AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is made as of February 13, 2006, among
DATATRAK International, Inc., an Ohio corporation ("Purchaser"), CF Merger Sub,
Inc., an Ohio corporation and wholly-owned subsidiary of Purchaser ("Merger
Sub"), ClickFind, Inc., a Texas corporation (the "Company"), each of the Persons
identified on Exhibit A attached hereto (each, a "Shareholder," and
collectively, "Shareholders"), and, solely for purposes of Sections 8 and 9, Xxx
Xxx Xxxx, in his separate capacity as the Shareholder Representative
("Shareholder Representative"). The parties hereto are sometimes hereinafter
collectively referred to as the "Parties."
RECITALS
A. Purchaser desires to acquire the Company through the merger of the
Company with and into Merger Sub (the "Merger"), with Merger Sub being the
surviving corporation of the Merger, pursuant to which the Company Shares (as
defined below) of the Company issued and outstanding at the Effective Time (as
defined below), will be converted into the right to receive the Merger
Consideration (as defined below), as more fully provided herein.
B. The Shareholders own all of the currently issued and outstanding Company
Shares.
C. The Company desires to be merged with and into Merger Sub and that the
Shareholders be entitled to receive the Merger Consideration in exchange for
their Company Shares.
D. For federal income tax purposes, it is intended that the Merger qualify
as a "reorganization" within the meaning of Section 368(a) of the IRC and this
Agreement will constitute a plan of reorganization.
E. The respective boards of directors of Purchaser, Merger Sub and the
Company, and the Shareholders and the sole shareholder of Merger Sub, have
determined that the Merger is desirable and in the best interests of their
respective shareholders and, by resolutions duly adopted, have approved and
adopted this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual and
dependent promises hereinafter set forth, the Parties hereby agree as follows:
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"2005 Balance Sheet" - the Company's audited balance sheet as of December
31, 2005.
"Act" - as defined in Section 4.2(d).
"Affiliate" - an "Affiliate" of any Person means any family member of an
individual, and any other Person directly or indirectly controlling, controlled
by or under common control with, the referenced Person or (if applicable) a
family member of the referenced Person, and also means any director, officer,
partner, manager, executor, trustee or similar individual of such other Person.
"Agreement" - this Agreement and Plan of Merger, including the exhibits and
schedules thereto, and the Disclosure Schedule.
"Articles of Merger" - as defined in Section 3.1.
"Audit Expense" - as defined in Section 7.2.
"Audited Financial Statements" - (i) the audited balance sheets of the
Company as of December 31, 2004 and December 31, 2005, and the related audited
statements of income, cash flow and equity and notes thereto for the twelve (12)
month periods then ended.
"Average Closing Price" - as defined in Section 2.7(b)(iii)(D).
"Breach" - a "Breach" of a representation, warranty, covenant, obligation
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been any
inaccuracy in or breach of, or any failure to perform or comply with such
representation, warranty, covenant, obligation or other provision.
"Cash and Securities Recipients" - as defined in Section 2.7(b)(ii).
"Cash Consideration" - as defined in Section 2.7(b)(ii)(A).
"Cash Only Shareholders" - as defined in Section 2.7(b)(i).
"Certificate of Merger" - as defined in Section 3.1.
"Closing" - as defined in Section 3.1.
"Closing Date" - as defined in Section 3.1.
"Company" - as defined in the Preamble to this Agreement.
"Company D&O Indemnitee" - as defined in Section 7.6.
"Company Indebtedness" - all of the Company's (a) indebtedness for borrowed
money (including, without limitation, all principal, accrued interest,
applicable prepayment charges or premiums with respect to notes payable,
mortgages, term loans, revolver borrowings or other similar obligations and any
charges or premiums payable in respect of the cancellation or termination of any
outstanding interest rate swap agreements or similar arrangements), (b) capital
lease obligations and equipment loans; (c) guarantees and letters of credit;
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(d) installment or deferred payment contracts; and (e) the individual credit
card debts set forth in Section 1 of the Disclosure Schedule.
"Company Options" - as defined in Section 2.6(d).
"Company Share" - each share of common stock, no par value, of the Company,
which is issued and outstanding immediately prior to the Effective Time.
"Consulting Agreement" - is defined in Section 3.2(a)(xii).
"Contemplated Transactions" - all of the transactions contemplated by, or
to be delivered in accordance with the terms of this Agreement, including,
without limitation: (a) the Merger; and (b) the performance by the Parties of
their respective covenants and obligations under this Agreement.
"Contract" - as defined in Section 5.15(a).
"Copyrights" - any original work of authorship, published or unpublished,
and any United States or foreign copyright, and any registration thereof and
applications therefor, including any renewal or extension thereof and any right
corresponding thereto in both published and unpublished works throughout the
world, that is owned by, used by or licensed to the Company in connection with
the conduct of its respective business of any nature whatsoever.
"CPR" - as defined in Section 9.7(a).
"Custom Software" - any Software that has been developed or designed for a
particular customer or function, and that is used, developed, sold, distributed
or marketed by the Company in the conduct of its business of any nature
whatsoever.
"D&O Indemnity Cap" - as defined in Section 7.6.
"Damages" - as defined in Section 8.2(a).
"Database" - any data and other information recorded, stored, transmitted
or retrieved in electronic form, that is used, developed, sold, distributed or
marketed by the Company in the conduct of its business of any nature whatsoever.
"Disclosure Information" - as defined in Section 4.2(b).
"Effective Time" - as defined in Section 3.1.
"Employee Benefit Plan" - any employee benefit plan (as defined in Section
3.3 of ERISA), or any employment contract, employee loan, incentive
compensation, profit sharing, retirement, pension, deferred compensation,
severance, change of control, termination, pay, stock option or purchase plan,
guaranteed annual income plan, fund or arrangement, payroll incentive, policy,
fund, agreement or arrangement, consulting agreement, hospitalization,
disability, life or other insurance plan, or other employee fringe benefit
program or plan, or any other plan, payroll
3
practice, policy, fund, agreement of arrangement similar to or in the nature of
the foregoing, oral or written.
"Employment Agreements" - as defined in Section 3.2(a)(iii).
"Employee Tax Withholding" - all withholding taxes owed by any Cash and
Securities Recipient in connection with prior stock grants and the exercise for
his or her Company Options, as set forth in the column titled "Employee Tax
Withholding" on the Payout Spreadsheet.
"Encumbrance" - any charge, claim, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environment" - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Liabilities" - any cost, damage, expense, Liability,
obligation or other responsibility arising from or under any Environmental Law
and consisting of or relating to:
(a) any environmental matters or conditions (including on-site or
off-site contamination, and regulation of chemical substances or products
or Hazardous Materials);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial or inspection costs and expenses arising under any
Environmental Law;
(c) financial responsibility under any Environmental Law for cleanup
costs or corrective action, including any investigation, cleanup, removal,
containment, or other remediation or response actions ("Cleanup") required
by applicable Environmental Laws (whether or not required or requested by
any Governmental Body); or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law.
The terms "removal," "remedial," and "response action," mean the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"Environmental Law" - any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees or the public of
intended or actual Releases of Hazardous Materials, violations of discharge
limits, or other prohibitions and of the commencement of activities, such
as resource extraction or construction, that could have significant impact
on the Environment;
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(b) preventing or reducing to acceptable levels the release of
Hazardous Materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) protecting resources, species or ecological amenities;
(e) reducing to acceptable levels the risks inherent in the
transportation of Hazardous Materials or other potentially harmful
substances;
(f) cleaning up Hazardous Materials that have been released,
preventing the threat of release, or paying the costs of such Cleanup or
prevention; or
(g) making responsible parties pay private parties, or groups of them,
for damage done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA" - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrowed Software" - all IT Products, specifically including the
ClickTrialsTM eClinical Research Platform as that term is used in Section 5.6 of
the Disclosure Schedule, in both source code and executable object code formats,
including all commercially-released versions, updates and modifications thereof,
and all related documentation, help files, technical and user manuals,
duplication instructions, flow charts, development tools, and all other
materials and information necessary or appropriate to enable a user to create
executable object code from such source code and to reproduce, modify, support,
enhance, maintain and use same, all on machine-readable disks or other
electronic or digital storage media acceptable to Purchaser.
"Exchange Act" - as defined in Section 6.5.
"Facilities" - any real property, leaseholds or other interests currently
or formerly owned or operated by the Company and any buildings, plants,
structures or equipment (including motor vehicles and rolling stock) currently
or formerly owned or operated by the Company.
"Fair Market Value" - the price per share of the Purchaser Shares, as
quoted on the Nasdaq SmallCap Market or such other national securities exchange
or automated quotation system on which the Purchaser Shares are then quoted or
listed, as of the close of the market on the trading day immediately preceding
the day on which a claim for indemnification pursuant to Article 8 hereof is
made.
"GAAP" - generally accepted United States accounting principles,
consistently applied.
"Governmental Authorization" - any approval, consent, license, permit,
waiver or other authorization issued, granted, given or otherwise made available
by or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
5
"Governmental Body" - any: (a) nation, state, county, city, town, village,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; (c) governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal); (d) multi-national
organization or body; or (e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature.
"Gross Cash Only Shareholder Consideration" - as defined in Section
2.7(b)(iii)(A).
"Gross Merger Consideration" - as defined in Section 2.7(a).
"Hardware" - any mainframe, midrange computer, personal computer, notebook
or laptop computer, server, storage, switch, printer, modem, driver, peripheral,
point of sale terminals, kiosks and handheld scanners or any component of any of
the foregoing, that is used, developed, sold, distributed or marketed by the
Company in the conduct of its business of any nature whatsoever.
"Hazardous Activity" - the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation or thing that creates an endangerment to public health or
the environment, or poses an unreasonable risk of harm to persons or property on
or off the Facilities, or that may affect the value of the Facilities or the
Company.
"Hazardous Materials" - any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Hired Employees" - as defined in Section 7.5.
"Indemnification Cap" - as defined in Section 8.5(b)(iii).
"Indemnification Threshold" - as defined in Section 8.5(b)(i).
"Indemnifying Shareholders" - as defined in Section 8.2(b).
"Intellectual Property Rights" - all (i) Patents, (ii) Inventions, (iii)
Copyrights, (iv) Trademarks, (v) Trade Secrets, (vi) income, royalties, damages
and payments now or hereafter due or payable with respect to any of the
foregoing, (vii) right to xxx for past, present or future infringement,
misappropriation, or improper, unlawful or unfair use of any of the foregoing,
and (viii) rights of the Company under all contracts related to any of the
foregoing.
"Intellectual Property Cap" - as defined in Section 8.5(b)(iii).
6
"Inventions" - any idea, design, concept, technique, methodology, process,
invention, discovery, or improvement, whether or not patentable, any invention
disclosure or similar disclosure of any of the foregoing, and any shop rights in
any of the foregoing, that are owned by, used by or licensed to the Company in
connection with the conduct of its respective business of any nature whatsoever.
