOCK PURCHASE AGREEMENT among BPO MANAGEMENT SERVICES, INC. and MR. EVERETT HUNTOON and MR. HOWARD ANDREWS October 10, 2007
Exhibit
10.49
among
BPO
MANAGEMENT SERVICES, INC.
and
XX.
XXXXXXX XXXXXXX
and
XX.
XXXXXX XXXXXXX
October
10, 2007
ARTICLE
1
|
DEFINITIONS
|
1
|
1.1
|
Definitions
and Interpretation
|
1
|
1.2
|
Other
Definitional and Interpretive Matters
|
6
|
ARTICLE
2
|
PURCHASE
AND SALE OF THE COMPANY SHARES
|
8
|
2.1
|
Basic
Transaction
|
8
|
2.2
|
Purchase
Price
|
8
|
2.3
|
Security
|
8
|
2.4
|
Closing
Date
|
9
|
2.5
|
Withholding
|
9
|
ARTICLE
3
|
REPRESENTATIONS
AND WARRANTIES CONCERNING THE TRANSACTION
|
10
|
3.1
|
Representations
and Warranties of the Sellers
|
10
|
3.2
|
Representations
and Warranties of the Buyer
|
11
|
ARTICLE
4
|
REPRESENTATIONS
AND WARRANTIES CONCERNING THE COMPANY
|
13
|
4.1
|
Representations
and Warranties concerning the Company
|
13
|
ARTICLE
5
|
COVENANTS
|
37
|
5.1
|
Special
Payments
|
37
|
5.2
|
Post
Closing Covenants
|
38
|
ARTICLE
6
|
CONDITIONS
|
42
|
6.1
|
Conditions
for the Benefit of the Buyer
|
42
|
6.2
|
Conditions
for the Benefit of the Sellers
|
43
|
6.3
|
Waiver
of Conditions
|
44
|
ARTICLE
7
|
DELIVERIES
AT CLOSING
|
44
|
7.1
|
Closing
|
44
|
7.2
|
Documents
Delivered to Buyer
|
44
|
7.3
|
Documents
Delivered to Sellers
|
45
|
ARTICLE
8
|
REMEDIES
FOR BREACHES OF THIS AGREEMENT
|
46
|
8.1
|
Survival
of Representations and Warranties
|
46
|
8.2
|
Indemnification
Provisions for Benefit of the Buyer
|
46
|
8.3
|
Indemnification
Provisions for Benefit of the Sellers
|
47
|
8.4
|
Deemed
Adjustments
|
47
|
8.5
|
Claim
Notice; Notice of a Disputed Claim
|
47
|
8.6
|
Other
Indemnification Provisions
|
47
|
ARTICLE
9
|
LIMITATIONS
ON INDEMNIFICATION
|
48
|
9.1
|
Limitations
on Indemnification
|
48
|
ARTICLE
10
|
MISCELLANEOUS
|
49
|
10.1
|
Press
Releases and Public Announcements
|
49
|
i
10.2
|
No
Third-Party Beneficiaries
|
49
|
10.3
|
Entire
Agreement
|
49
|
10.4
|
Succession
and Assignment
|
49
|
10.5
|
Counterparts
|
49
|
10.6
|
Headings
|
49
|
10.7
|
Notices
|
50
|
10.8
|
Governing
Law
|
51
|
10.9
|
Amendments
and Waivers
|
51
|
10.10
|
Severability
|
51
|
10.11
|
Expenses
|
52
|
ii
THIS
STOCK PURCHASE AGREEMENT entered into as of 10, 2007 by and
among BPO MANAGEMENT SERVICES, INC., a Delaware corporation with its principal
place of business located at 0000 Xxxxx Xxxxxxx, Xxxxxx, Xxxxx 000, Xxxxxxx,
Xxxxxxxxxx (the “Buyer”) and XX. XXXXXXX XXXXXXX, an individual
domiciled at 000 Xxxxxxx Xxxx, Xx. Xxxxx, Xxx Xxxx, and XX. XXXXXX
XXXXXXX, an individual domiciled at 00 Xxxxx Xxxxxx Xxxx, Xxxx
Xxxxx, Xxx Xxxx, (Xx. Xxxxxxx and Xx. Xxxxxxx together being hereinafter
referred to as the “Sellers” and individually as a
“Seller”). The Buyer and the Sellers are referred
to
collectively herein as the “Parties”. The
Parties hereto agree as follows:
RECITALS
A.
|
The
Sellers own all of the outstanding capital stock of Blue Hill Data
Services, Inc. (the “Company”), (after taking into
account the purchase by the Company, concurrent with the completion
of the
Transaction hereunder, of all shares of the Company held by
Xxxxxxxxx);
|
B.
|
This
Agreement contemplates a transaction in which the Buyer will purchase
from
the Sellers, and the Sellers will sell to the Buyer, all of the
outstanding capital stock of the Company (after the acquisition by
the
Company of the shares held by Xxxxxxxxx) in return for cash on closing,
an
additional deferred cash payment, and the issuance of stock of the
Buyer,
in accordance with the terms and conditions
herein;
|
C.
|
Concurrent
with the completion of the Transaction hereunder, the Buyer has advanced
to the Company the amount required to complete the acquisition
from Xxxxxxxxx pursuant to the Xxxxxxxxx
Agreement
|
NOW,
THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE
1
DEFINITIONS
1.1
|
Definitions
and Interpretation
|
In
this
Agreement, the following terms shall have the following meanings:
“Accredited
Investor” has the meaning set forth in Regulation D promulgated under
the Securities Act.
“Adverse
Consequences” means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys’ fees and
expenses.
“Affiliate”
has the meaning set forth in Rule 12b 2 of the regulations promulgated under
the
Securities Exchange Act.
“Basis”
means any past or present fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction that forms or could reasonably be expected to form the basis
for
any specified consequence.
“Business”
means the provision of information technology services on an outsource basis,
including mainframe outsourcing, open systems outsourcing, server hosting,
co-location and disaster recovery services.
“Business
Day” means any day other than a Saturday, Sunday, statutory holiday or
day on which banks in the cities of New York or Los Angeles are not generally
open for business.
“Buyer
Stock” means the stock issued by the Buyer as provided for in §2.2(c)
herein.
“Closing”
has the meaning set forth in §2.4 below.
“Closing
Date” has the meaning set forth in §2.4 below.
“Closing
Time” means 2:00 pm on the Closing Date.
“Company
Employee and Contractor Disclosure Document” means that certain
document dated the date hereof and delivered by the Company to the Buyer setting
out the information described in §4.1(y) hereof.
“Company
Employees” means individuals currently employed or retained by the
Company on a full-time, part-time or temporary basis, including those employees
on disability leave, parental leave or other absence.
“Company
Shares” means shares of the Company’s common stock.
“Company
Transaction Expenses” means, except as otherwise expressly set forth in
this Agreement, the aggregate amount of all out-of-pocket fees and expenses,
incurred by or on behalf of, or paid or to be paid by, the Company in connection
with the process of selling the Company Shares or otherwise relating to the
negotiation, preparation or execution of this Agreement or any documents or
agreements contemplated hereby or the performance or consummation of the
transactions contemplated hereby, including (A) any fees and expenses associated
with obtaining necessary or appropriate waivers, consents or approvals of any
Governmental Body or third parties on behalf of the Company, (B) any fees or
expenses associated with obtaining the release and termination of any Security
Interests; (C) all Company- or Seller-retained brokers’ or finders’ fees; (D)
fees and expenses of counsel, advisors, consultants, investment bankers,
accountants, and auditors and experts retained by the Company or the Sellers,
and (E) all sale, “stay-around,” retention, or similar bonuses or payments to
current or former directors, officers, employees and consultants whom the
Company or the Sellers agreed to pay as a result of or in connection with the
transactions contemplated hereby.
2
“Confidential
Information” means any information concerning the Business and affairs
of the Company that is not already generally available to the
public.
“Consulting
Agreements” means agreements in the form of the draft agreement
attached hereto as Exhibit B.
“Disclosure
Schedule” has the meaning set forth in §4.1 below.
“Employee
Benefit Plan” means any benefit plan, program, agreement or arrangement
maintained, contributed to or provided by the Company or any Affiliate for
the
benefit of any of the Company’s employees, former employees or dependent or
independent contractors or their respective dependents or beneficiaries, whether
written or unwritten, including all bonus, deferred compensation, incentive
compensation, share purchase, stock option, stock appreciation, phantom stock,
savings, profit sharing, severance or termination pay, health or other medical,
life, disability or other insurance (whether insured or self-insured),
supplementary unemployment benefit, pension, retirement and supplementary
retirement plans, programs, agreements and arrangements, except for any
statutory plans to which the Company is obligated to contribute or comply or
plans administered pursuant to applicable federal or state health, workers
compensation and employment insurance legislation.
“Environmental,
Health, and Safety Requirements” shall mean all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of
the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labelling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or by-products, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now in
effect and applicable to the Company.
“ERISA”
means the Employment Retirement Income Security Act of 1974, as
amended.
“Escrow
Agent” means U.S. Bank National Association.
“Escrow
Terms” means the agreement in the form of the draft attached hereto as
Exhibit 2.5(a).
“Exception”
has the meaning provided by §3.1(a) hereof.
“Excluded
Liabilities” means all of the debts, guarantees and obligations of the
Company that were not incurred in the Ordinary Course of Business, including
without limitation, the following: (A) loans or other debts or obligations
owed
to Sellers, including, without limitation, accrued but unpaid bonuses and
dividends payable to Sellers and accrued vacation pay, and (B) all obligations
of the Company under the Xxxxxxxxx Agreement.
“Financial
Statements” has the meaning set forth in §4.1(g) below.
3
“GAAP”
means generally accepted accounting principles in the United States as in effect
from time to time.
“Governmental
Body” means any government or governmental or regulatory body thereof,
or political subdivision thereof, whether federal, state, local or foreign,
or
any agency, instrumentality or authority thereof, or any court or arbitrator
(public or private).
“Indemnified
Party” has the meaning set forth in §8.5 below.
“Indemnifying
Party” has the meaning set forth in §8.5 below.
“Intellectual
Property” means (a) all inventions (whether patentable or unpatentable
and whether or not reduced to practice), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations in part, revisions, extensions, and
re-examinations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and
all
applications, registrations, and renewals in connection therewith, (e) all
trade
secrets and confidential business information (including ideas, research and
development, know how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all website content and domain names, (h) all other
proprietary rights, and (i) all copies and tangible embodiments thereof (in
whatever form or medium).
“Interim
Period” means the period commencing on July 1, 2007 and terminating on
the Closing Date.
“IRS”
means the Internal Revenue Service.
“June
30 Balance Sheet” means the balance sheet contained within the June 30
Statements.
“June
30 Statements” has the meaning set forth in §4.1(g) below.
“Knowledge”
of a certain matter means the actual knowledge of the Sellers of that matter
and
the knowledge which the Sellers would have if they conducted such reasonable
inquiry that a prudent person in similar circumstances would consider necessary
as to that matter. Inquiry by either of the Sellers made to the
appropriate one or more of the following persons shall be deemed reasonable:
Xxxxx Xxxxxx (Vice President); Xxx Xxxxxxx (Chief Technical Officer, working
as
a independent consultant); Xxxxxxx Xxxxx (Director of Facilities and Client
Services); Xxxxx Xxxxx (Director of Information Technology Open Systems); Xxxxx
Xxxxxxx (Operations Manager) or any of their replacements if any of them is
no
longer employed or retained as a consultant by the Company at the time of
inquiry.
4
“Legal
Proceeding” means any judicial, administrative or arbitral actions,
suits, mediation, investigation, inquiry, proceedings or claims (including
counterclaims) by or before a Governmental Body.
“Liability”
means any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability
for
Taxes.
“Limitation
of Liability” will have the meaning provided by §9.1(b)
hereof.
“Xxxxxxxxx
Agreement” means the agreement made the 12th
day of January 2006
between the Sellers, the Company and Xxxxx Xxxxxxxxx
(“Xxxxxxxxx”).
“Material”
or “Material Adverse Effect” or “Material Adverse
Change” means a material adverse effect on or change in the business,
assets (including intangible assets), financial condition, prospects, or results
of operations of the Company, which is individually in excess of $50,000, or,
in
the aggregate with other individual items, in excess of $100,000.
“Most
Recent Fiscal Year End” has the meaning set forth in §4.1(g)
below.
“Note”
has the meaning provided by §2.3 hereof.
“Ordinary
Course of Business” means the ordinary course of the business of the
Company, consistent with past custom and practice (including with respect to
quantity and frequency).
“Permitted
Distribution” means the aggregate of the $84,765 distribution paid by
the Company to Xx. Xxxxxxx and the $76,072 distribution paid by the Company
to
Xx. Xxxxxxx on October 5, 2007.
“Person”
means an individual, a partnership, a corporation, an association, a joint
stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
“Privacy
Laws” means all applicable privacy laws of the United States and of any
applicable state or other governmental subdivision governing the collection,
use, disclosure and retention of personal information about identifiable
individuals including, without limitation, information regarding the Company’s
employees, agents, customers and suppliers.
“Purchase
Price” has the meaning set forth in §2.2 below.
“Securities
Act” means the Securities Act of 1933, as
amended.
“Securities
Exchange Act” means the Securities Exchange Act of 1934, as
amended.
“Security
Interest” means any mortgage, pledge, lien, encumbrance, charge, or
other security interest, other than (a) mechanic’s, materialmen’s, and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and
not incurred in connection with the borrowing of money.
5
“September
30 Statements” has the meaning set forth in §4.1(g) below.
“to/To
the Knowledge of the Sellers” means to the extent of Sellers’
Knowledge.