"IRC" - the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the United States Internal Revenue Service
pursuant to the Internal Revenue Code or any successor law.
"IT Assets" - any Software (including Custom Software), Hardware or
Database, including all IT Products, all IT Development and Delivery Assets and
all IT Business Assets.
"IT Business Assets" - any IT Assets used by the Company in connection with
the conduct of its business of any nature whatsoever other than IT Development
and Delivery Assets.
"IT Development and Delivery Assets" - any IT Assets used by the Company to
develop IT Products or deliver services to its customers in the course of its
business of any nature whatsoever.
"IT Products" - any IT Assets sold, distributed, marketed, or developed or
acquired for sale, distribution or marketing, to the Company's customers.
"Knowledge" - the actual knowledge of Xxx Xxx Xxxx, Xxxxxxx Xxxxxx,
Xxxxxxxx Xxx, Xxxxx Xxxx, Xxxx Xxxx and Xxxxx Xxxxx, after reasonable inquiry.
"Legal Requirement" - any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
statute, ordinance, principle of common law, regulation, statute or treaty.
"Liabilities" - responsibilities, obligations, duties, commitments, claims
and liabilities of any and every kind, whether known or unknown, accrued,
absolute, contingent or otherwise.
"Material Adverse Effect" or "Material Adverse Change" - when used in
connection with a Party means any change, event, violation, inaccuracy or
circumstance the effect of which, individually or in the aggregate, is both
material and adverse to (A) the property, business, operations, customer
relationships, assets (tangible and intangible) or financial condition of such
Party and its parent or subsidiaries, or (B) the ability of such Party to
perform any of its material obligations under this Agreement or any other
documents contemplated by the Agreement to which it is a party; provided,
however, that terms "Material Adverse Effect" and "Material Adverse Change"
shall not be deemed to include (a) a change or effect with respect to a Party
that results from economic or political conditions or events affecting the
United States economy or world economy; (b) with respect to the Company, any
change or effect resulting from any termination of a current or prospective
customer, supplier or vendor relationship that is attributable to the
announcement of this Agreement or the Merger or the transactions contemplated
hereby or thereby; (c) with respect to any Party, any change or effect resulting
7
from any breach of any representation, warranty, covenant or agreement contained
in this Agreement of another Party; or (d) the performance of the Party's
obligations hereunder.
"Material IT Assets" - as defined in Section 5.6(b)(i).
"Merger" - as defined in the Recitals to this Agreement.
"Merger Consideration" - as defined in Section 2.7(a).
"Merger Sub" - as defined in the Preamble to this Agreement.
"Notes" - as defined in Section 2.7(b)(ii)(B).
"Note Consideration" - as defined in Section 2.7(b)(ii)(B).
"Offer Letters" - as defined in Section 3.2(a)(vi).
"Officer's Certificate" - as defined in Section 8.10(a).
"OGCL" - as defined in Section 2.1.
"Option Exercise Note" - any promissory note made by any holder of Company
Options in favor of the Company in connection with the exercise of such Company
Options immediately prior to Closing.
"Order" - any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
"Organizational Documents" - the articles or certificate of incorporation
and the bylaws or code of regulations of a corporation and any amendments
thereto.
"Parties" - Purchaser, Merger Sub, the Company, the Shareholders and, for
purposes of Sections 8 and 9, Shareholder Representative, collectively.
"Patents" - any United States or foreign utility or design patent, together
with any extension, reexamination and reissue of such patents, patent of
addition, patent application, division, continuation, continuation-in-part, and
any subsequent filing in any country or jurisdiction claiming priority
therefrom, owned by, used by or licensed to the Company in connection with the
conduct of its respective business of any nature whatsoever.
"Payout Ratio" - as defined in Section 2.7(b)(iii)(B).
"Payout Spreadsheet" - as defined in Section 2.7(c).
"Permitted Encumbrances" - (a) liens for taxes, assessments and other
governmental charges not yet due and payable or being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which reasonable reserves have been established, (b) statutory, mechanics',
laborers' and materialmen's liens arising in the ordinary
8
course of business for sums not yet due, and (c) statutory and contractual
landlord's liens under leases pursuant to which the Company is a lessee and not
in default.
"Person" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" - any Employee Benefit Plan with respect to which the Company
currently is, or during the six-year period preceding the date hereof has been,
the sponsor, a party or obligated to make contributions.
"Proceeding" - any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Purchaser" - as defined in the Preamble to this Agreement.
"Purchaser Indemnified Persons" - as defined in Section 8.2(a).
"Purchaser Plans" - as defined in Section 7.5.
"Purchaser Shares" - as defined in Section 2.7(b)(ii)(C).
"Purchaser Share Consideration Amount" - as defined in Section
2.7(b)(ii)(C).
"Registration Rights Agreement" - is defined in Section 3.2(a)(xiii).
"Release" - any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping or other releasing into the Environment, whether
intentional or unintentional.
"Repaid Indebtedness" - certain Company Indebtedness included on the 2005
Balance Sheet as set forth on Schedule 1 attached hereto.
"Representative" - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor or other representative of such
Person, including legal counsel, accountants and financial advisors.
"SEC" - as defined in Section 4.2(c).
"SEC Reports" - as defined in Section 6.5.
"Securities Laws" - as defined in Section 4.2(d).
"Shareholders" - as defined in the Preamble to this Agreement.
"Shareholder Representative" - as defined in the Preamble to this
Agreement.
"Software" - any computer software, in object or source code form, that is
under development, used, developed, sold, distributed or marketed by the Company
in connection with
9
the conduct of its business of any nature whatsoever, including all operating
systems, all applications software, all firmware, all middleware, all
development tools, all Internet software, all digital content, and any and all
documentation in print or digital form related to any of the foregoing,
including programming manuals, user manuals, online help, technical support
manuals or instructions, and source code comments.
"Software License" - as defined in Section 3.2(a)(iv).
"Survival Date" - as defined in Section 8.10(a).
"Surviving Corporation" - as defined in Section 2.1.
"Tax" - any tax (including any income tax, capital gains tax, value added
tax, sales tax, property tax, gift tax or estate tax), levy, assessment, tariff,
duty (including customs duty), deficiency or other fee, and any charge or amount
(including any fine, penalty, interest or addition to tax), imposed, assessed or
collected by or under the authority of any Governmental Body or payable pursuant
to any tax-sharing agreement or any other Contract relating to the sharing or
payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.
"Tax Return" - any return (including any information return), report,
statement, schedule, notice, form or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" - a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Trademarks" - any unregistered trademark or service xxxx in the United
States or any foreign jurisdiction; any trademark or service xxxx registered in
the United States or any foreign jurisdiction or under any multinational
trademark authority and any applications therefor; any trade name, brand name,
product identifier, certification xxxx, logo, trade dress, and Internet domain
name, and any registration thereof or application therefor in the United States
or any foreign jurisdiction, including any extension, modification or renewal of
any such registration or application, and all goodwill associated with all of
the foregoing throughout the world, owned by, used by or licensed to the Company
in connection with the conduct of its respective business of any nature
whatsoever.
"Trade Secrets" - any trade secret, know-how, formula, specification,
technical information, data, process, technology, plans, drawing (including
engineering and CAD drawings), research and development, proprietary
information, blueprint, and all documentation related to any of the foregoing,
except for any such item that is generally available to the public as of the
Effective Date, owned, used or licensed by the Company in connection with the
conduct of its respective business of any nature whatsoever.
"Transaction Expenses" - all out of pocket, third-party costs and expenses
incurred by the Company in connection with this Agreement and the Contemplated
Transactions as set forth on Schedule 1(a) attached hereto.
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2. MERGER
2.1 TERMS OF MERGER.
Subject to the terms and conditions of this Agreement and in accordance
with the Ohio General Corporation Law (the "OGCL") and the Texas Business
Corporation Act (the "TBCA") at the Effective Time, the Company will be merged
with and into Merger Sub, the separate existence of the Company will cease, and
Merger Sub will continue as the surviving corporation under the name "CF Merger
Sub, Inc." (the "Surviving Corporation").
2.2 EFFECT OF MERGER.
The Merger will have the effects set forth in Section 1701.82 of the OGCL.
2.3 ARTICLES OF INCORPORATION; CODE OF REGULATIONS.
At the Effective Time, the Articles of Incorporation and the Code of
Regulations of Merger Sub, including all amendments thereto made prior to or as
of the Effective Time, will become the Articles of Incorporation and the Code of
Regulations of the Surviving Corporation.
2.4 DIRECTORS.
Each person serving as a director of the Company immediately prior to the
Effective Time shall cease to be a director of the Company at and as of the
Effective Time. Each person serving as a director of Merger Sub immediately
prior to the Effective Time shall become a director of the Surviving Corporation
at and as of the Effective Time, to hold office in accordance with the Articles
of Incorporation and the Code of Regulations of the Surviving Corporation until
his successor is duly elected or appointed and qualified or until his earlier
death, resignation or removal.
2.5 OFFICERS.
Each person serving as an officer of the Company immediately prior to the
Effective Time shall cease to be an officer of the Company at and as of the
Effective Time. Each person serving as an officer of Merger Sub immediately
prior to the Effective Time shall become an officer of the Surviving Corporation
at and as of the Effective Time, holding the same office or offices of the
Surviving Corporation as the office or offices of Merger Sub, which such person
held immediately before the Effective Time, to serve in such office or offices
at the pleasure of the Board of Directors of the Surviving Corporation.
2.6 EFFECT OF MERGER ON CAPITALIZATION OF THE COMPANY AND MERGER SUB.
At the Effective Time, by virtue of the Merger and without any action on
the part of any of the Parties or any other Person:
(a) Each Company Share shall be canceled and extinguished and automatically
converted at the Effective Time into the right of the record holder thereof to
receive from the Surviving Corporation, in accordance with the terms and
conditions of this Agreement, the share,
11
form and amount of the Merger Consideration set forth for each Shareholder on
the Payout Spreadsheet, as defined in Section 2.7(c) below and as calculated and
determined pursuant to Section 2.7 below, upon surrender to the Surviving
Corporation at the Closing of the certificate representing such Company Share
(except as provided by Section 2.6(e) below), duly endorsed and otherwise in
proper form for transfer to the Surviving Corporation free of any Encumbrances
and together with such other documents, endorsements and assurances as may be
required by Purchaser. All Company Shares shall cease to be outstanding and
shall automatically be canceled and retired and cease to exist at the Effective
Time, and each holder of a certificate representing one or more Company Shares
shall cease to have any rights with respect thereto, except the right to receive
such Shareholder's portion of the Merger Consideration with respect to such
Company Shares upon the surrender of the certificate representing such Company
Shares as provided herein.
(b) Any Company Shares that are owned by the Company shall at the Effective
Time be canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Each common share, without par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain a validly
issued, fully paid and nonassessable common share, no par value, of the
Surviving Corporation and shall not be affected by the Merger.
(d) Immediately prior to the Effective Time the vesting schedules of all
options convertible into Company Shares (the "Company Options") shall be
accelerated in full in accordance with the terms of Company's 2000 Stock
Option/Stock Issuance Plan, and each Company Option not exercised prior to the
Effective Time shall be terminated as of the Effective Time and the holders
thereof shall have no right to receive any portion of the Merger Consideration.
(e) If certificates representing outstanding Company Shares shall be lost,
stolen or destroyed, Purchaser shall determine the amount of the bond, if any,
and the type of additional documents, information and assurances that may be
requested in order to protect the Surviving Corporation and Purchaser from other
possible claimants with respect to such Company Shares. If any Merger
Consideration is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered is properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Purchaser any transfer or other Taxes required by
reason of the issuance of a certificate for shares of Purchaser's common stock
in any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Purchaser that such Tax has
been paid or is not payable.
2.7 PAYMENT OF THE MERGER CONSIDERATION.
(a) The aggregate consideration payable to all Shareholders with respect to
their Company Shares (the "Merger Consideration") shall be an amount equal to:
(i) Eighteen Million Dollars ($18,000,000) (the "Gross Merger
Consideration");
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(ii) minus an amount equal to the Transaction Expenses; and
(iii) minus an amount equal to the Repaid Indebtedness.
(b) At the Effective Time, the Merger Consideration shall be payable by
Purchaser as follows:
(i) Cash Only Shareholders. Each Shareholder listed on Schedule
2.7(b)(i) attached hereto (the "Cash Only Shareholders"), shall receive an
amount in cash equal to: (A) the Gross Merger Consideration, multiplied by;
(B) the quotient of (x) the number of Company Shares held by such Cash Only
Shareholder, divided by (y) the total number of Company Shares outstanding
immediately prior to the Effective Time; less (C) such Cash Only
Shareholder's pro rata portion of the Transaction Expenses and Repaid
Indebtedness; and less (D) the principal amount of the Option Exercise Note
made by such Cash Only Shareholder, if any.
(ii) Cash and Security Recipients. Each Shareholder listed on Schedule
2.7(b)(ii) attached hereto (the "Cash and Securities Recipients") shall
receive:
(A) an amount in cash equal to: (1) Four Million Dollars
($4,000,000) (the "Cash Consideration"), minus the Gross Cash Only
Shareholder Consideration; multiplied by; (2) such Cash and Securities
Recipient's Payout Ratio; and
(B) a non-negotiable promissory note, each substantially in the
Form attached hereto as Exhibit B (each a "Note," and, collectively,
the "Notes") the principal amount of which Note shall be equal to:
Four Million Dollars ($4,000,000) (the "Note Consideration");
multiplied by; (2) such Cash and Securities Recipient's Payout Ratio;
and
(C) a number of Purchaser's common shares (each a "Purchaser
Share," and collectively, the "Purchaser Shares") equal to: (1) such
Cash and Securities Recipient's Purchaser Share Consideration Amount;
divided by (2) the Average Closing Price.
(iii) Certain Definitions.
(A) The "Gross Cash Only Shareholder Consideration" shall mean an
amount equal to the Gross Merger Consideration, multiplied by; the
quotient of (1) the number of Company Shares held by all Cash Only
Shareholders, divided by (2) the total number of Company Shares
outstanding immediately prior to the Effective Time.
(B) The "Payout Ratio" for any Cash and Securities Recipient
shall be equal to the quotient of (1) the number of Company Shares
held by such Cash and Securities Recipient, divided by (y) the total
number of Company Shares held by all Cash and Securities Recipients
outstanding immediately prior to the Effective Time.
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(C) The "Purchaser Share Consideration Amount" for any Cash and
Securities Recipient shall be equal to: (1) the Gross Merger
Consideration, multiplied by; (2) the quotient of (x) the number of
Company Shares held by such Cash and Securities Recipient, divided by
(y) the total number of Company Shares outstanding immediately prior
to the Effective Time; less (3) such Cash and Securities Recipient's
pro rata portion of the Transaction Expenses and Repaid Indebtedness;
less (4) the total amount of such Cash and Securities Recipient's Note
and such Cash and Securities Recipient's portion of the Cash
Consideration, as calculated pursuant to Section 2.7(b)(ii)(A) above;
less (5) the principal amount of the Option Exercise Note made by such
Cash and Securities Recipient, if any; and less (6) the amount of such
Cash and Securities Recipient's Employee Tax Withholding, if any. In
the event that any Employee Tax Withholding amount is deducted,
Purchaser shall cause the Surviving Corporation to promptly and timely
remit such Employee Tax Withholding amount to the applicable Tax
authority and to indemnify the respective Shareholder with respect to
same.
(D) The "Average Closing Price" shall be equal to the average
closing price per share of Purchaser's common shares for the thirty
(30) trading days ending on and including the trading day prior to the
Closing Date; provided, however, that if the Average Closing Price is
(i) less than $9.00, then the Average Closing Price for purposes of
this Section 2.7(b) shall be deemed to be $9.00, or (ii) greater than
$10.00, then the Average Closing Price for purposes of this Section
2.7(b) shall be deemed to be $10.00.
(c) Prior to Closing, the Company shall provide to Purchaser a schedule
containing the calculation of the payments by type and amount to the
Shareholders, calculated in the manner described above, which schedule shall be
subject to the review and approval of the Purchaser. Following agreement of the
Parties on such schedule, it shall be attached hereto as an addendum to Schedule
2.7(c) (the "Payout Spreadsheet"), and the parties shall be entitled to rely on
the Payout Spreadsheet. In the event of any conflict between Section 2.7(b) and
the Payout Spreadsheet, the Payout Spreadsheet shall control.
(d) No fraction of a Purchaser Share will be issued in connection with the
Merger, but in lieu thereof each holder of a Company Share that otherwise would
be entitled to a fraction of a Purchaser Share shall receive from Purchaser an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction and (ii) the Average Closing Price.
3. CLOSING AND CLOSING DELIVERIES
3.1 CLOSING.
The Contemplated Transactions shall be consummated at the closing (the
"Closing") simultaneously with the execution hereof, at the offices of Xxxxxx,
Halter & Xxxxxxxx LLP, 000 Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxx, Xxxx 00000 at
10:00 a.m. Eastern Standard Time or at such other time, date or place as may be
mutually agreed in writing by the Parties (the "Closing Date"). At the Closing,
the Parties will cause the Merger to be consummated by filing (i) a
14
Certificate of Merger consistent with the terms of this Agreement with the
Secretary of State of Ohio, in such form as is required by, and executed by the
required Parties in accordance with, the OGCL (the "Certificate of Merger"), and
(ii) Articles of Merger consistent with the terms of this Agreement with the
Secretary of State of Texas, in such form as is required by, and executed by the
required Parties in accordance with, the TBCA (the "Articles of Merger"), in the
forms attached hereto as Exhibit C-1 and Exhibit C-2. The date and time of the
filing of such Certificate of Merger and Articles of Merger, or such other time
subsequent thereto as may be mutually agreed by the Company and Purchaser and
specified in the Certificate of Merger and Articles of Merger, shall be the
effective time of the Merger (the "Effective Time").
3.2 CLOSING DELIVERIES.
The transfers and deliveries described in this Section 3.2 shall be
mutually interdependent and shall be regarded as occurring simultaneously, and,
any other provision of this Agreement notwithstanding, no such transfer or
delivery shall become effective or shall be deemed to have occurred until all of
the other transfers and deliveries provided for in this Section 3.2 shall also
have occurred or been waived by the Party or Parties entitled to waive the same.
At or prior to the Closing:
(a) The Company will deliver, or will cause to be delivered, to Purchaser
the following:
(i) the Certificate of Merger and Articles of Merger, each duly
executed by the Company;
(ii) the certificates representing all of the outstanding Company
Shares, with such accompanying documents, endorsements and assurances as
may be reasonably required by Purchaser;
(iii) mutually agreeable employment agreements, duly executed by Xxx
Xxx Xxxx, Xxxxxxx Xxxxxx, Xxxxxxxx Xxx, Xxxxx Xxxx, Xxxx Xxxx and Xxxxx
Xxxxx, as applicable (the "Employment Agreements");
(iv) A Limited Software License Agreement, in the form attached as
Exhibit D, duly executed by Xxx Xxx Xxxx (the "Software License");
(v) resignations of each of the directors and officers of the Company;
(vi) mutually agreeable and customary offer letters duly executed by
each of the employees listed on Schedule 3.2(a)(vi) attached hereto (the
"Offer Letters");
(vii) a certificate of the Secretary of the Company as to the
incumbency and authority of any Person executing and delivering on behalf
of the Company this Agreement or any other document or instrument required
to be delivered by the Company hereunder, and setting forth copies of the
resolutions approving this Agreement and the Contemplated Transactions
which were duly adopted by the Board of Directors and the Shareholders of
the Company and a statement of the date and manner of such adoption by the
Board of Directors and the Shareholders of the Company;
15
(viii) a certificate of the Secretary of the Company setting forth the
number of Company Shares outstanding and entitled to vote upon the approval
of this Agreement and the Contemplated Transactions;
(ix) certificates of good standing, dated not more than five (5) days
prior to the Closing Date, as to the corporate existence and good standing
of the Company in Texas and each state or other jurisdiction in which it is
qualified to do business;
(x) all consents and approvals of all Persons and Governmental
Authorities listed on Schedule 3.2(a)(xi) attached hereto that are
necessary for the Surviving Corporation to operate the business of Sellers
as heretofore conducted and as may be necessary for the assumption by the
Surviving Corporation of the Contracts;
(xi) a fully executed copy of that certain Assignment Intellectual
Property Rights Agreement, between the Company and Xxxxxxxx Xxxxxxxx;
(xii) a consulting agreement duly executed by Xxxx Xxxxx, in form and
substance reasonably acceptable to Purchaser and Xx. Xxxxx (the "Consulting
Agreement");
(xiii) a registration rights agreement, in the form attached as
Exhibit E, duly executed by each of the Cash and Securities Recipients (the
"Registration Rights Agreement");
(xiv) a legal opinion of Xxxxxxx Xxxxx LLP as counsel to the Company,
reasonably satisfactory to Purchaser and its counsel; and
(xv) any and all other documents required by the terms of this
Agreement to be delivered at the Closing by any Shareholder or the Company.
Any agreement or document to be delivered to Purchaser pursuant to this Section
3.2(a), the form of which is not attached to this Agreement as an exhibit, shall
be in form and substance reasonably satisfactory to Purchaser.