“Tax”
or “Taxes” means any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
“Tax
Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
“Transaction”
means the purchase and sale of the Company Shares hereunder, including payment
of the Cash Purchase Price and issuance of the Note and the Buyer
Stock.
1.2
|
Other
Definitional and Interpretive
Matters
|
|
(a)
|
Unless
otherwise expressly provided, for purposes of this Agreement, the
following rules of interpretation shall
apply:
|
|
(i)
|
Calculation
of Time Period. When calculating the period of time before
which, within which or following which any act is to be done or step
taken
pursuant to this Agreement, the date that is the reference date in
calculating such period shall be excluded. If the last day of
such period is a non-Business Day, the period in question shall end
on the
next succeeding Business Day.
|
|
(ii)
|
Dollars. Any
reference in this Agreement to dollars or $ shall mean United States
dollars.
|
|
(iii)
|
Exhibits/Schedules. The
Annexes, Exhibits and Schedules to this Agreement are hereby incorporated
and made a part hereof and are an integral part of this
Agreement. All Exhibits and Schedules annexed hereto or
referred to herein are hereby incorporated in and made a part of
this
Agreement as if set forth in full herein. Any capitalized terms
used in any Annexes, Schedule or Exhibit but not otherwise defined
therein
shall be defined as set forth in this Agreement. The Annexes,
Exhibits and Schedules are as
follow:
|
6
Exhibit
2.3
|
Note
|
Schedule
2.5(a)
|
Escrow
Terms
|
Annex
1
|
Exceptions
to Sellers Representations and Warranties in §3.1
|
Schedule
4.1
|
Disclosure
Schedule re: Sellers Representations and Warranties in
§4.1
|
Company
Employee and Contractor Disclosure Document (separately
Delivered
|
|
Exhibit
A
|
Financial
Statements
|
Exhibit
B
|
Consulting
Agreements
|
Exhibit
C
|
Legal
Opinion of Sellers’ Counsel
|
Exhibit
D
|
Legal
Opinion of Buyer’s Counsel
|
|
(iv)
|
Gender
and Number. Any reference in this Agreement to gender shall
include all genders, and words imparting the singular number only
shall
include the plural and vice versa.
|
|
(v)
|
Headings. The
provision of a Table of Contents, the division of this Agreement
into
Articles, Sections and other subdivisions and the insertion of headings
are for convenience of reference only and shall not affect or be
utilized
in construing or interpreting this Agreement. All references in
this Agreement to any “Section” are to the corresponding Section of this
Agreement unless otherwise
specified.
|
|
(vi)
|
Herein. The
words such as “herein,” “hereinafter,”
“hereof,” and “hereunder” refer to this
Agreement as a whole and not merely to a subdivision in which such
words
appear unless the context otherwise
requires.
|
|
(vii)
|
Including. The
word “including” or any variation thereof means
“including, without limitation” and shall not be
construed to limit any general statement that it follows to the specific
or similar items or matters immediately following
it.
|
|
(b)
|
The
parties hereto have participated jointly in the negotiation and drafting
of this Agreement and, in the event an ambiguity or question of intent
or
interpretation arises, this Agreement shall be construed as jointly
drafted by the parties hereto and no presumption or burden of proof
shall
arise favouring or disfavouring any party by virtue of the authorship
of
any provision of this Agreement.
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7
ARTICLE
2
PURCHASE
AND SALE OF THE COMPANY SHARES
2.1
|
Basic
Transaction.
|
On
and
subject to the terms and conditions of this Agreement, the Buyer agrees to
purchase from each of the Sellers, and each of the Sellers agrees to and hereby
does sell to the Buyer, all of his Company Shares for the consideration
specified in §2.2.
2.2
|
Purchase
Price.
|
In
consideration for the sale and transfer of the Company Shares, the Buyer agrees
to pay and issue to the Sellers the following (the “Purchase
Price”):
|
(a)
|
The
sum of Six million five hundred and seventy-three thousand eight
hundred
and fifty-eight dollars and twenty-eight cents
($6,573,858.28) minus any Excluded Liabilities
existing as of the Closing Date and minus any Company Transaction
Expenses
incurred by the Company and existing as of the Closing Date (the
net
amount being called the “Closing Payment”), payable by
wire transfer or delivery of other immediately available funds at
the
Closing;
|
|
(b)
|
One
Million Dollars ($1,000,000) (the “Second Installment”)
which will be due and payable on January 1, 2009 by wire transfer
or other
immediately available funds, together with interest thereon from
the due
date at the rate of 9% per annum if the Second Installment is not
paid on
that date, subject to §2.5 hereof; (the Closing Payment and the Second
Installment together are hereinafter called the “Cash Purchase
Price”); plus
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|
(c)
|
The
issuance of and delivery to Sellers of 2,666,666 shares of common
stock of
Buyer (the “Buyer Stock”). The Buyer Stock
will be restricted in relation to sale, exchange or transfer (or
offers to
sell, exchange or transfer) as provided under U.S. securities
laws.
|
The
Cash
Purchase Price and the Buyer Stock shall be allocated between the Sellers
equally.
2.3
|
Security.
|
In
order
to evidence the Buyer’s obligation to pay the Second Installment, at the Closing
the Buyer will issue and deliver to the Sellers a promissory note (the
“Note”) in the form attached hereto as Exhibit 2.3 in the
principal amount of $1,000,000, which will bear interest at the rate of nine
percent (9%) per annum from January 1, 2009 if the amount of such Note is not
paid on that date, subject to §2.5 hereof. If the Buyer fails to pay the Second
Installment when due, then, subject to §2.5 hereof, the Sellers will be
entitled, at their option, exercised by notice given to the Buyer within 30
days
after the due date, to (i) enforce the Note and the associated Confession of
Judgment (in the form which has been agreed upon by the parties and which will
be held by the Escrow Agent and released to the Sellers according to the Escrow
Terms), or (ii) provided that both Sellers or their representatives agree,
to
convert the Note into shares of Common Stock of Buyer having an aggregate value
of $1,500,000, based on the volume-weighted average of the
8
OTC
Bulletin Board closing bid price of the Buyer’s Common Stock during the ten (10)
consecutive trading days immediately preceding, but not including, the date
on
which this conversion right is exercised. The shares will be
restricted in relation to sale, exchange or transfer (or offers to sell,
exchange or transfer) as provided under U.S. securities laws. The
Buyer will at all times reserve and keep available for issuance pursuant to
this
section such shares of Common Stock and, if the Note is not paid when due and
the Sellers give notice within the 30 day period of their election to convert
the Note into shares of Common Stock, then the Buyer will, subject to existing
registration rights previously granted by the Buyer, use reasonable commercial
efforts to register such shares of Common Stock within twelve (12) months after
the due date. Upon surrender by the Sellers of the Note, the Company
shall simultaneously issue to the Sellers certificates representing $1.5 million
of Common Stock of the Buyer, one-half to each Seller.
2.4
|
Closing
Date.
|
The
closing of the transactions contemplated by this Agreement (the
“Closing” or “Closing Date”) shall take place
contemporaneously with the execution of this Agreement.
2.5
|
Withholding.
|
|
(a)
|
If
the Buyer delivers to the Sellers a notice seeking indemnification
(referred to as a “Claim Notice” in Article 8 herein) in
accordance with Article 8 of this Agreement, then the Buyer may deduct
from the Second Installment such amount or amounts (which shall be
specified in such notice(s) to the Sellers) as is reasonably necessary
to
satisfy the claim(s) seeking indemnification set forth in such Claim
Notice (including costs and attorneys fees and disbursements in respect
of
those indemnification claims) and deposit such amount in trust with
the
Escrow Agent to be held according to the Escrow Terms, pending final
resolution of such indemnification claim (“Claim”) (which
shall mean, unless otherwise agreed among the parties hereto, a final
arbitral award or, if appealed, a final judgment or order of a court
of
competent jurisdiction not subject to any further appeals adjudicating
Buyer’s claim for the indemnification sought in the Claim Notice, which
in
no event shall exceed the Limitation of
Liability).
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|
(b)
|
Upon
the final resolution of a Claim:
|
|
(i)
|
if
the amount deducted and deposited in trust with the Escrow Agent
by the
Buyer as to that Claim Notice exceeds the amount of the Claim awarded
to
the Buyer, then the Escrow Agent shall pay to the Sellers any such
excess,
together with interest at 9% per annum for the period of time between
the
date that the payment of the amount that was withheld would otherwise
have
been due and the date that the payment of that amount is actually
made to
the Sellers,
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|
(ii)
|
if
the amount deducted and deposited in trust with the Escrow Agent
by the
Buyer as to that Claim Notice is less than or equal to the amount
of the
Claim awarded to the Buyer, then the Buyer shall not be obligated
to pay
the amount to the Seller, and the same shall be treated as a reduction
in
the purchase price reflecting a commensurate reduction in value received
by the Buyer, and
|
9
|
(iii)
|
nothing
in this §2.5 shall impair the rights of the Buyer set forth in Article 8
or any other provision of this Agreement, and notwithstanding anything
to
the contrary in this Agreement, the liability of the Sellers in the
aggregate for any breach or breaches of this Agreement shall not
exceed
the Limitation
of Liability.
|
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES CONCERNING THE TRANSACTION
3.1
|
Representations
and Warranties of the
Sellers.
|
Except
as
set forth in Annex I attached hereto, each of the Sellers, severally and not
jointly, represents and warrants to the Buyer as of or contemporaneously with
the Closing as follows.
|
(a)
|
Authorization
of Transaction.
|
Such
Seller has full power and authority to execute and deliver this Agreement and
to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of such Seller, enforceable in accordance
with its terms and conditions, except that the enforceability of the Agreement
(A) may be subject to or limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors and (B) is subject to general principles of equity
(including the possibility of unavailability of specific performance or
injunctive relief), regardless of whether considered in a proceeding in equity,
at law, or otherwise (such limitations on enforceability being hereinafter
called the “Exception”). Such Seller need not give
any notice to, make any filing with, or obtain any authorization, consent,
or
approval of any third party, including any government or Governmental Body
in
order to consummate the transactions contemplated by this
Agreement.
|
(b)
|
Non-contravention.
|
Neither
the execution and the delivery of this Agreement by such Seller, nor the
consummation of the transactions contemplated hereby by such Seller, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which such Seller is subject, or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which such Seller is a party or by which
he
is bound.
10
|
(c)
|
Brokers’
Fees.
|
Such
Seller has not engaged nor is obligated to pay any commissions or brokers fees
in connection with the transactions contemplated by this Agreement.
|
(d)
|
Company
Shares.
|
Such
Seller holds of record and owns beneficially the number of Company Shares set
forth next to his name in Annex I, free and clear of any restrictions on
transfer (other than under applicable securities laws), Taxes, Security
Interests, options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. Such Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require such Seller to sell,
transfer, or otherwise dispose of any capital stock of the Company (other than
this Agreement). Subject to the Company’s Shareholders Agreement
dated March 15, 1997 which is being terminated as of the date hereof, such
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
|
(e)
|
Investment.
|
Such
Seller (A) is acquiring the Buyer Stock solely for his own account for
investment purposes, and not with a view to the distribution thereof, (B) is
a
sophisticated investor with knowledge and experience in business and financial
matters, (C) has received certain information concerning the Buyer and has
had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Buyer Stock, (D) is able to
bear the economic risk and lack of liquidity inherent in holding the Buyer
Stock, and (E) is an Accredited Investor.
3.2
|
Representations
and Warranties of the
Buyer.
|
The
Buyer
represents and warrants to the Sellers that the statements contained in this
§3.2 are correct and complete.
|
(a)
|
Organization
of the Buyer.
|
The
Buyer
is a corporation duly organized, validly existing, and in good standing under
the laws of the state of Delaware, and is qualified to do business as a foreign
corporation and in good standing under the laws of the State of
California. The Buyer has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses
in
which it is engaged and to own and use the properties owned and used by
it. Correct and complete copies of the Buyer’s certificate of
incorporation and bylaws (as amended to date) are filed as exhibits to the
Buyer’s periodic and/or current reports filed with the U.S. Securities and
Exchange Commission (“SEC”), copies of which have been
delivered to the Sellers.
11
|
(b)
|
Authorization
of Transaction.
|
The
Buyer
has full power and authority (including full corporate power and authority)
to
execute and deliver this Agreement, the Note, the Confession of Judgment and
the
Buyer Stock, and to perform its obligations hereunder. This Agreement
and the Note have been duly executed and delivered by the Buyer and constitute
the valid and legally binding obligations of the Buyer, enforceable in
accordance with their terms and conditions, subject only to the
Exception. The Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or Governmental Body in order to consummate the transactions contemplated by
this Agreement.
|
(c)
|
Non-contravention.
|
Neither
the execution and the delivery of this Agreement nor of the Note, nor the
consummation of the transactions contemplated hereby and thereby, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision
of
its charter or bylaws, or (B) conflict with, result in a breach of, constitute
a
default under, result in the acceleration of, create in any party the right
to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets
is
subject.
|
(d)
|
Investment.
|
The
Buyer
understands that the Company Shares have not been, prior to the date hereof,
registered under the Securities Act, or under any state securities laws, and
are
being offered and sold in reliance upon exemptions for transactions not
involving any public offering. The Buyer: (A) is acquiring the
Company Shares solely for its own account for investment purposes, and not
with
a view to the distribution thereof, (B) is a sophisticated investor with
knowledge and experience in business and financial matters, (C) has received
certain information concerning the Sellers and the Company and has had the
opportunity to obtain additional information as desired in order to evaluate
the
merits and the risks inherent in holding the Company Shares, and (D) is able
to
bear the economic risk and lack of liquidity inherent in holding the Company
Shares and is an Accredited Investor.
|
(e)
|
Buyer
Stock.
|
All
shares of Buyer Stock issued to Sellers upon the Closing will have been duly
authorized, be validly issued, fully paid and non-assessable, and be free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws).