(b) Purchaser will deliver the following:
(i) the Certificate of Merger and Articles of Merger, each duly
executed by Purchaser and Merger Sub;
(ii) the Cash Consideration;
(iii) the Notes, duly executed by Purchaser;
(iv) certificates representing the Purchaser Shares recorded in the
name of the Shareholders as set forth on Exhibit A;
(v) the Employment Agreements duly executed by Purchaser;
16
(vi) the Offer Letters duly executed by Purchaser;
(vii) the Registration Rights Agreement, duly executed by Purchaser;
(viii) the Software License, duly executed by Purchaser;
(ix) a certificate of the Secretary or Assistant Secretary of each of
Purchaser and Merger Sub as to the incumbency and authority of any Person
executing and delivering on behalf of Purchaser or Merger Sub this
Agreement or any other document or instrument required to be delivered by
either of them hereunder, and setting forth copies of the resolutions
approving this Agreement and the Contemplated Transactions which were duly
adopted by the Board of Directors of each of Purchaser and Merger Sub and a
statement of the date and manner of such adoption by such Boards of
Directors;
(x) certificates of good standing, dated not more than five (5) days
prior to the Closing Date, as to the corporate existence and good standing
of Purchaser and Merger Sub in the State of Ohio;
(xi) a legal opinion of Xxxxxx, Halter & Xxxxxxxx LLP as counsel to
Purchaser and Merger Sub, reasonably satisfactory to the Company and its
counsel; and
(xii) any and all other documents required by the terms of this
Agreement to be delivered at the Closing by Purchaser or Merger Sub.
Any agreement or document to be delivered to the Shareholders pursuant to this
Section 3.2(b), the form of which is not attached to this Agreement as an
exhibit, shall be in form and substance reasonably satisfactory to the Company
and the Shareholders.
3.3 ADDITIONAL CLOSING DELIVERIES.
(a) Prior to or at Closing, Purchaser shall have received a fairness
opinion, in a form reasonably satisfactory to Purchaser and Merger Sub, from JMP
Securities with respect to the fairness to Purchaser and Merger Sub of the
Merger and the Contemplated Transactions.
(b) At or prior to Closing, the Company will deliver or cause to be
delivered to an escrow agent identified by Purchaser, for the benefit of
Purchaser, two (2) complete copies of the Escrowed Software.
4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder severally represents and warrants to Purchaser and Merger
Sub that the following statements contained in Section 4.1 are true and correct
at and as of the date of this Agreement with respect to such Shareholder and his
Company Shares and each Cash and Securities Recipient severally represents and
warrants to Purchaser and Merger Sub that the following statements contained in
Section 4.2 are true and correct at and as of the date of this Agreement with
respect to such Cash and Securities Recipient. No Shareholder or Cash and
Securities Recipient makes any of the representations or warranties in this
Section 4 with respect
17
to any other Shareholder, any other Shareholder's Company Shares or any other
Cash and Securities Recipient, as the case may be.
4.1 REPRESENTATIONS AND WARRANTIES OF ALL SHAREHOLDERS.
(a) Authority and Capacity.
Such Shareholder possesses all requisite power, authority and legal
capacity to execute, deliver and perform this Agreement and each other
agreement, instrument and document to be executed and delivered by or on behalf
of such Shareholder in connection with any Contemplated Transaction.
(b) Ownership of Shares.
Such Shareholder owns all of such Shareholder's Company Shares free and
clear of all Encumbrances.
(c) Execution and Delivery; Enforceability.
This Agreement has been, and each other document, instrument or agreement
to be executed and delivered by such Shareholder in connection herewith will
upon such delivery be, duly executed and delivered by such Shareholder and
constitutes, or will upon such delivery constitute, the legal, valid and binding
obligation of such Shareholder, enforceable in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights or by principles of equity, provided, however,
that the Certificate of Merger will not be effective until filed with the Ohio
Secretary of State and the Ohio Secretary of State has issued a receipt
acknowledging acceptance and approval of the certificate of merger in response
thereto and the Articles of Merger will not be effective until the Articles of
Merger have been filed with the Texas Secretary of State and the Texas Secretary
of State has issued a certificate of merger in response thereto.
(d) Noncontravention.
Such Shareholder is not required to submit any notice, report or other
filing with any Governmental Authority in connection with such Shareholder's
execution, delivery or performance of this Agreement or any other document,
instrument or agreement to be executed and delivered by such Shareholder in
connection herewith. Such Shareholder's execution, delivery and performance of
this Agreement will not violate, breach or conflict with any Legal Requirement
by which such Shareholder is bound or any agreement to which such Shareholder is
a party, and, to the knowledge of such Shareholder, no consent, approval or
authorization of any Governmental Authority or any other Person is required to
be obtained by such Shareholder in connection with such Shareholder's execution,
delivery and performance of this Agreement or any other document, instrument or
agreement to be executed and delivered by such Shareholder in connection with
any Contemplated Transaction.
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(e) Brokerage.
No Person is or will become entitled, by reason of any agreement or
arrangement entered into or made by or on behalf of such Shareholder, to receive
any commission, brokerage, finder's fee or other similar compensation with
respect to such Shareholder's Company Shares in connection with the consummation
of the Contemplated Transactions.
(f) Exculpation Among Shareholders.
Each Shareholder acknowledges that it is not relying upon any other
Shareholder in making its decision to enter into this Agreement or any of the
Contemplated Transactions. Each Shareholder agrees that no other Shareholder
shall be liable for any action heretofore or hereafter taken or omitted to be
taken by any of them in their capacity as a Shareholder relating to or in
connection with this Agreement or the Contemplated Transactions except in the
case of fraud.
4.2 REPRESENTATIONS AND WARRANTIES OF CASH AND SECURITIES RECIPIENTS.
(a) Reliance by the Purchaser.
Such Cash and Securities Recipient understands and acknowledges that the
Purchaser Shares and Notes to be issued to such Cash and Securities Recipient
will not be registered under the Act in reliance upon the exemption from
registration provided by Section 4(2) of the Act and Regulation D. Such Cash and
Securities Recipient further acknowledges and agrees that the representations
and warranties contained in this Section 4.2, as well as the information
previously provided to Purchaser in such Cash and Securities Recipient's
investor suitability questionnaire, are being relied upon by the Purchaser in
connection with such determination.
(b) Disclosure Information.
Prior to the date hereof, such Cash and Securities Recipient was provided
with a copy of the Agreement, as well as certain financial and other information
regarding Purchaser, the Company and the Contemplated Transactions
(collectively, the "Disclosure Information"). Such Cash and Securities Recipient
has read the Disclosure Information and such Cash and Securities Recipient, to
the extent that such Cash and Securities Recipient concluded necessary,
consulted with counsel or advisers regarding the contents of the Disclosure
Information. Such Cash and Securities Recipient acknowledges that he or she has
had an opportunity to ask questions and receive answers to such questions
regarding the terms and conditions of this Agreement and the Contemplated
Transactions, including, without limitation, the terms and conditions of the
Purchaser Shares and Notes that will be issued to such Cash and Securities
Recipient pursuant to this Agreement, as well as information regarding the
business, properties, prospects and financial condition of Purchaser and the
terms of the Contemplated Transactions.
(c) Accredited Investor Status.
Such Cash and Securities Recipient is: (i) one of the following: (x) an
individual with net worth (or joint net worth together with his or her spouse)
in excess of $1,000,000 (which net worth includes the value of home, furnishings
and automobiles); (y) an individual with
19
individual income (exclusive of any income attributable to his or her spouse) in
excess of $200,000 in each of calendar years 2005 and 2004 and expects an
individual income in excess of $200,000 for calendar year 2006, or has had,
together with his or her spouse, joint income in excess of $300,000 in each of
the calendar years 2005 and 2004 and expects a joint income in excess of
$300,000 for calendar year 2006; (z) otherwise qualifies as an "accredited
investor" as defined for purposes of Regulation D, which has been adopted by the
Securities and Exchange Commission (the "SEC") under the Act.
Such Cash and Securities Recipient will be required to hold his or her
Purchaser Shares and Note indefinitely. Such Cash and Securities Recipient
further represents and warrants that he or she has such knowledge and experience
in financial and business matters so as to enable him or her to understand the
merits and risks involved in acquiring the Purchaser Shares and Notes (and the
other terms of the Contemplated Transactions, including such person's
indemnification obligations) and is able to bear the economic risk of an
investment in the Purchaser Shares and Notes for an indefinite period of time
and can afford the complete loss of his or her proposed investment in the
Purchaser Shares and Notes.
(d) Restrictions on Purchaser Shares and Notes.
Such Cash and Securities Recipient will acquire the Purchaser Shares and
Note to be received by such Cash and Securities Recipient under this Agreement
for such Cash and Securities Recipient's own account and not with a view to, or
for resale in connection with, the distribution thereof and such Cash and
Securities Recipient has no present intention of selling, granting any
participation in, or otherwise distributing the Purchaser Shares or Note except
in conformity with the Act and other applicable federal and state securities
laws (collectively, the "Securities Laws").
Such Cash and Securities Recipient understands and agrees that all the
Purchaser Shares and Notes will constitute "restricted securities" under the
Securities Laws inasmuch as they are being acquired from Purchaser in a
transaction not involving a public offering and that, consequently, the
Purchaser Shares and Notes may not be resold without first being registered
under the Securities Laws only in certain limited circumstances. Specifically,
such Cash and Securities Recipient is familiar with SEC Rule 144 and
understands, and agrees to comply with, the resale limitations imposed thereby
and by the Securities Laws generally.
Each Cash and Securities Recipient understands and agrees that the
certificates issued to such Cash and Securities Recipient representing the
Purchaser Shares and the Notes all will bear any legend required by the
Securities Laws, as well as the following legend:
"These securities have not been registered under the Securities Act of
1933 (the "Act") or under any state securities laws and have been
issued and sold in reliance upon an exemption from registration under
the Act. These securities may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred in the absence of an effective
registration statement under the Act or an opinion of counsel,
satisfactory to the issuer of these securities, to the effect that
such a registration statement is
20
unnecessary in respect of a particular sale, offer, pledge,
hypothecation or other transfer."
The foregoing legend will be removed from a certificate at the request of
such Cash and Securities Recipient (or the request of any person to whom any
such Cash and Securities Recipient has transferred shares in conformity with
this Agreement) in connection with the proposed transfer of Purchaser Shares or
Notes only upon either the effectiveness of such a registration statement or
receipt by Purchaser of an opinion of counsel, satisfactory to Purchaser, to the
effect that registration under the Act is unnecessary in respect of the proposed
transfer, in reliance upon SEC Rule 144 under the Act, and that such legend is
not required by law to appear on the certificate.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Merger Sub, except as
set forth in the corresponding numbered sections of the Disclosure Schedule, as
follows:
5.1 ORGANIZATION AND GOOD STANDING.
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of Texas, with requisite corporate power and
authority to conduct its business as it is now being conducted and to own or use
the properties and assets that it purports to own or use. The Company is duly
qualified to do business and is in good standing under the laws of each
jurisdiction where such qualification is required, each of which is listed in
Section 5.1(a) of the Disclosure Schedule, except where lack of such
qualification would not have a Material Adverse Effect on the Company. The
Company has no direct or indirect subsidiaries, does not own any equity
ownership interest in any other corporation, partnership, limited liability
company, trust or other business entity, and is not a member of any other joint
venture.