12
|
(f)
|
Capitalization.
|
The
entire authorized capital stock of the Buyer consists of: (i)
150,000,000 shares of Common Stock, par value $0.01 per share, of which
9,004,368 are issued and outstanding, and (ii) 29,795,816 shares of Preferred
Stock, par value $0.01 per share, of which (A) 1,608,612 shares are designated
Series A Preferred Stock, of which 1,605,598 are issued and outstanding, (B)
1,449,204 shares are designated Series B Preferred Stock, of which
1,449,204 are issued and outstanding, (C) 21,738,000 shares of Series
C Preferred Stock, of which 916,667 are issued and outstanding, (D) 1,500,000
shares of Series D Convertible Preferred Stock, of which 1,458,333.60
shares are issued and outstanding, 1,500,000 shares of Series D-2
Convertible Preferred Stock, of which 729,167 are issued or outstanding, and
(E)
2,000,000 shares are undesignated Preferred Stock, none of which are issued
and
outstanding. Except as disclosed in any reports filed by the Buyer
with the SEC since December 15, 2006, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the Buyer
to issue, sell, or otherwise cause to become outstanding any of its capital
stock, and no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the
Buyer. The Buyer’s common stock is registered under Section 12(b) or
12(g) of the Securities Act.
|
(g)
|
SEC
Reporting.
|
The
Buyer
is in material compliance with all reporting requirements under the Securities
Act and the Securities Exchange Act. All documents filed by the Buyer
with the SEC on or after December 15, 2006 are in material compliance with
such
Acts and SEC regulations promulgated thereunder, and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained therein not
misleading.
|
(h)
|
Disclosure.
|
The
representations and warranties contained in this Section 3.2 do not contain
any
untrue statement of a material fact. No representation or warranty
contained in this Section 3.2 omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES CONCERNING THE COMPANY
4.1
|
Representations
and Warranties concerning the
Company
|
Except
as
set forth in the disclosure schedule delivered by the Sellers to the Buyer
at
Closing (the “Disclosure Schedule”), the Sellers jointly and
severally represent and warrant to the Buyer as of or contemporaneously with
the
Closing as follows:
13
|
(a)
|
Organization,
Qualification, and Corporate
Power.
|
The
Company is a corporation duly organized, validly existing, and in good standing
under the law of New York, the jurisdiction of its incorporation. The
Company neither owns or leases any property or premises, nor has operations
or
personnel based outside New York, except as described in §4.1(a) of the
Disclosure Schedule. The Company has full corporate power and
authority and, all licenses, permits, and authorizations issued by
any Governmental Body necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use the
properties owned and currently being used by it. §4.1(a) of the
Disclosure Schedule lists the directors and officers of the
Company. The Sellers have delivered to the Buyer correct and complete
copies of the charter and bylaws and all other organizational documents of
the
Company as amended to date, (a copy of which is attached as §4.1(b) of the
Disclosure Schedule). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of
the
board of directors), the stock certificate books, and the stock record books
of
the Company (a copy of which is attached as §4.1(b) of the Disclosure Schedule)
are correct and complete in all material respects. The Company is not
in material default under or in violation of any provision of its charter or
bylaws or any other organizational document.
|
(b)
|
Capitalization.
|
The
authorized and issued capital stock of the Company is as described in §4.1(b) of
the Disclosure Schedule. All of the issued and outstanding Company
Shares have been duly authorized, are validly issued, fully paid, and
non-assessable, and, are held of record by the Sellers as set forth in §4.1(b)
of the Disclosure Schedule. Subject to the Company’s Shareholders
Agreement dated March 15, 1997 which the Sellers hereby agree is being
terminated as of the Closing , there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Company to
issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
Listed in §4.1(b) of the Disclosure Schedule are all predecessor companies of
the Company, the names of any Persons from which, since January 1, 2004, the
Company acquired material properties or assets, and the changes in the Company’s
capital structure and capital stock ownership since January 1,
2004.
|
(c)
|
Non-contravention.
|
Neither
the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby,
will:
14
|
(i)
|
violate
any constitution, statute, regulation, rule, injunction, judgment,
order,
decree, ruling, charge, or other restriction of any government,
Governmental Body, or court to which the Company is subject or
any provision of the charter or bylaws of the
Company or
|
|
(ii)
|
subject
to obtaining the consents specified in §4.1(c) of the Disclosure Schedule,
conflict with, result in a breach of, constitute a default under,
result
in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which
the
Company is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security
Interest upon any of its assets).
|
The
Company does not need to give any notice to, make any filing with, or obtain
any
authorization, consent, or approval of any government or Governmental Body
in
order for the Company and the Sellers to consummate the transactions
contemplated by this Agreement.
|
(d)
|
Brokerage
Fees.
|
The
Company has not engaged and is not obligated to pay any commissions or brokers
fees in connection with the transactions contemplated by this
Agreement.
|
(e)
|
Title
to Assets.
|
Except
as
to properties and assets owned, leased or provided by a customer of
the Company, the Company has good and marketable title to, or a valid leasehold
interest in, the properties and assets used by them and located on the Company’s
premises, or shown on the June 30 Balance Sheet or acquired by the Company
after
the date thereof, except for properties and assets disposed of in the Ordinary
Course of Business since June 30, 2007 and, except as disclosed in §4.1(e) of
the Disclosure Schedule. The parties acknowledge that §4.1(e) of the Disclosure
Schedule will describe, in general terms, properties and assets located at
the
Company’s premises which are owned by customers of the Company, but the
Disclosure Schedule will not contain a comprehensive list of such properties
and
assets. All such property and assets which are owned by the Company
are owned free of Security Interests except as disclosed in §4.1(e) of the
Disclosure Schedule.
|
(f)
|
Excluded
Liabilities.
|
The
Company has satisfied or terminated all Excluded Liabilities.
|
(g)
|
Financial
Statements and Books and
Records.
|
Attached
hereto as Exhibit A are the following financial statements:
15
|
(i)
|
unaudited,
reviewed financial statements for the Company as of and for the fiscal
years ended December 31, 2004, December 31, 2005 and December 31,
2006
(the “Most Recent Fiscal Year
End”);
|
|
(ii)
|
unaudited,
compiled statement of income, balance sheet, changes in stockholders
equity and cash flow as of and for the 6 month period ended June
30, 2007
for the Company (the “June 30 Statements”);
and.
|
|
(iii)
|
unaudited,
compiled statement of income, balance sheet, changes in stockholders
equity and cash flow as of and for the 9 month period ended September
30,
2007 for the Company (the “September 30
Statements”).
|
(Such
financial statements are hereinafter called the “Financial
Statements”).
It
was
the Sellers’ intention when, on behalf of the Company, engaging the accounting
firm of Korn, Rosenbaum, Xxxxxxxx & Jauntig, LLP, acting through Xxxxxxxx
Xxxxxxx, C.P.A., that the Financial Statements be prepared in accordance with
GAAP, consistently applied. To the Knowledge of the Sellers, there
are no entries contained in the Financial Statements which are not in accordance
with GAAP, consistently applied. Each of the Financial Statements
presents fairly the financial condition of the Company as of such dates and
the
results of operations of the Company for such periods. Except for
distributions to shareholders up to September 30, 2007 as reflected in the
September 30 Statements and except for the Permitted Distribution (as to both
of
which the Buyer hereby waives any objection), the financial condition of the
Company is now approximately the same as the financial condition reflected
in
the Financial Statements for the Most Recent Fiscal Year End and as reflected
in
the June 30 Statements, when such financial condition is taken as a
whole.
It
was
the Seller’s intention when, on behalf of the Company, engaging the accounting
firm of Korn, Rosenbaum, Xxxxxxxx & Jauntig, LLP, acting through Xxxxxxxx
Xxxxxxx, C.P.A., that the financial and other books, records, files and accounts
of the Company be maintained in accordance with GAAP on a basis consistent
with
prior years. To the Knowledge of the Sellers, there are no entries
contained in the Company’s financial and other books, records, files and
accounts which are not in accordance with GAAP, consistently
applied.
The
Company’s financial and other books, records, files and accounts in all material
respects:
|
(i)
|
are
complete, in reasonable detail and accurately and fairly reflect
the
financial transactions of the Company,
and
|
|
(ii)
|
are
fairly reflected in the financial statements for the Most Recent
Fiscal
Year End, June 30 Statements and September 30 Statements, as
applicable.
|
16
It
was
the Seller’s intention when, on behalf of the Company, engaging the accounting
firm of Korn, Rosenbaum, Xxxxxxxx & Jauntig, LLP, acting through Xxxxxxxx
Xxxxxxx, C.P.A., that the Company maintain systems of internal accounting
controls sufficient to provide reasonable assurances as to the following matters
(and the Sellers have no Knowledge of any specific circumstances in which the
Company’s accounting control systems do not provide reasonable assurance with
respect to such matters): (i) transactions are executed in accordance
with management’s general or specific authorization; (ii) transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management’s
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the actual levels at reasonable intervals and
appropriate action is taken with respect to any differences.
|
(h)
|
Events
Subsequent to Most Recent Fiscal Year
End.
|
Except
as
indicated in §4.1(h) of the Disclosure Schedule, to the Sellers’ Knowledge,
since the Most Recent Fiscal Year End, there has not been any Material Adverse
Change. In addition, and without limiting the generality of the
foregoing, since that date, except as indicated in the Disclosure
Schedule:
|
(i)
|
the
Company has not sold, leased, transferred, or assigned any of its
assets,
tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
|
|
(ii)
|
the
Company has not entered into any agreement, contract, lease, or license
(or series of related agreements, contracts, leases, and licenses)
outside
the Ordinary Course of Business;
|
|
(iii)
|
no
party (including the Company) has accelerated, terminated, modified,
or
cancelled any agreement, contract, lease, or license (or series of
related
agreements, contracts, leases, and licenses) involving more than
$1,000,000 to which the Company is a
party;
|
|
(iv)
|
the
Company has not imposed any Security Interest upon any of its assets,
tangible or intangible, outside the Ordinary Course of
Business;
|
|
(v)
|
the
Company has not made any capital expenditure (or series of related
capital
expenditures) either involving singly or in the aggregate more than
$1,000,000 or outside the Ordinary Course of
Business;
|
|
(vi)
|
the
Company has not made any capital investment in, any loan to, or any
acquisition of the securities or all or substantially all of the
assets
of, any other Person (or series of related capital investments, loans,
and
acquisitions) either involving singly or in the aggregate more than
$1,000,000 or outside the Ordinary Course of
Business;
|
17
|
(vii)
|
the
Company has not issued any note, bond, or other debt security or
created,
incurred, assumed, or guaranteed any indebtedness for borrowed money
or
capitalized lease obligation involving more than $1,000,000 singly
or in
the aggregate;
|
|
(viii)
|
the
Company has not delayed or postponed the payment of accounts payable
and
other Liabilities outside the Ordinary Course of
Business;
|
|
(ix)
|
the
Company has not intentionally and knowingly cancelled, compromised,
waived, or released any right or claim (or series of related rights
and
claims) either involving singly or in the aggregate more than $100,000
or
outside the Ordinary Course of
Business;
|
|
(x)
|
except
in the Ordinary Course of Business, the Company has not granted
any license or sublicense of any rights under or with respect to
any
Intellectual Property;
|
|
(xi)
|
there
has been no change made or authorized in the charter or bylaws of
the
Company;
|
|
(xii)
|
the
Company has not issued, sold, or otherwise disposed of any of its
capital
stock, or granted any options, warrants, or other rights to purchase
or
obtain (including upon conversion, exchange, or exercise) any of
its
capital stock;
|
|
(xiii)
|
except
as to dividends paid to the Sellers up to September 30, 2007 which
are
reflected in the September 30 Statements, and except for the Permitted
Distribution, the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) and, except as to payments made to Xxxxxxxxx
pursuant to the Xxxxxxxxx Agreement prior to September 30, 2007 (as
reflected in the September 30 statements) and as of the date hereof
(as
referred to in Section 5.1(e)) (all of which are disclosed in §4.1(h) of
the Disclosure Schedule), redeemed, purchased, or
otherwise acquired any of its capital
stock;
|
|
(xiv)
|
the
Company has not experienced any material damage, destruction, or
loss
(whether or not covered by insurance) to its property, ordinary wear
and
tear excepted;
|
|
(xv)
|
other
than Excluded Liabilities, an accurate and complete list of which
is
attached to §4.1(h) of the Disclosure Schedule, and which Excluded
Liabilities shall all be paid in full or otherwise satisfied by the
Company or the Sellers prior to the Closing, the Company has not
made any
loan to, or entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of Business except
as
identified in §4.1(h) of the Disclosure
Schedule;
|
18
|
(xvi)
|
the
Company has not hired any new employees, entered into any employment
contract or collective bargaining agreement, written or oral, or
modified
the terms of any existing such contract or agreement or terminated
the
employment of any employee, outside the Ordinary Course of Business
except
as identified in §4.1(h) of the Disclosure
Schedule;
|
|
(xvii)
|
the
Company has not granted any increase in the base compensation of
any of
its directors, officers, and employees, outside the Ordinary Course
of
Business except as identified in §4.1(h) of the Disclosure
Schedule;
|
|
(xviii)
|
other
than as disclosed in this Agreement, the Company has not adopted,
amended,
modified, or terminated any bonus, profit sharing, incentive, severance,
or other plan, contract, or commitment for the benefit of any of
its
directors, officers, and employees (or taken any such action with
respect
to any other Employee Benefit Plan) , outside the Ordinary Course
of
Business;
|
|
(xix)
|
the
Company has not made any other change in employment terms for any
of its
directors, officers, and employees, outside the Ordinary Course of
Business;
|
|
(xx)
|
the
Company has not made or pledged to make any charitable
contribution;
|
|
(xxi)
|
there
has not been any other material occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business
involving the Company; and
|
|
(xxii)
|
as
referred to in this Section, the Company has not committed to any
of the
foregoing.
|
|
(i)
|
Undisclosed
Liabilities.
|
The
Company does not have any Liabilities except for (A) Liabilities set forth
on
the face of the June 30 Balance Sheet, (B) Liabilities which have arisen after
June 30, 2007 in the Ordinary Course of Business, and (C) Liabilities which
are
not required by GAAP to be included in the Financial Statements and which,
to
the extent Material, are set forth in §4.1(i) of the Disclosure
Schedule.
|
(j)
|
Legal
Compliance.
|
The
Company and its predecessors have complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no investigation, charge, complaint,
claim, has been filed or commenced against any of them alleging any failure
so
to comply. Further, no action, suit, proceeding, hearing, demand, or notice
has
been filed or commenced against any of them alleging any failure so to
comply.