(b) The Company has delivered to Purchaser copies of the Organizational
Documents of the Company and its subsidiaries, if any, as in effect on the date
of this Agreement.
5.2 AUTHORITY; NO CONFLICT.
(a) This Agreement has been, and each other document, instrument or
agreement to be executed and delivered by the Company in connection herewith
will upon such delivery be, duly executed and delivered by the Company and
constitutes, or will upon such delivery constitute, the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights or by principles of equity, provided, however,
that the Certificate of Merger will not be effective until filed with the Ohio
Secretary of State and the Ohio Secretary of State has issued a receipt
acknowledging acceptance and approval of the Certificate of Merger in response
thereto and the Articles of Merger will not be effective until the Articles of
Merger have been filed with the Texas Secretary of State and the Texas Secretary
of State has issued a certificate of merger in response thereto. The Company has
all necessary right, power, authority, and capacity to execute and deliver this
Agreement and to perform its obligations hereunder.
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(b) This Agreement and the Contemplated Transactions have been duly
authorized and approved by the Company's Board of Directors and shall have been
duly authorized and approved prior to the Closing by the Shareholders in
accordance with all Legal Requirements, including Article 5.01 of the Texas
Business Corporation Act and the Company's Organizational Documents.
(c) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any
provision of the Company's Organizational Documents;
(ii) conflict with any material Legal Requirements, or give any
Governmental Body or other Person the right to exercise any remedy or
obtain any relief under any Legal Requirement or any Order to which the
Company or any of its assets may be subject;
(iii) violate or conflict with any of the terms or requirements of,
any material Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or any of the assets owned or used
by, the Company;
(iv) conflict with any provision of, or give any Person the right to
declare a default or to exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify, any
Contract; or
(v) result in the imposition or creation of any Encumbrance, other
than Permitted Encumbrances, upon or with respect to any of the assets
necessary to the operation of the Company's business.
5.3 CAPITALIZATION.
The total authorized capital stock of the Company consists solely of eleven
million (11,000,000) authorized shares, ten million (10,000,000) of which are
designated as common stock with no par value, and one million (1,000,000) of
which are designated as Preferred Stock with no par value. A total of Six
Million Eight Hundred Eighty Eight Thousand Seven Hundred Fifty Two (6,888,752)
shares of such authorized Company common stock are issued and outstanding, One
Million One Hundred Twenty Four Thousand Two Hundred Eighty Five (1,124,285)
shares of which were issued upon the exercise of Company Options immediately
prior to the Closing, and no shares of such authorized Company Preferred Stock
are issued and outstanding. All of the Company Shares are owned of record and
beneficially by the Shareholders in the respective amounts set forth on Exhibit
A, and to the Company's Knowledge, in every case free and clear of all
Encumbrances other than normal restrictions on transfer under applicable federal
and state securities laws. All of the outstanding Company Shares have been duly
authorized and validly issued and are fully paid and nonassessable. At the
Closing, there will exist no contract (including any stock option, warrant,
convertible debt instrument, subscription agreement, shareholder agreement,
buy-sell agreement or other similar right, instrument or agreement) relating to
the prospective issuance, sale or transfer or
22
prohibition on the sale or transfer (including any right of first refusal) of
the Company Shares, and the Company does not have and will not have any
Liability, whether fixed, accrued or contingent, under any such contract or on
account of the performance, discharge, cancellation or termination thereof other
than the payment of applicable withholding Taxes upon the exercise of Company
Options immediately prior to the Closing. None of the Company Shares was issued
or, since issuance, to the Company's Knowledge, has been transferred, in
violation of any securities law or other material Legal Requirement, including
any pre-emptive right, right of first refusal or other similar right of any
Person. The Company does not own, or have any contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity
interest or other ownership interest in any other Person.
5.4 FINANCIAL STATEMENTS AND FINANCIAL CONDITION.
The Company has delivered to Purchaser the Audited Financial Statements.
All such Audited Financial Statements were prepared from the Company's books and
records in all material respects in accordance with GAAP, consistently applied,
present fairly the financial position, results of operations and cash flows of
the Company at the dates and for the periods indicated and comply in all
material respects with Regulation S-X. The books of account of the Company
accurately reflect in all material respects all items of income and expense
(including, but not limited to, accruals) and all assets and liabilities of the
Company in accordance with normal accrual accounting practices, subject to
customary year-end adjustments of a normal, recurring type which would not be
material in the aggregate. There exist no Liabilities of the Company, whether
the same are direct or indirect, whether arising under an agreement or contract
or otherwise, except (i) to the extent provided for or reserved against on the
2005 Balance Sheet, (ii) current Liabilities which have arisen in the ordinary
course of business consistent with past practice since the 2005 Balance Sheet,
(iii) or Liabilities occurring in the ordinary course of business not required
to be reflected on the 2005 Balance Sheet under GAAP.
5.5 BOOKS AND RECORDS.
The Company has permitted Purchaser to examine the Company's books of
account, minute books, stock record books and other records and such documents
contain the Company's Organizational Documents as in effect on the date hereof
and are in all material respects a true and complete record of all material
actions by and meetings of the directors (and committees thereof) and
shareholders of the Company and accurately reflect all transactions referred to
therein.
5.6 TITLE TO PROPERTY; ENCUMBRANCES.
(a) Title.
The Company does not own any real property. The Company owns all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that it purports to own, including all of the properties and assets
reflected on the 2005 Balance Sheet (except for personal property sold since the
date of the 2005 Balance Sheet in the ordinary course of business) free and
clear of all Encumbrances other than Permitted Encumbrances.
23
(b) IT Assets.
(i) Section 5.6(b) of the Disclosure Schedule contains a complete
list, sorted by category of IT Asset, of all IT Assets material to the
operation of the Company's business (including research and development
activities), including the IT Products, the IT Development and Delivery
Assets, and the IT Business Assets (the "Material IT Assets"). Except as
set forth in Section 5.6(b) of the Disclosure Schedule, (x) each of the
Material IT Assets is owned by the Company or the Company has sufficient
rights to possess and use same, specifying in each instance if the Material
IT Asset is owned, licensed or leased, and (y) each of the IT Products and
the IT Development and Delivery Assets among the Material IT Assets
performs substantially in accordance with the specifications, documentation
and other written material used in connection with the use, sale,
distribution, or marketing thereof or provided to Purchaser and is free of
material defects in programming and operation. The Company owns all of the
IT Assets that it purports to own free and clear of all Encumbrances other
than Permitted Encumbrances.
(ii) The Company has not granted any other Person any license, option
or other right in or to any of the Software or IT Products among the
Material IT Assets, except for (i) end-user licenses set forth in Section
5.6(b)(ii) of the Disclosure Schedule; and (ii) any Contract identified in
Section 5.15 of the Disclosure Schedule.
(iii) The Company is not obligated to any Person to maintain, modify,
improve or upgrade any of the IT Products, except for any such obligation
set forth in an end-user license granted by the Company or under any
Contract identified in Section 5.15.
(iv) The Company has not disclosed the source code for any of the
Software IT Products to any Person other than pursuant to those Contracts
or to those Persons identified in Section 5.6(b)(iv) of the Disclosure
Schedule.
(v) To the Knowledge of the Company, any Custom Software purchased by,
leased by or licensed to the Company and included among the Material IT
Assets, generally functions as intended and is in or can be converted to
machine-readable form, and the Company is in possession of all computer
programs, documentation, materials, tapes, know-how, object and source
codes and procedures relating thereto necessary for its business as it
currently is conducted.
(vi) The Company is not subject to any legal or contractual
restriction that would prevent it from making available to any customer any
Software or IT Product, including Custom Software.
(vii) None of the IT Assets owned by the Company is jointly owned
between the Company and any other Person.
(viii) To the Knowledge of the Company, none of its employees has
entered into any contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee
to transfer, assign or disclose information concerning his or her work to
anyone other than the Company.
24
(ix) To the Knowledge of the Company, none of its employees or
consultants: (A) has infringed the intellectual property, proprietary, or
contractual rights of any Person in the course of his or her work for the
Company or (B) is, or is currently expected to be, in default under any
term of any contract relating to any Intellectual Property Rights, or any
confidentiality agreement or any other contract or restrictive covenant
relating to the Intellectual Property Rights or any Material IT Asset.
(x) No material IT Asset contains any third party source code governed
by an "open source" license (or similar license agreement) use of which
restricts free and unencumbered use of the IT Asset by the Company or would
oblige the Company to distribute source code for any IT Asset in the
conduct of the Company's business as it is currently conducted.
(xi) To the Knowledge of the Company, all works creations, inventions,
designs, developments, contributions or improvements made by any employee
or consultant of the Company, either alone or with third parties (including
all works of authorship, inventions, materials, documents, research,
reports, software, databases, systems, applications, presentations, textual
works, technology, content, or audiovisual materials), related to the
business of the Company, and all Intellectual Property Rights therein, are
owned by the Company.
5.7 ACCOUNTS RECEIVABLE.
The accounts receivable reflected on the 2005 Balance Sheet, and accounts
receivable arising after the date of the 2005 Balance Sheet (both subject to any
reserve set forth therein), are reflected on the books and records of the
Company and represent bona fide claims against debtors for sale and other
charges. The accounts receivable reflected on the 2005 Balance Sheet are stated
thereon in accordance with GAAP in all material respects. The Company has not
received written notice of any contest, claim or right of setoff with respect to
its accounts receivable, other than returns and discounts in the ordinary course
of business.
5.8 CONDITION AND SUFFICIENCY OF ASSETS.
The equipment and other material assets owned or used by the Company are in
good operating condition, normal wear and tear excepted, to the Company's
Knowledge, do not require any special or extraordinary expenditures to remain in
such condition beyond maintenance and repairs in the ordinary course of
business, consistent with past practice, constitute all of the assets, of any
nature whatsoever other than real estate, sufficient to operate the Company's
business in the manner operated by the Company in accordance with past
practices, and include all of the operating assets of the Company other than
real estate.
5.9 TAXES.
(a) The Company has filed or caused to be filed, on a timely basis, all
material Tax Returns that are or were required to be filed by or with respect to
it, pursuant to applicable Legal Requirements relating to its assets,
businesses, operations or otherwise. All Tax Returns filed by the Company are
true, correct and complete in all material respects. The Company has paid, or
made provision for the payment of, all Taxes that have become due pursuant to
those Tax
25
Returns or otherwise, or pursuant to any assessment received by the Company,
except such Taxes, if any, as are listed in Section 5.9 of the Disclosure
Schedule and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP applied in a manner consistent with the
Company's past practices) have been provided on the 2005 Balance Sheet.
(b) The charges, accruals and reserves with respect to Taxes on the books
of the Company are adequate (determined in accordance with GAAP applied in a
manner consistent with the Company's past practices), are at least equal to the
Company's known liability for Taxes and do not include any accrued Tax refunds
or deferred tax assets. There exists no proposed Tax assessment against the
Company. All Taxes that the Company is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.
(c) The Company has satisfied the requirements of Section 280G(b)(5) of the
IRC with respect to all payments (including, without limitation, any bonus
payments or success fees) that the Company has made or is or may be obligated to
make that would, when taken together or singly, otherwise constitute an excess
parachute payment within the meaning of Section 280G of the IRC, and the Company
has taken all other action, and the employees of the Company have taken all
other action, necessary to avoid the loss of any Tax deduction with respect to
any such payment.
5.10 NO MATERIAL ADVERSE CHANGE.
Since December 31, 2005 (the "Balance Sheet Date"), there has not been any
Material Adverse Change affecting the Company, nor has any event or series of
related events occurred that reasonably would be expected to result in a
Material Adverse Change.
5.11 EMPLOYEE BENEFITS.
A complete list of all Plans is set forth in Section 5.11 of the Disclosure
Schedule, and complete and correct copies of all written Plans, and amendments
thereto, accurate and complete written descriptions of each material unwritten
Plan, summary plan descriptions, Form 5500 Annual Reports for the past three
years, and all determination and exemption letters have been delivered to
Purchaser. Except as set forth in Section 5.11 of the Disclosure Schedule, (i)
neither the Company nor any entity which for any period would be considered a
single employer with the Company under Section 414 of the IRC ("Company's
Affiliates"), has ever contributed to, nor has ever been required to contribute
to, any multiemployer plan, as defined in Section 3(37) of ERISA ("Multiemployer
Plan") or any defined benefit plan as defined in Section 3(35) of ERISA
("Defined Benefit Plan"), nor has any actual or potential liability for any
termination of, or complete or partial withdrawal from a Multiemployer Plan or
Defined Benefit Plan; (ii) each of the Plans and any related trust is (and for
all prior periods has been) Tax qualified or otherwise has satisfied, in form
and operation, all requirements for any Tax-favored treatment intended for such
plan or trust or applicable to plans or trusts of its type, including, as
applicable, Sections 83, 105, 106, 125, 401(a), 401(k), 421, 422, and 501 of the
IRC and no reportable event (within the meaning of Section 4043 of ERISA) has
occurred with respect thereto; (iii) all of the Plans have been operated and
administered materially in compliance with their respective terms and all
26
Legal Requirements, and all contributions required by Legal Requirements or
contract to any such Plan have been timely made; (iv) the Company has, at all
times, complied, and currently complies, with the applicable continuation
requirements for its group health plans, including Section 4980B of the Code (
"COBRA") and similar state laws; (v) none of the Plans, except for a plan which
constitutes a pension plan under ERISA, provides benefits to Persons who are not
employees of the Company or their dependents or with respect to periods after
termination of employment (except as required by COBRA); (vi) the Company has
retained the right to unilaterally amend or terminate each Plan to the fullest
extent permitted by laws; (vii) there are no pending or, to the Knowledge of the
Company, threatened claims by or on behalf of any of the Plans by any employee
or beneficiary covered under any Plan (other than routine claims for benefits
against the Company), nor has any event occurred which could reasonably be
expected to give rise to any meritorious claim with respect to any Plan; (viii)
the Company has no liability of any nature (whether known or unknown, and
whether absolute, accrued) with respect to any Employee Benefit Plan, other than
for payment or benefits due in the ordinary course under the Plans, none of
which are overdue; (ix) the Company does not maintain any Plan under which it
would be obligated to pay benefits or under which any benefit would become
accelerated or vested because of the consummation of the transactions
contemplated by this Agreement; and (x) any Plan which is a "nonqualified
deferred compensation plan" within the meaning of Section 409A(d)(i) of Code has
been administered in compliance with the requirements of Section 409A of the
Code or has met the requirements for exemption therefrom.
5.12 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) the Company is in compliance with each Legal Requirement that is
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets, including, without limitation, applicable
regulations and standards promulgated by the U.S. Food and Drug Administration,
including those relating to good clinical practices; and
(b) the Company has not received any written notice from any Governmental
Body regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement.
(c) Section 5.12(c) of the Disclosure Schedule contains a complete and
accurate list of each material Governmental Authorization held by the Company
that relates to the operation of the business of, or to the ownership or use of
any of the assets owned or used by, the Company. Each Governmental Authorization
listed or required to be listed in Section 5.12(c) of the Disclosure Schedule is
valid and in full force and effect in all material respects. The Governmental
Authorizations listed in Section 5.12(c) of the Disclosure Schedule constitute
all of the Governmental Authorizations necessary to permit the Company to
conduct and operate its business in accordance with past practices and to permit
the Company to own and use its assets in the manner in which it currently owns
and uses such assets.
5.13 LITIGATION.
There are no actions, suits, arbitrations, proceedings, investigations or
claims of any kind whatsoever, at law or in equity, pending or, to the Knowledge
of the Company, threatened, by or
27
against the Company. The Company has not been named in any judgment, order or
decree of any court or other Governmental Body.
5.14 ABSENCE OF CERTAIN CHANGES AND EVENTS.
Since the Balance Sheet Date, the Company has conducted its business only
in the ordinary course of business and there has not been any:
(a) other than (i) in accordance the terms of that certain Stock Purchase
Agreement, executed prior to the Effective Time and dated on or about the date
hereof, between the Company and Xxxxx Xxxxxxxxx and (ii) in connection with the
exercise of the Company Options, change in the Company's authorized or issued
capital stock; split, combination or reclassification of the Company's capital
stock; grant, termination or cancellation of any stock option, stock
appreciation right or similar right or right to purchase shares of capital stock
of the Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Company's Organizational Documents;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any shareholder, director, officer, or employee, except in the
ordinary course of business, or, except as entered into pursuant to this
Agreement, entry into any employment, severance, or similar contract with any
director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any material asset or property of
the Company, whether or not covered by insurance;
(f) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any material asset or property of the
Company or mortgage, pledge, or imposition of any Encumbrance on any material
asset or property of the Company;
(g) acquisition (or agreement to acquire) by the Company of any other
Person or the assets or business operations of any Person by merger,
consolidation, purchase of stock or assets, or in any other manner;
(h) incurrence of any indebtedness for borrowed money by the Company,
except for lease obligations and trade payables incurred in the ordinary course
of business, the Audit Expense (which are to be assumed and paid by Purchaser as
provided under Section 7.2), and expenses incurred in connection with the
Contemplated Transactions;
28
(i) payment, discharge or satisfaction of any material Liability by the
Company, except for (i) the payment, discharge or satisfaction of Liabilities in
the ordinary course of business, or (ii) the payment of the Repaid Indebtedness
or the Transaction Expenses;
(j) making of any loans, advances or capital contributions to, or
investments in, any other Person;
(k) other than this Agreement, entry into any agreement or arrangement
prohibiting or restricting the Company from freely engaging in any business;
(l) waiver, release, grant or transfer by the Company of any rights of
material value, or modification or change in any material respect of any
existing Contract, Governmental Authorization or other document affecting the
Company, other than in the ordinary course of business;
(m) entry into any new Contract except in the ordinary course of business
or material modification or termination of any existing Contract by the Company
except in the ordinary course of business;
(n) settlement or compromise by the Company of any Proceeding (whether or
not commenced prior to the date of this Agreement);
(o) change in the accounting methods used by the Company from those
established in connection with the Company's 2005 audit; or
(p) agreement, whether oral or written, by the Company to do any of the
foregoing.
5.15 CONTRACTS.
Section 5.15 of the Disclosure Schedule, (i) lists all of the currently
effective written agreements or binding oral agreements (i) providing for annual
payments in excess of Five Thousand Dollars ($5,000) or (ii) which are necessary
to the operation of the business as currently conducted, to which the Company is
a party or by which any material assets of the Company are bound or subject,
including all amendments thereto (collectively, the "Contracts"), and (ii)
indicates what consents, approvals and notices are required for the Company to
transfer or assign, by operation of law or otherwise, the Contracts to the
Surviving Corporation. Correct and complete copies of each contract required to
be identified on Section 5.15 of the Disclosure Schedule, have been made
available to Purchaser. To the Company's Knowledge, all of the Contracts are in
full force and effect and are enforceable in accordance with their respective
terms. The Company has performed in all material respects all obligations
required to be performed by it pursuant to such Contracts, and there is no
existing or, to the Company's Knowledge, threatened default under, breach or
violation of any of such Contracts by any other party thereto.
5.16 INSURANCE.
(a) Section 5.16(a) of the Disclosure Schedule contains an accurate and
complete list of all insurance policies currently owned, held by or applicable
to the Company (or its assets or
29
business) since January 1, 2004. All such policies required to be disclosed in
Section 5.16(a) of the Disclosure Schedule are in full force and effect, all
premiums that are due and payable with respect thereto have been paid, and no
notice of cancellation or termination has been received with respect to such
policies. Such policies are valid, outstanding and enforceable policies and will
remain in effect after the Closing and the applicable limits under such policies
have not been exhausted.
(b) All policies to which the Company is a party or that provide coverage
to the Company, or any director or officer of the Company:
(i) are valid, outstanding, and enforceable;
(ii) are issued by an insurer that, to the Company's Knowledge, is
financially sound and reputable;
(iii) are in the amounts and of the types customarily carried by
Persons conducting business or owning assets similar to those of the
Company;
(iv) will continue in full force and effect following the consummation
of the Contemplated Transactions, subject to renewal requirements and
premium payments in the ordinary course of business; and
(v) do not provide for retrospective premium adjustments or other
experience-based Liability on the part of the Company.
5.17 ENVIRONMENTAL MATTERS.
(a) The Company is, and at all times has been, in material compliance with,
and has not been and is not in violation of or liable under, any Environmental
Law. The Company has not received any actual or threatened order, notice, or
other communication from any Governmental Body or other Person of any actual or
potential violation or failure to comply with any Environmental Law, or of any
actual or threatened obligation to undertake or bear the cost of any
Environmental Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company has
or had an interest, or with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by the Company, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or, to the Knowledge of the Company, threatened
claims, Encumbrances (other than Permitted Encumbrances) or other restrictions
of any nature resulting from any Environmental Liabilities with respect to or
affecting any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has or had an interest.
(c) The Company has no Knowledge of nor has received any citation,
directive, inquiry, notice, Order, summons, warning, or other communication from
a Governmental Body or other Person that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or
30
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which the Company had
or has an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred, imported,
used, or processed by the Company have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.
(d) There are no Hazardous Materials Released into the Environment at any
Facility or deposited or located in the land or water or any other part of the
Environment at any Facility. There has been no Release or, to the Knowledge of
the Company, Threat of Release of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used or
processed from or by any Facility, or from any other properties in which the
Company has or had an interest.