19
|
(k)
|
Tax
Matters.
|
Except
as
indicated in the Disclosure Schedule:
|
(i)
|
the
Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company and due and
payable (whether or not shown on any Tax Return) have been
paid. The Company currently is not the beneficiary of any
extension of time within which to file any Tax Return. No claim
has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation
by that
jurisdiction. There are no Security Interests on any of the
assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax;
|
|
(ii)
|
the
Company has withheld and paid all Taxes required to have been withheld
and
paid in connection with amounts paid or owing to any
employee;
|
|
(iii)
|
the
Sellers do not expect the IRS or any other taxing authority to assess
any
additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax
Liability of the Company either (A) claimed or raised by the IRS
or any
other taxing authority in writing or (B) as to which the Sellers
and the
directors and officers (and employees responsible for Tax matters)
of the
Company have Knowledge based upon personal contact with the IRS or
any
agent of such authority. §4.1(k)(iii) of the Disclosure
Schedule lists all federal, state, local, and foreign income Tax
Returns
filed with respect to the Company for taxable periods ended on
or after 2004, indicates those Tax Returns that have been audited,
and
indicates those Tax Returns that currently are the subject of
audit. The Sellers have delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by the
Company since 2003;
|
|
(iv)
|
the
Company has not waived any statute of limitations in respect of Taxes
or
agreed to any extension of time with respect to a Tax assessment
or
deficiency.
|
|
(l)
|
Real
Property and Leases.
|
The
Company does not own any real property. §4.1(l) of the Disclosure
Schedule contains a list of all leases and subleases for real property to which
the Company is a party, the square footage leased with respect to each lease
and
the expiration date of each lease and sublease. These leases and
subleases are valid and enforceable and are not in default. The
Sellers are unaware of any condition or situation that does or would render
the
real property leased or occupied by the
20
Company,
the improvements located thereon, and the furniture, fixtures and equipment
relating thereto (including plumbing, heating, air conditioning and electrical
systems), to be out of conformance with any and all applicable health, fire,
safety, zoning, land use and building laws, ordinances and
regulations. There are no outstanding contracts made by the Company
for any improvements made to the real property leased or occupied by the Company
that have not been paid for or as to which payments are not current
(e.g., diesel generator). §4.1(l) of the Disclosure Schedule
also contains correct and complete copies of the leases and subleases listed
therein. With respect to each lease and sublease listed in §4.1(l) of
the Disclosure Schedule:
|
(i)
|
the
lease or sublease is legal, valid, binding, enforceable, and in full
force
and effect, according to its terms, subject to the
Exception;
|
|
(ii)
|
the
lease or sublease will continue to be legal, valid, binding, enforceable,
and in full force and effect according to its terms following the
consummation of the transactions contemplated hereby, subject to
the
Exception;
|
|
(iii)
|
the
Company is not in breach or default and, to the Knowledge of the
Sellers,
no other party to the lease or sublease is in breach or default,
and no
event has occurred which, with notice or lapse of time, would constitute
a
breach or default or permit termination, modification, or acceleration
thereunder;
|
|
(iv)
|
the
Company has not repudiated and, to the Knowledge of the Sellers,
no other
party to the lease or sublease has repudiated any provision
thereof;
|
|
(v)
|
to
the Knowledge of the Sellers, there are no disputes, oral agreements,
or
forbearance programs in effect as to the lease or
sublease;
|
|
(vi)
|
with
respect to each sublease, the representations and warranties set
forth in
subsections (i) through (v) above are true and correct with respect
to the
underlying lease; and
|
|
(vii)
|
the
Company has not assigned, transferred, conveyed, mortgaged, deeded
in
trust, or encumbered any interest in the leasehold or
subleasehold.
|
|
(m)
|
Intellectual
Property.
|
|
(i)
|
Except
as separately disclosed in writing by the Sellers to the Buyer, and
except
as to PCs, as to which the Company has made reasonable efforts to
ensure
that all standard shrink-wrap or click-wrap installed software is
completely and currently licensed, the Company owns, or has the right
to
use pursuant to license, sublicense, agreement or other valid permission,
all Intellectual Property used in the operation of the Business of
the
Company as presently conducted. Each item of Intellectual
Property owned or used by the Company immediately prior to the Closing
hereunder will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Closing
hereunder.
|
21
|
(ii)
|
(A)
|
To
the Knowledge of the Sellers, the Company has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any
Intellectual Property rights of third
parties;
|
|
(B)
|
To
the Knowledge of the Sellers, the Company has not received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim
that the
Company must license or refrain from using any Intellectual Property
rights of any third party). The Sellers are unaware of any fact
or condition that would cause the Sellers to believe that a third
party
has interfered with, infringed upon, misappropriated, or otherwise
come
into conflict with any Intellectual Property rights of the
Company.
|
|
(iii)
|
With
respect to all Intellectual Property owned by the Company (the
“Owned Intellectual Property”), §4.1(m) of the Disclosure
Schedule identifies each Intellectual Property registration which
has been
issued to the Company and identifies each pending application or
application for registration which the Company has made with respect
to
any of its Owned Intellectual Property. §4.1(m) of the
Disclosure Schedule also identifies each license, agreement, or other
permission which the Company has granted to any third party with
respect
to any of its Owned Intellectual Property (together with any exceptions),
other than licenses granted in the Ordinary Course of Business. The
Sellers have delivered to the Buyer correct and complete copies of
all
such registrations and applications, and all such licenses, agreements,
and permissions granted by the Company to any third party with respect
to
Owned Intellectual Property (excluding licenses granted by the Company
in
the Ordinary Course of Business). The parties acknowledge that
§4.1(m) of the Disclosure Schedule will describe, in general terms,
such
licenses, agreements and other
permissions.
|
|
(iv)
|
With
respect to each item of Owned Intellectual Property, the Sellers
do not
have Knowledge of any fact or condition that would cause the Sellers
to
believe that the following is not
true:
|
|
(A)
|
the
Company possess all right, title, and interest in and to the
item, free and clear of any Security Interest, license, or other
restriction;
|
|
(B)
|
the
item is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
|
|
(C)
|
no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the Knowledge of the Sellers,
is
threatened which challenges the legality, validity, enforceability,
use,
or ownership of the item;
|
22
|
(D)
|
except
as may be provided in each of the Company’s contracts for services to its
customers, the Company has not agreed to indemnify any Person for
or
against any interference, infringement, misappropriation, or other
conflict with respect to the item;
and
|
|
(E)
|
each
software program and script developed by the Company, including the
source
code and object code thereof and the design documents in connection
therewith, is an original work of persons employed by or contracted
to the
Company.
|
|
(v)
|
No
past or present employee, independent contractor or agent has any
right,
title or interest in or to any of the Company’s owned Intellectual
Property.
|
|
(vi)
|
Except
as to standard shrink-wrap or click-wrap software licenses, §4.1(m) of the
Disclosure Schedule identifies each item of Intellectual Property
that any
third party owns and that the Company uses pursuant to license,
sublicense, agreement or permission (the “Licensed Intellectual
Property”). The Sellers have delivered to the Buyer
correct and complete copies of all such licenses with respect to
the
Licensed Intellectual Property or the software which is licensed
is
referred to in one or more contracts between the Company and its
customers. With respect to each item of Licensed
Intellectual Property required to be identified in §4.1(m) of the
Disclosure Schedule, the Sellers do not have Knowledge of any fact
or
condition that would cause the Sellers to believe that the following
is
not true:
|
|
(A)
|
the
license, sublicense, agreement, or permission covering the item is
legal,
valid, binding, enforceable, and in full force and
effect;
|
|
(B)
|
the
license, sublicense, agreement, or permission will continue to be
legal,
valid, binding, enforceable, and in full force and effect on identical
terms immediately following the consummation of the transactions
contemplated hereby;
|
|
(C)
|
no
party to the license, sublicense, agreement, or permission is in
breach or
default, and no event has occurred which with notice or lapse of
time
would constitute a breach or default or permit termination, modification,
or acceleration thereunder;
|
|
(D)
|
no
party to the license, sublicense, agreement, or permission has repudiated
any provision thereof;
|
23
|
(E)
|
with
respect to each sublicense, the representations and warranties set
forth
in subsections (A) through (D) above are true and correct with respect
to
the underlying license;
|
|
(F)
|
the
underlying item of Licensed Intellectual Property is not subject
to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
|
|
(G)
|
no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the Knowledge of the Sellers,
is
threatened, which challenges the legality, validity, or enforceability
of
the underlying item of Licensed Intellectual Property;
and
|
|
(H)
|
the
Company has not granted any sublicense or similar right with respect
to
the license, sublicense, agreement, or
permission.
|
|
(vii)
|
The
Sellers do not have Knowledge of any fact or circumstance that would
cause
them to believe that the following is not true: the Company’s software is
reasonably free of computer viruses and does not contain any contaminants
or time bombs, including any codes or instructions, that may be used
to
access, modify, delete, damage or disable any computer
system.
|
|
(viii)
|
The
Sellers do not have Knowledge of any fact or circumstance that would
cause
them to be believe that the following is not true: the documentation
possessed by Company in respect of software developed by or for the
Company will be sufficient to allow Buyer and the Company’s existing
staff, with the assistance of skilled software professionals possessing
experience in this industry, to operate such software and to further
develop and maintain it.
|
|
(ix)
|
§4.1(m)
of the Disclosure Schedule lists all open source software used and
licensed by the Company. The Sellers are unaware of any fact or
circumstance that would cause them to be believe that the following
is not
true: the Company has complied with all applicable open source licences
by
which it is bound.
|
|
(x)
|
The
Company has used reasonable commercial efforts to take precautions
and to
protect its proprietary information from unauthorized access or
disclosure.
|
|
(n)
|
Tangible
Assets.
|
Except
as
to any of the following provided by a customer, the Company owns or leases
all
premises, machinery, equipment, and other tangible assets necessary for the
conduct of the Company’s businesses as presently conducted. To the
Knowledge of the Sellers, each such tangible asset owned or leased by it has
been maintained in accordance with the Company’s normal practice, and is in good
operating condition and repair (subject to normal wear and tear).
24
|
(o)
|
Inventory.
|
The
current inventory of consumables of the Company, subject to a reasonable
allowance for obsolete inventory consistent with the allowance reflected in
the
June 30 Statements, is good and usable and is capable of being sold in the
Ordinary Course of Business. The Company’s inventory level is consistent with
past practice.
|
(p)
|
Contracts.
|
§4.1(p)
of the Disclosure Schedule lists the following contracts and other agreements
to
which the Company is a party:
|
(i)
|
any
agreement (or group of related agreements) for the lease of personal
property (including without limitation software) to or from any Person
providing for lease payments in excess of $100,000 per
annum;
|
|
(ii)
|
any
agreement (or group of related agreements) for the purchase or sale
of
supplies, products or other personal property, or for the furnishing
or
receipt of services, the performance of which will extend over a
period of
more than one year, result in a material loss to the Company or,
except
for Contracts made in the Ordinary Course of Business, involve
consideration in excess of
$100,000;
|
|
(iii)
|
any
agreement concerning a partnership or joint venture or arrangement
to
share profits;
|
|
(iv)
|
any
agreement (or group of related agreements) under which it has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money,
or
any capitalized lease obligation, in excess of $100,000 or under
which it
has imposed a Security Interest on any of its assets, tangible or
intangible;
|
|
(v)
|
any
agreement concerning confidentiality or
non-competition;
|
|
(vi)
|
any
agreement with any of the Sellers and their Affiliates (other than
the
Company) or any members of their immediate
families;
|
|
(vii)
|
any
profit sharing, stock option, stock purchase, stock appreciation,
deferred
compensation, severance, or other plan or arrangement for the
benefit of its current or former directors, officers, and
employees;
|
|
(viii)
|
any
collective bargaining agreement;
|
|
(ix)
|
any
agreement under which it has advanced or loaned any amount to any
of its
directors, officers, and employees or any members of their immediate
families, excluding claims for reimbursement of expenses incurred
in the
Ordinary Course of Business;
|
25
|
(x)
|
any
agreement under which the consequences of a default or termination
could
have a Material Adverse Effect; or
|
|
(xi)
|
any
other agreement (or group of related agreements) which was not entered
into in the Ordinary Course of the
Business.