(e) The Company has delivered to Purchaser true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by the Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by the
Company with Environmental Laws.
5.18 LABOR RELATIONS.
The Company is not a party to any collective bargaining or other labor
contract and, to the Knowledge of the Company, there has been no effort by
employees of the Company to form a collective bargaining unit. There has not
been, and there is not presently pending or existing, and, to the Knowledge of
the Company, there is not threatened, (a) any strike, slowdown, picketing, work
stoppage or employee grievance process generally, (b) any Proceeding against or
affecting the Company relating to the alleged violation of the National Labor
Relations Act, or (c) any application for certification of a collective
bargaining agent. There is no lockout of any employees by the Company and no
such action is contemplated by the Company. The Company has complied in all
material respects with and is in material compliance with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
harassment, immigration, wages, hours, benefits, collective bargaining, the
payment of social security and similar Taxes, occupational health and safety,
and the Company is not liable for any arrears of wages or any Tax related
thereto (except for currently accrued and unpaid wages and any currently accrued
Taxes related thereto, payment of which is not overdue) or penalties for failure
to comply with any of the foregoing.
5.19 INTELLECTUAL PROPERTY.
(a) Section 5.19 of the Disclosure Schedule contains a complete and
accurate list of all of the Intellectual Property Rights owned by, used by, or
licensed to the Company that are either material to its business or that are
issued Patents, Patent applications, registered Trademarks or service marks,
Trademark or service xxxx applications, registered Copyrights, or Copyright
applications, except for Intellectual Property Rights of third parties inherent
in
31
standard non-customized Hardware products that are used internally by the
Company or purchased and resold by the Company.
(b) (i) The Company owns all right, title and interest in and to all of
the Intellectual Property Rights that it purports to own, free and clear of any
Encumbrances other than Permitted Encumbrances; (ii) as to any of the
Intellectual Property Rights owned by any third party and used by the Company in
the conduct of its business, the Company has all rights to use such Intellectual
Property Rights as are necessary to enable it to conduct all aspects of its
respective business as it is currently conducted; (iii) the issued Patents,
registered Copyrights, and registered Trademarks, among the Intellectual
Property Rights are current and in full force and effect, and not subject to any
Taxes, maintenance fees, or actions falling due in the next three (3) months;
(iv) there have been no interference actions, re-examinations, cancellation
proceedings, or other judicial, arbitration or other adversary proceedings with
respect to the issued Patents, registered Copyrights, or registered Trademarks,
or applications for any of the foregoing, among the Intellectual Property
Rights; (v) the Company has never received any notice of any claim asserting the
invalidity, misuse, or unenforceability of any of the Intellectual Property
Rights, and, to the Knowledge of the Company, there are no grounds for the same;
(vi) the Company has never received any notice of any claim asserting the
infringement of or conflict with the Patents, Copyrights, Trademarks, Trade
Secrets, or other asserted Intellectual Property rights of others, and, to the
Knowledge of the Company, there are no grounds for same; (vii) the conduct of
the business of the Company has not ever infringed, nor is currently infringing
upon any patents, copyrights, trademarks, trade secrets, or other asserted
intellectual property rights of others, and, to the Knowledge of the Company,
there are no grounds for same; (viii) to the Knowledge of the Company, no other
party has infringed, or been alleged to infringe, the Intellectual Property
Rights; (ix) none of the Intellectual Property Rights have been used, divulged
or appropriated for the benefit of any past or present employee of the Company
or any other Person, or to the detriment of the Company; (x) to the Knowledge of
the Company, the Company has not disposed of or permitted to lapse, or otherwise
failed to preserve its right to use, any of the Intellectual Property Rights
related to Material IT Assets; (xi) the Company has taken all commercially
reasonable precautions to protect the secrecy and value of its Trade Secrets;
and, except for obligations under the Contracts set forth in Section 5.15(a) of
the Disclosure Schedule, the Company has no obligation to indemnify or defend
any third party in connection with claims for intellectual property infringement
or misappropriation; (xii) each former employee and each current employee of the
Company described in Section 5.19(c) of the Disclosure Schedule has executed a
written contract prohibiting disclosure of Trade Secrets and assigning to the
Company all rights to any Inventions made or Intellectual Property Rights
inuring to such employee, during or derived from such employee's relationship
with the Company; (xiii) no government funding was utilized by the Company in
the development of its Intellectual Property Rights; and (xiv) the Company is in
compliance in all material respects with all licenses covering all third-party
software (whether proprietary or so-called "open source") used by the Company to
conduct its business, or necessary to enable the Company to conduct its
business, as it is currently conducted.
5.20 RELATED PARTY TRANSACTIONS.
No Shareholder and, to the knowledge of the Company, no Affiliate of any
Shareholder or of the Company currently has, or has had, any interest in any
property (whether real, personal,
32
or mixed and whether tangible or intangible), used in or pertaining to the
Company's business other than the License. To the knowledge of the Company, no
Shareholder and no Affiliate of any Shareholder or of the Company owns or has
owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person (other than the Company) that has (i)
had material business dealings or a material financial interest in any
transaction with the Company, or (ii) engaged in competition with the Company
with respect to any line of the products or services of the Company in any
market presently served by the Company except for less than five percent (5%) of
the outstanding capital stock of any competing business that is publicly traded
on any recognized exchange or in the over-the-counter market. No Shareholder has
received any payments or anything else of value from the Company other than
payments of salary and bonuses, stock options and reimbursements of travel and
entertainment expenses, all in the ordinary course of business consistent with
past practice.
5.21 BROKERS.
The Company has not incurred any obligation or Liability for brokerage or
finders' fees or agents' commissions or other similar payments in connection
with the Contemplated Transactions.
5.22 SUPPLIERS AND CUSTOMERS.
Section 5.22 of the Disclosure Schedule sets forth a list of the top five
(5) customers of the Company by dollar volume of sales for each of the fiscal
years ended December 31, 2004, and December 31, 2005. No customer which is
listed in Section 5.22 of the Disclosure Schedule, has in the last year
cancelled, materially modified, or otherwise terminated its relationship with
the Company or materially decreased its usage or purchase of the services or
products of the Company, nor to the Knowledge of the Company, has any such
customer indicated its intention to do any of the foregoing.
5.23 INDEBTEDNESS
Section 5.23 of the Disclosure Schedule sets forth all Company Indebtedness
and the pay-off amount of such Company Indebtedness as of the Closing Date. The
amount of the Company Indebtedness set forth in Section 5.23 of the Disclosure
Schedule is not materially and adversely different than the amount of the Repaid
Indebtedness.
5.24 DISCLOSURE.
No representation or warranty of the Company in this Agreement and no
statement contained on any schedule attached hereto provided by, or on behalf
of, the Company, omits to state a material fact necessary to make the statements
herein or therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub jointly and severally represent and warrant to the
Company and the Shareholders, except as follows:
6.1 ORGANIZATION AND GOOD STANDING.
33
Each of Purchaser and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and each
possesses the requisite corporate power and authority to conduct its business as
it is now being conducted and to own or use the properties which it purports to
own or use. Each of Purchaser and Merger Sub is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing, individually or in the aggregate, would not have a Material
Adverse Effect.
6.2 AUTHORITY; NO CONFLICT.
(a) This Agreement has been, and each other document, instrument or
agreement to be executed and delivered by Purchaser or Merger Sub in connection
herewith will upon such delivery be, duly executed and delivered by Purchaser
and Merger Sub and constitutes, or will upon such delivery constitute, the
legal, valid and binding obligation of Purchaser and Merger Sub, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights or by principles
of equity; provided, however, that the Certificate of Merger will not be
effective until filed with the Ohio Secretary of State and the Ohio Secretary of
State has issued a receipt acknowledging acceptance and approval of the
Certificate of Merger in response thereto and the Articles of Merger will not be
effective until the Articles of Merger have been filed with the Texas Secretary
of State and the Texas Secretary of State has issued a certificate of merger in
response thereto. Purchaser and Merger Sub have all necessary right, power,
authority, and capacity to execute and deliver this Agreement and to perform its
obligations hereunder.
(b) This Agreement and the Contemplated Transactions have been duly
authorized and approved by the Boards of Directors of Purchaser and Merger Sub
and shall have been duly authorized and approved prior to the Closing by the
shareholder of Merger Sub in accordance with all Legal Requirements.
(c) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any
provision of Purchaser's or Merger Sub's Organizational Documents;
(ii) conflict with any material Legal Requirements, or give any
Governmental Body or other Person the right to exercise any remedy or
obtain any relief under any Legal Requirement or any Order to which
Purchaser or Merger Sub or any of their assets may be subject;
(iii) violate or conflict with any of the terms or requirements of,
any material Governmental Authorization that is held by Purchaser or Merger
Sub or that otherwise relates to the business of, or any of the assets
owned or used by, the Company;
34
(iv) conflict with any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify, any material
contract to which Purchaser or Merger Sub is a party; or
(v) result in the imposition or creation of any material Encumbrance
upon or with respect to any of the material assets owned or used by
Purchaser or Merger Sub.
6.3 GOVERNMENTAL AUTHORIZATION.
The execution, delivery, and performance by Purchaser and Merger Sub of
this Agreement and the consummation by Purchaser and Merger Sub of the
Contemplated Transactions requires no action by or in respect of, or filing
with, any Governmental Body, other than (a) the filing of (i) the Articles of
Merger in accordance with the OGCL and the TBCA, respectively, and (ii)
appropriate documents with the relevant authorities of other states or
jurisdictions in which Purchaser or Merger Sub is qualified to do business; (b)
compliance with any applicable requirements of the Act and the Exchange Act; (c)
such as may be required under any applicable state securities or blue sky laws;
and (d) such other consents, approvals, actions, orders, authorizations,
registrations, declarations, and filings which, if not obtained or made, would
not, individually or in the aggregate, (x) have a Material Adverse Effect or (y)
prevent or materially impair the ability of the Company, Purchaser or Merger Sub
to consummate the Contemplated Transactions.
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6.4 CAPITALIZATION.
(a) Capitalization of Purchaser.
The authorized capital stock of the Purchaser consists of (a) 25,000,000
common shares, without par value, of which 10,314,796 shares were issued and
outstanding as of January 31, 2006, and (b) 1,000,000 Serial Preferred Shares,
without par value, of which no shares are issued or outstanding. In addition, as
of January 31, 2006, warrants to purchase One Hundred Sixty Thousand Three
Hundred Thirty Seven (160,337) of Purchaser's common shares and options to
purchase One Million Six Hundred Seventeen Thousand Seven Hundred Fifty-Five
(1,617,755) of Purchaser's common shares were outstanding. The rights and
privileges of each class of the Purchaser's capital stock are set forth in the
Purchaser's Articles of Incorporation. All of the issued and outstanding shares
of Purchaser common stock have been duly authorized and validly issued and are
fully paid and nonassessable and have not been issued in violation of or are not
otherwise subject to preemptive or similar rights. All of the warrants and stock
options set forth in this Section 6.4 have been duly authorized, and were
delivered in compliance with all applicable federal and state securities laws
and any preemptive rights or rights of first refusal of any Person. All of the
Purchaser Shares to be issued in connection with the Merger will be, when issued
on the terms and conditions of this Agreement, duly authorized, validly issued,
fully paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Purchaser's
Organizational Documents or any agreement to which the Purchaser is a party or
is otherwise bound.