|
The
Sellers have delivered to the Buyer a correct and complete copy of each written
agreement listed in §4.1(p) of the Disclosure Schedule (as amended to date), and
to the Knowledge of the Sellers, a written summary of the terms of all oral
agreements referred to in §4.1(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect, subject to the Exception;
(B) subject to obtaining the consents indicated in §4.1(c) of the
Disclosure Schedule, the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms immediately
following the consummation of the transactions contemplated hereby except for
the Exception; (C) the Company is not in breach or default and, to the Knowledge
of the Sellers, no other party is in breach or default of the agreement; (D)
to
the Knowledge of the Sellers, no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (E) to the Knowledge
of
the Sellers, no party has repudiated any provision of the
agreement. Without limiting the generality of the foregoing, the
Company is in compliance with all covenants under all agreements with its bank
and other lenders.
|
(q)
|
Customers
and Receivables.
|
|
(i)
|
The
Company has delivered to the Buyer a true and complete list of all
customers of the Business as of the date hereof. Such customer
list reasonably accurately summarizes with respect to each customer
all
information required by §4.1(q) of the Disclosure
Schedule. Except as disclosed in §4.1(q) of the Disclosure
Schedule, neither the customer list nor any information relating
to the
customers of the Business have, within three (3) years prior to the
date
hereof, been made available to any person other than the
Buyer.
|
|
(ii)
|
The
Sellers have no Knowledge of any facts or circumstances arising outside
the Ordinary Course of Business which could reasonably be expected
to
result in the loss of any customers or sources of revenue of the
Business
or any reduction in volume of purchases from the Business prior to
the end
of their contract term by any customer which, in the aggregate, could
be
Material to the Business.
|
26
|
(iii)
|
All
accounts receivable of the Company are fairly reflected on the Company’s
books and records. All accounts receivable of the Company arose
from bona fide transactions in the Ordinary Course of the Business
and are
valid, enforceable and to the Knowledge of the Sellers fully collectable
accounts (subject to a reasonable allowance, consistent with past
practice
for doubtful accounts as reflected in the June 30 Statements, and
subject
to the disclosure made in §4.1(q) of the Disclosure Schedule). Such
accounts receivable are not subject to any set-off or counterclaim
rights
of which Sellers are aware.
|
|
(r)
|
Suppliers.
|
Listed
in
§4.1(r) of the Disclosure Schedule are the names and addresses of the ten (10)
largest suppliers (measured by dollar volume of the Company’s purchases) from
which the Company ordered services, materials, supplies, telecommunications
capacity, merchandise and other goods during the twelve-month period ended
December 31, 2006. Except as disclosed in §4.1(r) of the Disclosure
Schedule, the Company has not received any notice that any such supplier will
not sell services, raw materials, supplies, merchandise and other goods to
the
Company at any time, on terms and conditions substantially similar to those
used
in its current sales to the Company, subject only to general and customary
price
increases.
|
(s)
|
Telecommunications
Infrastructure.
|
Listed
in
§4.1(s) of the Disclosure Schedule are:
|
(i)
|
all
the rights of way, tower locations, regen hut locations, and rights
for
lit and unlit fiber owned or licensed in favor of the Company;
and
|
|
(ii)
|
a
list of all contracts, licences, agreements and understandings relating
to
telecommunications infrastructure to which the Company is a
party.
|
|
(t)
|
Powers
of Attorney.
|
§4.1(t)
of the Disclosure Schedule lists all outstanding powers of attorney executed
on
behalf of the Company.
|
(u)
|
Insurance.
|
§4.1(u)
of the Disclosure Schedule sets forth the following information with respect
to
each insurance policy (including policies providing property, casualty,
liability, and workers’ compensation coverage and bond and surety arrangements)
to which the Company has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past 5 years:
|
(i)
|
the
name, address, and telephone number of the
agent;
|
27
|
(ii)
|
the
name of the insurer, the name of the policyholder, and the name of
each
covered insured;
|
|
(iii)
|
the
policy number and the period of coverage;
and
|
|
(iv)
|
a
description of any retroactive premium adjustments or other loss
sharing
arrangements.
|
The
Seller has delivered to the Buyer the insurance policies, brokers certificates
or other information in the Company’s possession concerning insurance covering
the Company. With respect to each insurance policy, the Sellers are
unaware of any fact or circumstance that would cause the following to be untrue:
(A) if unexpired, the policy is legal, valid, binding, enforceable, and in
full
force and effect in accordance with its terms, (B) the policy will continue
to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms immediately following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is
in breach or default (including with respect to the payment of premiums or
the
giving of notices), and no event has occurred which, with notice or the lapse
of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. §4.1(u) of the Disclosure
Schedule describes any self insurance arrangements affecting the
Company.
|
(v)
|
Litigation.
|
§4.1(v)
of the Disclosure Schedule sets forth each instance in which the
Company (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of
the
Sellers, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
or
before any arbitrator. There is presently no Basis of which Sellers
are aware for the commencement of any Material action, suit or proceeding
against the Company with any reasonable likelihood of success.
|
(w)
|
Product
and Service Warranties.
|
Each
product or service sold, licensed or delivered by the Company has been in
material conformity with all applicable contractual commitments, all express
warranties, and all warranties, if any, that are implied as a matter of the
law
governing the contract at issue. The Company does not have any existing
Liability of which Sellers are aware for replacement or repair of any product
or
re-performance of any service or other damages in connection therewith, subject
only to the reserve for warranty claims, if any, set forth in the June 30
Balance Sheet as adjusted for the passage of time through the Closing Date
in
accordance with the normal, past custom and practice of the
Company. To the Sellers’ Knowledge, no product or service
manufactured, sold, licensed or delivered by
28
the
Company is subject to any guaranty, warranty, or other indemnity beyond the
warranties described in §4.1(w) of the Disclosure Schedule. §4.1(w)
of the Disclosure Schedule describes the normal terms and conditions of sale
or
lease or licensing of or providing of services by or for the Company (including
applicable guarantee, warranty and indemnity provisions).
|
(x)
|
Product
and Service Liabilities.
|
The
Sellers are unaware of any Liability or any Basis of Liability for the Company
arising out of any injury to individuals or damage to property as a result
of
the ownership, possession, use or license of any product or service
manufactured, sold, leased, licensed or delivered by the Company prior to the
date hereof.
|
(y)
|
Employees.
|
§4.1(y)
of the Disclosure Schedule sets out:
|
(i)
|
a
complete list of all Company Employees;
and
|
|
(ii)
|
their
position/title.
|
The
Company Employee and Contractor Disclosure Document also sets out with respect
to the Company Employees as of the date hereof, in a non-individually
identifiable format:
|
(iii)
|
their
status (i.e., full time, part time, temporary, casual, seasonal,
co-op student);
|
|
(iv)
|
their
total annual remuneration, including a breakdown of (A) salary and
(B)
bonus or other incentive compensation, if
any;
|
|
(v)
|
other
terms and conditions of their employment (other than Employee Benefit
Plans), including accrued vacation, car allowance or lease;
and
|
|
(vi)
|
their
total length of employment including any prior employment that would
affect the calculation of years of service for any
purpose.
|
The
Company has no written employment contracts with any Company Employee other
than
those of which copies are included in the Company Employee and Contractor
Disclosure Document. The Company Employee and Contractor Disclosure
Document sets out, as of the date hereof, a list of all independent contractors
and consultants who provide services to the Company in connection with the
key
business functions of the Company, including:
|
(vii)
|
name;
|
|
(viii)
|
title;
|
29
|
(ix)
|
current
compensation;
|
|
(x)
|
eligibility
to participate in any Employee Benefit
Plans;
|
|
(xi)
|
length
of relationship with the Company.
|
Except
as
set out in the Company Employee and Contractor Disclosure Document, the Company
is not a party to or bound by any contract or commitment to pay any management
or consulting fee. Sellers are unaware of any plans by any executive,
key employee or group of employees, not including the Sellers, to terminate
employment with the Company at or following Closing. The Company is
not a party to or bound by any collective bargaining agreement. The
Company has not experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes by any existing employee
within the twelve (12) month period preceding Closing. The Sellers
are unaware of any unfair labor practice committed by the Company within the
twelve (12) month period preceding Closing. The Sellers are unaware
of any instance in which the Company is not in compliance with all applicable
workers compensation law and employee regulations of the State of New
York. The Sellers are unaware of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company.
|
(z)
|
Employee
Benefits Plans.
|
|
(i)
|
§4.1(z)
of the Disclosure Schedule sets forth a correct and complete list
of: (i) all “employee benefit plans” (as defined in Section
3(3) of ERISA), and all other employee benefit plans, programs,
agreements, policies, arrangements or payroll practices, including
bonus
plans, employment, consulting or other compensation agreements, collective
bargaining agreements, incentive, equity or equity-based compensation,
or
deferred compensation arrangements, change in control, termination
or
severance plans or arrangements, stock purchase, severance pay, sick
leave, vacation pay, salary continuation for disability, hospitalization,
medical insurance, life insurance and scholarship plans and programs
maintained by the Company or to which the Company contributed or
is
obligated to contribute thereunder for current or former employees
of the
Company, and (ii) all “employee pension plans” (as defined in Section
3(2) of ERISA, subject to Title IV of ERISA or Section 412 of the
Code,
maintained by the Company and any trade or business (whether or not
incorporated) that is or has ever been under common control, or that
is or
has ever been treated as a single employer, with any of them under
Section
414(b), (c), (m) or (o) of the Code (each, an “ERISA
Affiliate”) or to which the Company or any ERISA Affiliate
contributed or has ever been obligated to contribute thereunder (the
“Title IV Plans”). §4.1(z) of the Disclosure
Schedule sets forth each Employee Benefit Plan and Title IV Plan
that is a
“multiemployer plan” (as defined in Section 3(37) of ERISA (a
“Multiemployer Plan”)), or is or has been subject to
Sections 4063 or 4064 of ERISA.
|
30
|
(ii)
|
Correct
and complete copies of the following documents, with respect to each
of
the Employee Benefit Plans (other than a Multiemployer Plan), have
been
made available or delivered to Buyer by the Company (and the Buyer
has
acknowledged receipt) are attached as §4.1(z) of the Disclosure Schedule,
to the extent applicable: (i) any plans, all amendments
thereto and related trust documents, insurance contracts or other
funding
arrangements, and amendments thereto; (ii) the most recent Forms 5500
and all schedules thereto and the most recent actuarial report, if
any;
(iii) the most recent IRS determination letter; (iv) summary
plan descriptions; (v) written communications to employees relating
to the Employee Benefit Plans; and (vi) written descriptions of all
non-written agreements relating to the Employee Benefit
Plans.
|
|
(iii)
|
Sellers
are unaware of any respect in which the Employee Benefit Plans have
not
been maintained in all material respects in accordance with their
terms
and with all provisions of ERISA, the Code (including rules and
regulations thereunder) and other applicable Federal and state Laws
and
regulations, and neither the Company nor any “party in
interest” or “disqualified person” with respect to the Employee Benefit
Plans has engaged in a non-exempt “prohibited transaction” within the
meaning of Section 4975 of the Code or Section 406 of
ERISA. Sellers are unaware of any instance in
which any fiduciary has any liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any Employee Benefit
Plan.
|
|
(iv)
|
Sellers
are unaware of any respect in which the Employee Benefit Plans intended
to
qualify under Section 401 of the Code are not so qualified and any
trusts
intended to be exempt from Federal income taxation under Section
501 of
the Code are not so exempt, and Sellers are unaware that anything
that has
occurred with respect to the operation of the Employee Benefit Plans
could
cause the loss of such qualification or exemption or the imposition
of any
liability, penalty or tax under ERISA or the
Code.
|
|
(v)
|
Sellers
are unaware of any respect in which each Employee Benefit Plan that
is
intended to meet the requirements for tax-favored treatment under
Subchapter B of Chapter 1 of Subtitle A of the Code fails to meets
such
requirements.
|
|
(vi)
|
Neither
the Company nor any ERISA Affiliate has withdrawn in a complete or
partial
withdrawal from any Multiemployer Plan prior to the Closing Date,
nor has
any of them incurred any liability due to the termination or
reorganization of a Multiemployer Plan. The Company does not
have (i) any obligation to make any contribution to any Multiemployer
Plan or (ii) any withdrawal liability from any Multiemployer Plan
under Section 4201 of ERISA, which it would not have had but for
the
consummation of the transactions contemplated by this
Agreement
|
31
|
(vii)
|
Sellers
are unaware of any respect in which §4.1(z) of the Disclosure Schedule
does not set forth on a plan by plan basis, the present value of
benefits
payable presently or in the future to Company Employees under each
unfunded Employee Benefit Plan.
|
|
(viii)
|
To
the Knowledge of the Sellers all contributions (including all employer
contributions and employee salary reduction contributions) required
to
have been made under any of the Employee Benefit Plans (including
workers
compensation) or Title IV Plans or by law (without regard to any
waivers
granted under Section 412 of the Code), to any funds or trusts established
thereunder or in connection therewith have been made by the due date
thereof (including any valid extension), and contributions for any
period
ending on or before the Closing Date that are not yet due will have
been
paid or sufficient accruals for such contributions and other payments
in
accordance with GAAP are duly and fully provided for on the June
30
Balance Sheet. Sellers are unaware of any accumulated funding
deficiencies existing in any of the Employee Benefit Plans or Title
IV
Plans subject to Section 412 of the
Code.
|
|
(ix)
|
To
the Knowledge of the Sellers, there is no “amount of unfunded
benefit liabilities” (as defined in Section 4001(a)(18) of ERISA) in any
of the Title IV Plans. To the Knowledge of the Sellers the
Title IV Plans are fully funded in accordance with the actuarial
assumptions used by the Pension Benefit Guaranty Corporation
(“PBGC”) to determine the level of funding required in
the event of the termination of a Title IV Plan and the “benefit
liabilities” (as defined in Section 4001(a)(16) of ERISA) of such Title IV
Plan using such PBGC assumptions do not exceed the assets of such
Title IV
Plan.
|
|
(x)
|
Sellers
are unaware of any “reportable event” (as defined in Section 4043 of
ERISA) with respect to the Title IV Plans that would require the
giving of
notice or any event requiring disclosure under Section 4041(c)(3)(C)
or
4063(a) of ERISA.
|
|
(xi)
|
Neither
the Company nor any ERISA Affiliate has terminated any Title IV Plan,
or
incurred any outstanding liability under Section 4062 of ERISA to
the PBGC
or to a trustee appointed under Section 4042 of ERISA. All
premiums due the PBGC with respect to the Title IV Plans have been
paid.
|
|
(xii)
|
To
the Knowledge of the Sellers, the Company has no liability under
any
Employee Benefit Plan or Title IV Plan that has not been funded nor
that
has any such obligation been satisfied with the purchase of a contract
from an insurance company that is not rated AA by Standard & Poor’s
Corporation or the equivalent by any other nationally recognized
rating
agency.
|
32
|
(xiii)
|
Sellers
are unaware of any instance in which the Company or any ERISA Affiliate
or
any organization to which the Company or any ERISA Affiliate is a
successor or parent corporation within the meaning of Section 4069(b)
of
ERISA has engaged in any transaction within the meaning of Section
4069 or
4212(c) of ERISA.
|
|
(xiv)
|
Sellers
are unaware of any pending actions, claims or lawsuits that have
been
asserted or instituted against the Employee Benefit Plans, the assets
of
any of the trusts under the Employee Benefit Plans or the sponsor
or
administrator of any of the Employee Benefit Plans, or against any
fiduciary of the Employee Benefit Plans with respect to the operation
of
any of the Employee Benefit Plans (other than routine benefit claims),
nor
do or the Sellers have any Knowledge of facts that could form the
basis
for any such claim or lawsuit.
|
|
(xv)
|
To
the Knowledge of the Sellers, there is no material violation of ERISA
or
the Code with respect to the filing of applicable reports, documents
and
notices regarding the Employee Benefit Plans with the Secretary of
Labor
or the Secretary of the Treasury or the furnishing of such documents
to
the participants in or beneficiaries of the Employee Benefit
Plans. All amendments and actions required to bring the
Employee Benefit Plans into conformity in all material respects with
all
of the applicable provisions of the Code, ERISA and other applicable
Laws
have been made or taken. Any bonding required with respect to
the Employee Benefit Plans in accordance with applicable provisions
of
ERISA has been obtained and is in full force and
effect.
|
|
(xvi)
|
Sellers
are unaware of any Employee Benefit Plan that provides for
post-employment life or health insurance, benefits or coverage for
any
participant or any beneficiary of a participant, except as may be
required
under the Consolidated Omnibus Budget Reconciliation Act of 1985,
as
amended (“COBRA”), and at the expense of the participant
or the participant’s beneficiary. Sellers are unaware of any
instance in which any of the Company and any ERISA Affiliate which
maintains a “group health plan” within the meaning of Section 5000(b)(1)
of the Code has not complied with the notice and continuation requirements
of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title
I of
ERISA and the regulations
thereunder.
|
|
(xvii)
|
To
the Knowledge of the Sellers, neither the execution and delivery
of this
Agreement nor the consummation of the transactions contemplated hereby
will (i) result in any payment becoming due to any Company Employee,
(ii)
increase any benefits otherwise payable under any Employee Benefit
Plan or
Title IV Plan or (iii) result in the acceleration of the time of
payment
or vesting of any such benefits under any Employee Benefit Plan or
Title
IV Plan.
|
33
|
(xviii)
|
The
Company does not have any contract, plan or commitment, whether legally
binding or not, to create any additional Employee Benefit Plan or
to
modify any existing Employee Benefit
Plan.
|
|
(xix)
|
No
stock or other security issued by Company forms or has formed a material
part of the assets of any Employee Benefit
Plan.
|
|
(xx)
|
Sellers
are unaware of any individual who performs services for the Company
(other
than through a contract with an organization other than such individual)
and who is not treated as an employee of any Company for Federal
income
tax purposes by is not an employee for such
purposes.
|
|
(xxi)
|
Notwithstanding
anything to the contrary in this Agreement, an account payable for
the
Company’s minimum “Safe Harbor” contribution has been established and
appears on the Company’s books and records as of the effective date of the
Closing, and the Sellers shall have no liability for any contribution
to
the Company’s 401(k), pension or profit-sharing plan as to any portion of
2007.
|
|
(aa)
|
Guaranties.
|
The
Company is not a guarantor or otherwise liable for any Liability or obligation
(including indebtedness) of any other Person.
|
(bb)
|
Environmental,
Health, and Safety Matters.
|
Sellers
are unaware of any manner in which the following are not true:
|
(i)
|
the
Company and its predecessors and Affiliates have complied and are
in
compliance in all material respects with all Environmental, Health,
and
Safety Requirements;
|
|
(ii)
|
without
limiting the generality of the foregoing, the Company has obtained
and
complied with, and is in compliance in all material respects with,
all
permits, licenses and other authorizations that are required pursuant
to
Environmental, Health, and Safety Requirements for the occupation
of its
facilities and the operation of its business. A list of all
such permits, licenses and authorizations is contained in the Disclosure
Schedule, as well as and copies of all such permits, licenses and
authorizations have been provided by the Company to the
Buyer;
|
|
(iii)
|
neither
the Company nor its predecessors or Affiliates has received any written
or
oral notice, report or other information regarding any actual or
alleged
violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its
facilities arising under Environmental, Health, and Safety
Requirements;
|
34
|
(iv)
|
neither
the Company nor its predecessors or Affiliates has treated, stored,
disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation
any
hazardous substance, or owned or operated any property or facility
(and no
such property or facility is contaminated by any such substance)
in a
manner that has given or would give rise to liabilities, including
any
liability for response costs, corrective action costs, personal injury,
property damage, natural resources damages or attorney fees, pursuant
to
any other Environmental, Health, and Safety
Requirements;
|
|
(v)
|
neither
the Company nor any of its predecessors or Affiliates has, either
expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial
action, of any other Person relating to Environmental, Health, and
Safety
Requirements;
|
|
(vi)
|
no
facts, events or conditions relating to the past or present facilities,
properties or operations of the Company or any of its predecessors
or
Affiliates will prevent, hinder or limit continued compliance by
the
Company with Environmental, Health, and Safety Requirements, give
rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any
other
liabilities (whether accrued, absolute, contingent, unliquidated
or
otherwise) pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite releases
or
threatened releases of hazardous materials, substances or wastes,
personal
injury, property damage or natural resources
damage.
|
|
(cc)
|
Licenses,
Agency and Distribution
Agreements.
|
§4.1(cc)
of the Disclosure Schedule lists all agreements to which the Company is a party
or by which it is bound under which the right to manufacture, process, market
or
use any product, service or other property of the Company has been granted,
licensed or otherwise provided by the Company to any agent, distributor, dealer,
licensee or other person. The Disclosure Schedule also lists all
agreements to which the Company is a party or by which it is bound under which
the right to market, manufacture, process or use any product, service or other
product has been granted to the Company by any other person or by which the
Company has been appointed as an agent, distributor, licensee or
franchisee. Complete and correct copies of all of the agreements
referred to in this paragraph have been provided by the Company to the
Buyer. None of the agreements listed in the Disclosure Schedule grant
to any third person any authority to incur any liability or obligation or enter
into any agreement on behalf of the Company. The Sellers have no
Knowledge of the intention of the other parties to any of the agreements
referred to in this paragraph to terminate such agreements.
35
|
(dd)
|
Subsidiaries.
|
The
Company has no subsidiaries.
|
(ee)
|
Related
Party Matters.
|
The
Company is not a party to or bound by any agreement with, is not indebted to,
and no amount is owing to the Company by, any of the Sellers or any officers,
former officers, directors, former directors, shareholders, former shareholders,
or any members of the immediate family of any of the foregoing persons or any
entity controlled by any of the foregoing persons. Without limiting
the generality of the foregoing, none of the foregoing persons (i) is involved
in any business arrangement or other relationship with the Company, (ii) owns
any property or right, tangible or intangible, that is used by the Company,
(iii) has any claim or cause of action against the Company, or (iv) owns any
direct or indirect interest of any kind in, or is a director, officer or
employee of, or consultant to, or has the right to participate in the profits
of
any Person who is a competitor, supplier, customer, landlord, creditor or debtor
of the Company.
|
(ff)
|
Compliance
with Privacy Laws.
|
Except
as
disclosed in §4.1(ff) of the Disclosure Schedule, Sellers are unaware of any
manner in which the collection, use and retention of personal information by
the
Company and the disclosure or transfer of personal information by the Company
to
any third parties has not complied with all Privacy Laws and is not consistent
with the Company’s own privacy practices. Sellers are unaware of any
restrictions on the Company’s collection, use, disclosure and retention of
personal information except as provided by Privacy Laws and, in some cases,
contracts with clients.
|
(gg)
|
Accounts;
Lockboxes; Safe Deposit Boxes.
|
|
(i)
|
§4.1(gg)
of the Disclosure Schedule contains a true and complete list
of:
|
|
(A)
|
the
names of each bank, savings and loan association, securities or
commodities broker or other financial institution in which the Company
has
an account, including cash contribution accounts, and the names of
all
persons authorized to draw thereon or have access thereto;
and
|
|
(B)
|
the
location of all lockboxes and safe deposit boxes of the Company and
the
names of all persons authorized to draw thereon or have access
thereto.
|
36
|
(ii)
|
The
Sellers have not commingled monies or accounts of Company with other
monies or accounts of the Sellers or relating to their other activities
and affairs nor, except as to distributions to Sellers, have the
Sellers
transferred monies or accounts of the Company other than to an account
of
the Company.
|
|
(hh)
|
Restrictions
on Doing Business.
|
|
(i)
|
Except
as to the Xxxxxxxxx Agreement (which is being terminated concurrently
with
the closing of the transactions hereunder), the Company is not a
party to
or bound by any agreement which would restrict or limit the Company’s
right to carry on any business or activity or to solicit business
from any
person or in any geographical area or otherwise to conduct the Business
as
the Company may determine from time to
time.
|
|
(ii)
|
Sellers
are unaware of any legislation or any judgment, order or requirement
of
any court or Governmental Body which is not a general application
to
persons carrying on a business similar to the Business to which the
Company is subject.
|
ARTICLE
5
COVENANTS
5.1
|
Special
Payments
|
The
parties covenant or acknowledge that, prior to or concurrent with the Closing,
the Company has made or will make the following payments :
|
(a)
|
The
Company has paid the Permitted Distribution to the Sellers,
being an amount equal to the estimated New York State and federal
income
taxes (“Shareholder Taxes”) payable by the Sellers solely
with respect to their respective shares of the net income
(“NI”) of the Company for the fiscal tax period ending
through September 30, 2007 (the “Period”), as reasonably determined by the
Company’s outside CPA;
|
|
(b)
|
the
Shareholder Taxes do not include Taxes with respect to compensation
earned
by the Sellers during the Period or any other matters other than
the
NI;
|
|
(c)
|
the
amount of the Shareholder Taxes are based on the September 30 Statements
and a calculation to support such determination of Shareholder Taxes
has
been provided by the Sellers to the Buyer prior to the date
hereof;
|
|
(d)
|
except
as referred to in paragraph 5.1(a) hereof, the Company has not paid
or
declared any dividend or otherwise become obligated to pay any other
distributions to the Sellers since September 30,
2007;
|
|
(e)
|
concurrent
with the Closing hereunder: (i) the Sellers have caused the Company
to pay
all amounts owing to Xxxxxxxxx under the Xxxxxxxxx Agreement and
to
acquire all shares in the capital stock of the Company held by Xxxxxxxxx;
(ii) the Sellers have delivered to the Buyer copies of all documents
made
and exchanged with Xxxxxxxxx in connection with the Xxxxxxxxx Agreement;
and (iii) the Buyer has advanced to the Company (as the Company has
directed) the sum of $1,426,141.72 to fund the purchase of shares
from
Xxxxxxxxx .
|
37
5.2
|
Post
Closing Covenants.
|
The
Parties agree as follows with respect to the period following the
Closing.
|
(a)
|
General.
|
In
case
at any time after the Closing any further action is necessary to carry out
the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request, all at the sole cost and expense
of
the requesting Party (unless the requesting Party is entitled to indemnification
therefor under Article 8 below). Notwithstanding the foregoing,
requests made by the Sellers of the Buyer or the Company, or vice
versa, in the context of an arbitration or litigation shall not come within
the ambit of this sub-paragraph.
|
(b)
|
Litigation
Support.
|
In
the
event and for so long as any Party actively is contesting or defending against
any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand not involving one Party or the Company claiming against another Party
or the Company, in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving the Company, each
of
the other Parties will cooperate with him or it and his or its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting
or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Article 8 below).
|
(c)
|
Confidentiality.
|
Except
as
provided by §5.2(d) hereof, each of the Sellers will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly
to
the Buyer all tangible embodiments (and all copies) of the Confidential
Information which are in his possession.
38
|
(d)
|
Disclosure
of Confidential Information.
|
In
the
event that any of the Sellers is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this §5.2(d). If, in
the absence of a protective order or the receipt of a waiver hereunder, any
of
the Sellers is, on the advice of counsel, compelled by law to disclose any
Confidential Information , that Seller may disclose the Confidential Information
as so compelled; provided, however, that the disclosing Seller shall use
reasonable efforts to obtain, at the request of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public immediately
prior to the time of disclosure. All expenses, fees and costs
incurred by Sellers, including for the reasonable time and disbursements of
attorneys, in complying with this section 5.2(d) shall be paid in full and
in
advance by Buyer as a condition precedent to Sellers’ obligations in this
section 5.2(d).
|
(e)
|
Covenant
Not to Compete.
|
|
(i)
|
Commencing
on the Closing Date and for a period of three (3) years from the
Closing
Date, the Sellers individually but not jointly covenant not to engage
directly or indirectly in any business competitive to the Business
anywhere in the following States: New Jersey, Delaware,
Maryland, Pennsylvania, New York, Connecticut, Vermont, Rhode Island,
Massachusetts, New Hampshire, Maine and Washington, DC; provided,
however,
that no owner of less than 1% of the outstanding stock of any
publicly-traded corporation shall be deemed to engage solely by reason
thereof in any of its businesses.
|
|
(ii)
|
Without
limiting the provisions of §5.2(e)(i) hereof, commencing on the Closing
Date and for a period of 5 years from the Closing Date, the Sellers
individually but not jointly covenant not to, directly or
indirectly:
|
|
(A)
|
solicit,
endeavor to solicit or gain the business of any person that is a
customer,
or has been within three (3) years prior to the Closing Date, a customer
of the Business or has been pursued as a prospective customer of
the
Business, for the purpose of selling to such customer or prospective
customer any products or services which are competitive with those
offered
by the Company;
|
|
(B)
|
induce
or endeavor to induce any employee of the Business to leave his or
her
employment;
|
39
|
(C)
|
employ
or attempt to employ or assist any person in employing any employee
of the
Business during the term of their employment;
or
|
|
(D)
|
solicit
or endeavor to solicit any person that is a supplier or business
partner
of the Business at the time of Closing in a manner that would be
competitive with the Business.
|
|
(iii)
|
If
the final judgment of a court of competent jurisdiction declares
that any
term or provision of this §5.2(e) is invalid or unenforceable, the Parties
agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration,
or
area of the term or provision, to delete specific words or phrases,
or to
replace any invalid or unenforceable term or provision with a term
or
provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified
after
the expiration of the time within which the judgment may be
appealed.
|
|
(iv)
|
Sellers
hereby expressly agree and acknowledge
that:
|
|
(A)
|
in
this section, the words “directly or indirectly” include any action taken
by either of the Sellers for his own benefit or for the benefit of
any
Person competing with the Business, either individually or in partnership
or jointly or in conjunction with any other Person as principal,
agent,
trustee, employee or shareholder (except for the holding of less
than 1%
of the stock of a corporation as referred to in §5.2(e)(i) hereof
);
|
|
(B)
|
The
Company has protectable business interests with respect to its suppliers,
employees, customers and prospective customers, and that competition
as
proscribed above with and against such business interests would be
harmful
to the Company and Buyer;
|
|
(C)
|
the
covenants contained in this §5.2(e) above are reasonable as to time and
geographical area and do not place any unreasonable burden upon Sellers’
ability to earn a livelihood;
|
|
(D)
|
the
public will not be harmed as a result of enforcement of the covenants
contained in this §5.2(e);
|
|
(E)
|
the
personal legal counsel for Sellers have reviewed the covenants contained
in this §5.2(e);
|
|
(F)
|
the
parties have entered into the covenants contained herein in connection
with and as a condition precedent to the consummation of this Agreement,
pursuant to which Buyer shall acquire the outstanding shares of the
Company; the agreements, actions, covenants, and promises contained
herein
are intended to protect
|
40
and
ensure the value of the Company, including its goodwill, which actions,
covenants, and promises are a material consideration to Buyer in connection
with
this Agreement; and, to the extent that the laws of any jurisdiction in which
this Agreement shall be interpreted, construed, and/or enforced distinguish
between covenants given in connection with the sale of a business and its
goodwill and covenants given in connection with employment, this covenant will
be given the broader interpretation customarily given to covenants in connection
with the sale of a business and the transfer of goodwill to a buyer;
and
|
(G)
|
Sellers
understand and agree to each and every term and condition contained
in
§5.2(e) of this Agreement.
|
|
(v)
|
Sellers
recognize and acknowledge that irreparable damage will result to
Buyer in
the event of a breach by Sellers of the provisions of this
§5.2(e), and, accordingly, in the event of such a breach, Buyer
will be entitled, in addition to any other legal or equitable damages
and
remedies to which it may be entitled or which may be available, to
an
injunction to restrain the violation
thereof.
|
|
(f)
|
Filing
Tax Returns.
|
With
respect to the taxable year of the Company ended December 31, 2006, the Sellers
have previously caused the Company to prepare and file all necessary tax
returns. With respect to the short period beginning January 1, 2007
ending as of the effective date of the Closing, the Sellers shall prepare the
package of tax information materials in accordance with past practice, including
past practice as to information schedules and work papers and as to the method
of recognition of taxable income or other relevant measure of the income of
the
Company (the “Tax Package”). The Buyer shall cause to be prepared the
Company’s tax returns for the interim period ending as of the effective date of
the Closing and shall file such Tax Returns on behalf of the
Company. Prior to filing such Tax Returns, the Buyer and the Sellers
shall review such Tax Returns and the Tax Package. The Buyer and the
Sellers shall promptly notify the other in writing of any reasonable objections
they may have to any item set forth on the Tax Returns reviewed by
them. In the event the Buyer and the Sellers cannot promptly resolve
the dispute, then such dispute shall be referred to a designee chosen by the
tax
partner in charge of the New York office of an independent nationally recognized
accounting firm mutually acceptable to the Sellers and the Buyer (the “Tax
Arbitrator”) for resolution in time to allow the Company to file such Tax
Returns on or before the deadline for their filing, including any extensions
thereto. The Tax Arbitrator shall resolve the issues raised in good
faith, with recognition of the merits of the issues, within the bounds of
reasonable judgment and so as not to unreasonably disadvantage the position
of
the Sellers or the Company in the Tax Returns. The decision of the
Tax Arbitrator shall be final and binding on the parties hereto. The
fees and expenses of the Tax Arbitrator shall be shared equally by the Buyer
and
the Sellers. The term “Tax Return” shall mean any report, return or
other information required to be supplied to a taxing authority in connection
with Taxes.
41
With
respect to any taxable period ending on or before the Closing Date, or which
includes the Closing Date, the Sellers shall have the sole right to control
any
audit or other examination (“Audit”), by any taxing authority, initiate any
claim for refund or amend any return, and contest, resolve and defend against
any assessment for additional Taxes, notice of tax deficiency or the adjustment
of Taxes of, or relating to, the Company.
The
Buyer
and the Sellers shall promptly forward to the other party all written
notifications and other communications from any taxing authority received by
the
Buyer or the Company, on the one hand, and the Sellers, on the other hand,
relating to any Audit or any liabilities for Taxes with respect to which the
Sellers have or may have any liability pursuant to this Agreement.
The
Buyer
shall cause the Company to provide the Sellers with such assistance (without
charge) as may be reasonably requested by the Sellers in connection with the
preparation of any Tax Return, any Audit, or any judicial or administrative
proceeding or determination relating to liability for Taxes of the Company
and
each party shall retain, for a reasonable period of time (but not less than
(i)
six years after the later of filing or the due date of the Tax Return for the
period on or including the Closing Date or (ii) until expiration of all
applicable statutes of limitation, whichever is later), and provide the Sellers
with any record or information or any other assistance (including without
limitation making employees available to the Sellers of a reasonable period
of
time) which may be relevant to such Tax Return, Audit, proceeding or
determination.
ARTICLE
6
CONDITIONS
6.1
|
Conditions
for the Benefit of the
Buyer.
|
The
purchase by the Buyer of the Company Shares is subject to the following
conditions, which are for the exclusive benefit of the Buyer and which are
to be
performed or complied with at or prior to the time of Closing:
|
(a)
|
the
representations and warranties set forth in §3.1 and §4 will be true and
correct in all material respects (and for this purpose all materiality
qualifications in such representations and warranties will be disregarded)
as at the time of Closing with the same force and effect as if made
at and
as of such time;
|
|
(b)
|
the
Sellers will have performed or complied with all of the terms, covenants
and conditions of this Agreement to be performed or complied with
by the
Sellers at or prior to the time of
Closing;
|
42
|
(c)
|
there
will have been obtained from all appropriate governmental authorities
such
approvals or consents as are required to permit the change of ownership
of
the Company Shares contemplated hereby and to permit the Business
of the
Company to be carried on by the Buyer as now
conducted;
|
|
(d)
|
the
Sellers will have obtained any consents or waivers of third parties
required to sell and transfer the Company Shares to the Buyer and
to allow
the Buyer to cause the Company to conduct the Business as it is conducted
prior to the time of Closing; without limiting the generality of
the
foregoing, the Sellers shall have obtained consents to the change
of
control resulting from the Transaction under each of the contracts,
if
any, referred to in §4.1(c) of the Disclosure Schedule which specify that
consent is required;
|
|
(e)
|
no
action or proceeding will be pending or threatened by any person
or
governmental authority to enjoin, restrict or prohibit the sale and
purchase of the Shares contemplated hereby, or the right of the Buyer
or
the Company to conduct the Business of the
Company;
|
|
(f)
|
the
Sellers shall have executed the Consulting
Agreements;
|
|
(g)
|
all
directors of the Company shall resign and the elected officers, of
which
there are only two, those being each of the Sellers, of the Company
shall
resign their respective offices;
|
|
(h)
|
the
Sellers and all directors and officers of the Company shall release
the
Company from any and all possible claims against the Company arising
from
any act, matter or thing arising at or prior to the time of Closing;
provided, however, except in respect of claims made against the Sellers
by
the Buyer pursuant to this Agreement, the Sellers may make a claim
at any
time against the Company for protection, defense and indemnification
pursuant to the bylaws, any applicable law, and/or for defense, liability
and indemnification coverage under any policy of insurance the benefits
of
which run directly or indirectly to the Sellers in their capacity
as a
former director, owner or employee of the Company and such claims
shall
not be released by the
Sellers; and
|
|
(i)
|
all
Excluded Liabilities shall have been fully discharged and the Company
shall have been released therefrom to the satisfaction of the
Buyer.
|
6.2
|
Conditions
for the Benefit of the
Sellers.
|
The
sale
by the Sellers and the purchase by the Buyer of the Company Shares is subject
to
the following conditions, which are for the exclusive benefit of the Sellers
and
which are to be performed or complied with at or prior to the time of
Closing:
|
(a)
|
the
representations and warranties of the Buyer set forth in §3.2 will be true
and correct in all material respects (and for this purpose any materiality
qualifications in such representations and warranties will be disregarded)
as at the time of Closing with the same force and effect as if made
at and
as of such time;
|
43
|
(b)
|
the
Buyer will have performed or complied with all of the terms, covenants
and
conditions of this Agreement to be performed or complied with by
the Buyer
at or prior to the time of Closing;
|
|
(c)
|
the
Company shall have executed the Consulting
Agreements;
|
|
(d)
|
the
Sellers will be furnished with such certificates of officers of the
Buyer
as the Sellers or the Sellers’ counsel may reasonably require in order to
establish that the terms, covenants and conditions contained in this
Agreement to have been performed or complied with by the Buyer at
or prior
to the time of Closing have been performed or complied with in all
material respects, and that the representations and warranties of
the
Buyer herein given are true and correct in all material respects
at the
time of Closing;
|
|
(e)
|
the
Company shall release the Sellers from any and all possible claims
against
the Sellers arising from any act, matter or thing arising at or prior
to
the time of Closing; and
|
|
(f)
|
Sellers
shall be released from all personal guarantees of any obligation
of the
Company executed by Sellers or either of them and the Buyer and the
Company shall undertake to protect, hold harmless and indemnify the
Sellers from all such liability.
|
6.3
|
Waiver
of Conditions.
|
The
Buyer, in the case of a condition set out in §6.1, and the Sellers, in the case
of a condition set out in §6.2, will have the exclusive right to waive the
performance or compliance of such condition in whole or in part and on such
terms as may be agreed upon without prejudice to any of its rights in the event
of non-performance of or non-compliance with any other condition in whole or
in
part. Any such waiver will not constitute a waiver of any other
conditions in favor of the waiving party.
ARTICLE
7
DELIVERIES
AT CLOSING
7.1
|
Closing.
|
The
sale
and purchase of the Company Shares will be completed at the Closing Time on
the
Closing Date at the offices of the Company.
7.2
|
Documents
Delivered to Buyer.
|
At
Closing, Sellers shall deliver to Buyer, in addition to any other documents
required by any provision of this Agreement, the following
documents:
|
(a)
|
stock
certificates for each of the Sellers representing the Company Shares,
duly
endorsed in blank or accompanied by stock transfer powers sufficient
to
transfer the Company Shares to the Buyer free and clear of all Security
Interests;
|
44
|
(b)
|
a
certificate of good standing for the Company dated not more than
3
Business Days prior to the Closing Date certified by the appropriate
governmental officials in the incorporating jurisdiction of the
Company;
|
|
(c)
|
all
of the third party consents specified in §4.1(c)
above;
|
|
(d)
|
executed
counterparts of the Consulting Agreements for the Sellers in form
and
substance as set forth in Exhibit B
hereto;
|
|
(e)
|
evidence
reasonably satisfactory to the Buyer that the Excluded Liabilities
have
been fully satisfied or terminated and are no longer obligations
of the
Company;
|
|
(f)
|
resignations,
effective as of the Closing, of each director and elected officer
of the
Company;
|
|
(g)
|
releases
in the form acceptable to the Buyer, as contemplated by §6.1(h) hereof;
and
|
|
(h)
|
a
legal opinion in form and substance as set forth in Exhibit C attached
hereto, addressed to the Buyer, and dated as of the Closing
Date.
|
7.3
|
Documents
Delivered to Sellers.
|
At
Closing, Buyer shall deliver to the Sellers the following:
|
(a)
|
a
wire transfer to the XXXX trust account of XXXXXX & BLOCK, PLLC,
attorneys for Sellers, in the amount of the Closing
Payment;
|
|
(b)
|
stock
certificates in respect of the Buyer Stock issued in favor of the
Sellers;
|
|
(c)
|
executed
counterparts of the Consulting Agreements in the form of the draft
agreement attached hereto as Exhibit
B;
|
|
(d)
|
Board
of Director resolution of Buyer authorizing the execution and performance
of this Agreement;
|
|
(e)
|
releases
in form acceptable to the Sellers, as contemplated by
§6.2(e);
|
|
(f)
|
releases
from personal guarantees in form acceptable to the Sellers, as
contemplated by §6.2(f); and
|
|
(g)
|
a
legal opinion in form and substance as set forth in Exhibit D attached
hereto, addressed to the Sellers and dated as of the Closing
Date.
|
45
ARTICLE
8
REMEDIES
FOR BREACHES OF THIS AGREEMENT
8.1
|
Survival
of Representations and
Warranties.
|
All
representations and warranties of the Sellers contained in §3.1 shall survive
the Closing and continue in full force and effect for the applicable statute
of
limitations as representations and warranties of current condition as of the
Closing. All of the representations and warranties of the Sellers
contained in §4.1 above shall, except as hereinafter provided, survive the
Closing hereunder and continue in full force and effect for a period of fifteen
(15) months thereafter as representations and warranties of current condition
as
of the Closing. In addition, any claim for breach of any representation or
warranty which is based upon or relates to the tax liability of the Company
for
a particular taxation year may be made or brought by the Buyer at any time
prior
to the expiration of the period during which an assessment, reassessment or
other form of recognized document assessing the liability for Tax, interest
or
penalties in respect of such taxation year under applicable tax legislation
could be issued, assuming that the Company has not prior to Closing filed any
waiver or similar document extending such period. All of the
representations and warranties of the Buyer contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect subject
to
the applicable statute of limitations.
8.2
|
Indemnification
Provisions for Benefit of the
Buyer.
|
|
(a)
|
In
the event any of the Sellers breaches any of their representations,
warranties, and covenants contained herein and, if there is an applicable
survival period pursuant to §8.1 above, provided that the Buyer makes a
written claim for indemnification against any of the Sellers pursuant
to
§8.5 by delivering a Claim Notice below within such survival period,
then,
subject to Article 9 hereof, each of the Sellers agrees to indemnify
the
Buyer from and against the entirety of any Adverse Consequences the
Buyer
may suffer resulting from, arising out of, or caused by the
breach; provided, however, the Sellers’ liability for breaches
of their representations and warranties in §3.1 hereof or for the breach
of a covenant will be several as between them (and not joint or joint
and
several) and the liability of the Sellers for breaches of their
representations and warranties in §4.1 hereof will be joint and
several.
|
|
(b)
|
The
Sellers agree to jointly and severally indemnify the Company and
the Buyer
from and against the entirety of any Adverse Consequences which the
Company or the Buyer may suffer resulting from, arising out of or
caused
by any Liability of the Company for any Taxes (other than taxes which
are
accrued for in the June 30 Statements or incurred in the Ordinary
Course
of the Business of the Company after June 30, 2007) with respect
to any
Tax period (or portions thereof) of the Company ending on or before
the
Closing Date.
|
46
8.3
|
Indemnification
Provisions for Benefit of the
Sellers.
|
In
the
event the Buyer breaches any of its representations, warranties, and covenants
contained herein, and, if there is an applicable survival period pursuant to
§8.1 above, provided that any of the Sellers makes a written claim for
indemnification against the Buyer pursuant to §8.5 below within such
survival period by delivering a Claim Notice, then the Buyer agrees to indemnify
each of the Sellers from and against the entirety of any Adverse Consequences
the Sellers may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the breach.
8.4
|
Deemed
Adjustments.
|
All
indemnification payments under this Article 8 shall be deemed adjustments to
the
Purchase Price.
8.5
|
Claim
Notice; Notice of a Disputed
Claim.
|
|
(a)
|
A
Party hereto (the “Indemnified Party”) may deliver to the
other Party (the “Indemnifying Party”) a written notice
(“Claim Notice”) that the Indemnified Party has suffered
Adverse Consequences resulting from a breach of a representation,
warranty
or covenant and providing the facts alleged as the basis for such
claim
and the section or sections of this Agreement alleged to have been
violated and the estimated total dollar amount of the Adverse Consequences
claimed. In the event that the Indemnifying Party disputes
liability for or the amount of the Adverse Consequences set forth
in the
Claim Notice (a “Disputed Claim”), the Indemnifying Party
shall notify the Indemnified Party in writing of such
dispute (“Notice of a Disputed Claim”) and
specify the amount disputed and basis therefor and the amount the
Indemnifying Party believes to be the correct amount, if any, within
thirty (30) days after receipt of the Claim Notice. The failure
by the Indemnifying Party to deliver a Notice of a Disputed Claim
to the
Indemnified Party within thirty (30) days after receipt by the
Indemnifying Party of the Claim Notice shall constitute the Indemnifying
Party’s acceptance of the item(s) in the Claim
Notice.
|
|
(b)
|
If
a written Notice of a Disputed Claim is sent pursuant to paragraph
(a)
above, the Parties shall during the thirty (30) days following the
date of
such delivery negotiate in good faith to resolve the Disputed Claim
and
reach a resolution of the matter on an expedited basis. If,
after such resolution period, the Parties are unable to reach agreement,
the Indemnified Party may pursue such Disputed Claim pursuant to
arbitration.
|
8.6
|
Other
Indemnification
Provisions.
|
Each
of
the Sellers hereby agrees that he will not make any claim for indemnification
against the Company by reason of the fact that he was a director,
officer, employee, partner or agent of the Company or was serving at the request
of the Company as a director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise)
if
and to the extent that such claim for indemnification arises out of any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against
such
Seller pursuant to the specific terms of this Agreement (but the Sellers’ rights
to indemnification by the Company are not otherwise restricted or impaired
by
this Agreement).
47
ARTICLE
9
LIMITATIONS
ON INDEMNIFICATION
9.1
|
Limitations
on Indemnification
|
|
(a)
|
Except
as hereinafter provided, the Buyer shall not be entitled to make
any claim
for indemnification against any of the Sellers pursuant to §8.2 unless and
until the amount of the Adverse Consequences incurred by the Buyer
as a
result of all misrepresentations, breaches of warranties and breaches
of
covenants contained in this Agreement is equal to $50,000 (the
“Threshold Amount”). If the Buyer has incurred
Adverse Consequences in an aggregate amount at least equal to the
Threshold Amount, then the Sellers will be liable to the Buyer for
the
full amount of all Adverse Consequences that the Buyer may suffer
resulting from or arising out of any such breaches, minus the Threshold
Amount. Provided however, the limitation on indemnification in
this §9.1(a) shall not apply in respect of any claim for indemnification
which is based on a breach of any of the representations and warranties
in
§3.1.
|
|
(b)
|
Notwithstanding
any other provision of this Agreement, the maximum aggregate liability
of
the Sellers for any and all claims by the Buyer for indemnification
in
respect of Adverse Consequences resulting from or arising out of
any and
all breaches of representations and warranties will be limited to
the
$1,000,000 (the “Limitation of Liability”), provided
however, the limitation on indemnification in this §9.1(b) shall not apply
in respect of, and the Limitation of Liability shall not
include:
|
|
(i)
|
any
claim for indemnification which is based on a breach of any of the
representations and warranties in
§3.1,
|
|
(ii)
|
any
claim for indemnification which is based on a breach of the
representations and warranties in
§4.1(k),
|
|
(iii)
|
any
claim for indemnification pursuant to §8.2(b),
or
|
|
(iv)
|
any
claim for indemnification which is based on any fraud or intentional
misrepresentation by the Sellers.
|
48
ARTICLE
10
MISCELLANEOUS
10.1
|
Press
Releases and Public
Announcements.
|
No
Party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Sellers. Provided however, the
foregoing shall not apply to any press releases and public announcements which
are required to be made by applicable law or any listing requirements of any
securities exchanges.
10.2
|
No
Third-Party
Beneficiaries.
|
This
Agreement shall not confer any rights or remedies upon any Person other than
the
Parties and their respective successors and permitted assigns.
10.3
|
Entire
Agreement.
|
This
Agreement (including the documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements,
or representations by or among the Parties, written or oral, to the extent
they
related in any way to the subject matter hereof.
10.4
|
Succession
and
Assignment.
|
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the Buyer and
the
Sellers; provided, however, that Buyer may assign this Agreement to an entity
that is wholly owned by the Buyer or is controlled by the same persons that
currently control the Buyer, or to a person or entity in connection with a
merger, reorganization or sale of substantially all of the assets of the
Buyer. In the event of such assignment, BPO Management Services, Inc.
will guarantee all obligations of the entity which becomes the Buyer hereunder,
and will execute a guarantee agreement in form acceptable to the Sellers, acting
reasonably. Furthermore, notwithstanding any such assignment, the
Buyer Stock will be issued to the Sellers by BPO Management Services, Inc.
or by
its successor.
10.5
|
Counterparts.
|
This
Agreement may be executed in one or more counterparts and by facsimile, each
of
which shall be deemed an original but all of which together will constitute
one
and the same instrument. The Parties agree to deliver signed originals of this
Agreement to each other within five business days after the Closing if this
Agreement is executed by facsimile counterparts.
10.6
|
Headings.
|
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
49
10.7
|
Notices.
|
All
notices, requests, demands, claims, and other communications hereunder will
be
in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth
below:
If
to Sellers:
Xx.
Xxxxxxx Xxxxxxx
000
Xxxxxxx Xxxx
Xx.
Xxxxx, XX
and
Xxxxxx
Xxxxxxx
00
Xxxxx Xxxxxx Xxxx
Xxxx
Xxxxx, XX 00000
With
a
copy
to :
XXXXXX & BLOCK, PLLC
000
Xxxxx Xxxxxxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
000-000-0000
000-000-0000
eFax
Attention:
Xxxxx X.
Xxxxxx
If
to the
Buyer:
BPO
Management Services,
Inc.
0000
X.
Xxxxxxx Xx., Xxx. 000
Xxxxxxx,
XX 00000
XXX
Attention:
Xxxxxxx Xxxxx and Xxx Xxxxxxx
With
a
copy
to: Xxxx
X. Xxxxxxx, Esq.
Xxxxxxx
& Xxxxxx
00000
XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx,
XX 00000
Tel:
(000) 000 0000
Fax:
(000) 000 0000
50
And
a
second copy
to: X.X.
Xxxx
Xxxx
& Berlis LLP
1800
–
000 Xxx Xxxxxx
Xxxxxxx,
XX X0X 0X0
Tel: (000)
000-0000
Fax:
(000) 000-0000
Any
Party
may send any notice, request, demand, claim, or other communication hereunder
to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
10.8
|
Governing
Law.
|
This
Agreement shall be governed by and construed in accordance with the laws of
the
state of New York without giving effect to any choice or conflict of law
provision or rule that would cause the application of the laws of any other
jurisdiction. The parties agree that in the event of a dispute
arising under or in connection with this agreement or the performance thereof,
that the parties shall not resort to litigation but, instead, will arbitrate
their dispute before a single arbitrator otherwise in accordance with the rules
for commercial arbitration in effect at the time, including the optional rules,
of the American Arbitration Association (referred to hereafter as the “AAA”), in
the County of New York. The parties irrevocably and
unconditionally consent to the service of any and all process in any such
proceeding by the mailing of copies of process by certified mail to the parties
and their counsel at their respective addresses specified in §11.7 or in
accordance with the rules of the AAA. The parties further irrevocably
and unconditionally agree that a final judgment in any such action or proceeding
(after exhaustion of all appeals or expiration of the time for appeal) shall
be
conclusive and may be enforced in any jurisdiction by suit on the judgment
or in
any other manner provided by law.
10.9
|
Amendments
and Waivers.
|
No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Buyer and the Sellers. No
waiver by any Party of any default, misrepresentation, or breach of warranty
or
covenant hereunder, whether intentional or not, shall be deemed to extend to
any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
10.10
|
Severability.
|
Any
term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of
the
offending term or provision in any other situation or in any other
jurisdiction.
51
10.11
|
Expenses.
|
Each
of
the Parties will bear its costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BPO
MANAGEMENT SERVICES, INC.
Per:
/Xxxxxxx Xxxxx/
Per:
/Xxxxx Xxxxxxx/
|
SIGNED,
SEALED AND DELIVERED,
|
)
|
|
in
the presence of
|
)
|
|
)
|
||
)
|
/Xxxxxxx
Xxxxxxx/
|
|
)
|
XX.
XXXXXXX XXXXXXX
|
|
)
|
||
)
|
||
)
|
/Xxxxxx
Xxxxxxx/
|
|
)
|
XX.
XXXXXX XXXXXXX
|
52