Except for the aforementioned stock options and warrants and Purchaser's
Rights Plan: there are no (i) outstanding rights to acquire Purchaser Shares or
any other securities from Purchaser, or (ii) agreements, arrangements or
commitments of any character obligating Purchaser to issue or sell any shares
of, or other equity interests in, Purchaser
(b) Capitalization of Merger Sub.
As of the date of this Agreement, the authorized capital stock of Merger
Sub consists solely of 1,500 shares of common stock, without par value, of which
100 shares are outstanding and owned by Purchaser, all of which have been duly
authorized, are validly issued and are fully paid and non-assessable, and free
of any preemptive rights in respect thereof. Purchaser is the only shareholder
of Merger Sub.
There are no (i) outstanding no options, warrants or other rights to
acquire shares of Merger Sub's common stock, without par value, or any other
securities from Merger Sub, or (ii) agreements, arrangements or commitments of
any character obligating Merger Sub to issue or sell any shares of, or other
equity interests in, Merger Sub.
(c) Issuance of Purchaser Shares and Notes.
Subject to the accuracy of each of the Cash and Securities Recipients
representations and warranties in Section 4.2 hereof, the Notes and the
Purchaser Shares, when issued in accordance with the terms of this Agreement
constitute transactions exempt from the registration
36
requirements of Section 5 of the Securities Act and from the registration or
qualification requirements of the laws of any applicable state.
6.5 SECURITIES AND EXCHANGE COMMISSION FILINGS AND FINANCIAL STATEMENTS.
Purchaser has filed on a timely basis (and has previously furnished or made
available to the Company complete and accurate copies, as amended or
supplemented of all documents required to be filed by Purchaser with the SEC
under the Exchange Act of 1934, as amended (the "Exchange Act") from December
31, 2004 through the date of this Agreement (the "SEC Reports"). As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder when
filed. As of their respective dates, the SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of Purchaser included in
the SEC Reports (i) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto when filed, (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), and
(iii) fairly present the consolidated financial condition, results of operations
and cash flows of Purchaser as of the respective dates thereof and for the
periods referred to therein.
Purchaser has timely filed all certifications and statements required by
(i) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (ii) 18 U.S.C. Section
1350 (Section 906 of Xxxxxxxx-Xxxxx) with respect to any SEC Report, and all
such certifications were each true and correct when made. Purchaser has also
delivered to the Company all comment letters received by Parent from the SEC
since January 1, 2005 and all responses to such comment letters by or behalf of
Purchaser. Purchaser maintains disclosure controls and procedures as required by
Rule 13a-15 or Rule 15d-15 under the Exchange Act, and such controls and
procedures are effective to ensure that all material information concerning
Purchaser and its subsidiaries is made known on a timely basis to the
individuals responsible for the preparation of the SEC Reports. As of the date
hereof, Purchaser is not conducting or required to conduct any investigation as
a result of any such report that, to Purchaser's knowledge, is reasonably likely
to cause or give rise to any restatement or revision of prior financial
statements or have a Material Adverse Effect on Purchaser's past or future
reported results of operation or financial position.
Since its effective date, Purchaser and its directors and officers have
been in material compliance with the applicable requirements of the Sarbanes
Oxley Act of 2002, as amended, and the rules and regulations promulgated in
connection therewith, including Section 404 related to internal control over
financial reporting and Sections 302 and 906 related to certifications.
Purchaser is in compliance with the applicable listing rules of the Nasdaq
SmallCap Market and has not received any notice from the Nasdaq SmallCap Market
asserting any non-compliance with such rule which has not been resolved prior to
the date of this Agreement.
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6.6 NO MATERIAL ADVERSE CHANGE.
Since December 31, 2005, there has not been any Material Adverse Change
affecting Purchaser, nor has any event or series of related events occurred that
reasonably would be expected to result in a Material Adverse Change.
6.7 OPERATIONS OF MERGER SUB.
Merger Sub was formed solely for the purpose of engaging in the
Contemplated Transactions. Merger Sub has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
6.8 AVAILABLE FUNDS.
Purchaser has readily available funds to provide the Cash Consideration.
6.9 LITIGATION.
Except as included in the SEC Reports, there are no actions, suits,
arbitrations, proceedings, investigations or claims of any kind whatsoever, at
law or in equity, pending or, to the knowledge of Purchaser, threatened, by or
against Purchaser or Merger Sub that reasonably would be expected to have a
Material Adverse Effect on Purchaser.
6.10 BROKERS.
Other than the fee payable in connection with the delivery of the fairness
opinion of JMP Securities, neither Purchaser nor Merger Sub has incurred any
obligation or Liability for brokerage or finders' fees or agents' commissions or
other similar payment in connection with this Agreement.
6.11 COMPLIANCE WITH LAWS.
Purchaser has conducted and is conducting its business in compliance with
all Legal Requirements, except where the failure to do so would not, singly or
in the aggregate, have a Material Adverse Effect on Purchaser.
6.12 DISCLOSURE.
No representation or warranty of Purchaser or Merger Sub in this Agreement
and no statement contained in any schedule provided by Purchaser or Merger Sub
attached hereto, omits to state a material fact necessary to make the statements
herein or therein not misleading.
7. CERTAIN COVENANTS
7.1 PUBLICITY.
All public announcements relating to this Agreement or the Contemplated
Transactions will be made only as may be agreed upon by the Company and
Purchaser or as required by applicable law or by the rules of the Nasdaq
SmallCap Market.
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7.2 EXPENSES.
Each of the Company, Purchaser and Merger Sub shall pay its costs and
expenses associated with the Contemplated Transactions, including without
limitation the fees and expenses of its legal counsel (which in the case of the
Company will be deducted from the Merger Consideration), certified public
accountants, and other financial advisors. Notwithstanding anything contained
herein to the contrary, the Purchaser shall pay all costs and expenses
associated with the preparation of the Audited Financial Statements (the "Audit
Expense") and will pay on behalf of the Company the Transaction Expenses within
ten (10) days of Closing (after deduction from the Merger Consideration as
provided in Section 2.7).
7.3 ASSIGNMENT, SUCCESSORS, AND NO THIRD PARTY RIGHTS.
No Party may assign any of its rights under this Agreement without the
prior consent of the other Parties, which will not be unreasonably withheld,
except that Purchaser may assign any of its rights (but not its obligations)
under this Agreement to any Affiliate of Purchaser, to any lender of Purchaser
and to any successor to substantially all of the business of Purchaser. Subject
to the preceding sentence, this Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted assigns
of the Parties. Except as provided in Sections 7.4 and 7.6, nothing expressed or
referred to in this Agreement will be construed to give any Person other than
the Parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the Parties and their respective successors and permitted
assigns.
7.4 XXXXX OFFICE.
Purchaser shall cause the Surviving Corporation to maintain an office in
Bryan, Texas for a period of at least three (3) years from the Closing Date. The
Shareholder Representative shall have the authority to enforce this covenant
following the Closing. In the event of a breach or threatened breach of this
Section 7.4, the Parties acknowledge that monetary damages would be inadequate
and insufficient. Therefore, in addition to any other remedies available at law
or in equity, the Shareholder Representative shall be entitled to injunctive
relief in a court of competent jurisdiction in the State of Texas
(notwithstanding any venue provision in this Agreement) to remedy any such
breach or threatened breach.
7.5 EMPLOYMENT OF EMPLOYEES.
Purchaser shall hire all current employees of the Company who execute an
Offer Letter (the "Hired Employees"). Purchaser shall provide the Hired
Employees with employee benefits and programs substantially similar to those
currently provided to similarly situated employees of the Purchaser and in each
case shall (i) cause Hired Employees to be credited with service with the
Company for purposes of eligibility and vesting (but not benefit accrual) under
any employee benefit plan or program established or maintained by Purchaser for
the benefit of the Hired Employees (the "Purchaser Plans"), (ii) cause its group
health plans to waive any pre-existing condition exclusions (but only to the
extent such exclusion would be waived under applicable health and welfare plans
offered to the Hired Employees by the Company and to the extent such
39
plans' health insurance issuers are required pursuant to any Legal Requirement
or the current terms of any Purchaser Plan to grant such waivers) in respect of
Hired Employees (and their beneficiaries and dependants), and (iii) grant full
credit to Hired Employees for accrued but unused vacation in accordance with the
policies of Purchaser. No provision of this Agreement shall be construed to
prohibit Purchaser from having the right to terminate the employment of any
Hired Employee, with or without cause (subject to the terms and conditions of
the Employment Agreements). The Company shall terminate effective as of the
Effective Time all employment agreements it has with any of the Hired Employees
(excluding any intellectual property ownership and/or assignment agreements,
non-competition agreements or confidentiality agreements). With the exception of
the preceding sentence, for the purposes of this Section 7.5, Hired Employees
shall not include any employees who have executed Employment Agreements and
whose rights will be governed by such agreements.
7.6 DIRECTOR AND OFFICER INDEMNIFICATION.
Purchaser agrees that after the Effective Time, it shall cause the
Surviving Corporation to indemnify and hold harmless the present and former
officers and directors of the Company (each a "Company D&O Indemnitee") for acts
or omissions by them in their capacity as an officer or director of the Company
occurring prior to the Effective Time to the extent provided under, in each case
as in effect as of the date of this Agreement, (i) written agreements with such
individuals, copies of which have been provided to Purchaser and which also
contain a D&O Indemnity Cap (as defined herein below), and (ii) the Company's
Articles of Incorporation and Bylaws; provided, however, in the event that the
Surviving Corporation is required to indemnify any Company D&O Indemnitee
pursuant to this section as a result of and to the extent that such matter
constitutes a claim for which Purchaser or the Surviving Corporation is entitled
to indemnification for Damages pursuant to Section 8.2(b)(iii) below, then the
Surviving Corporation's actual out-of-pocket cost of the indemnification so
provided shall be Damages for which Purchaser or the Surviving Corporation shall
be entitled to indemnification under Section 8.2(b)(iii). Notwithstanding
anything contained herein to the contrary, the Surviving Corporation shall only
be obligated to indemnify any Company D&O Indemnitee, pursuant to this section,
as a result of and to the extent that such matter constitutes a claim for which
Purchaser or the Surviving Corporation is entitled to indemnification for
Damages pursuant to Section 8.2(b)(iii) below, up to a maximum of Two Hundred
Thousand Dollars ($200,000) (the "D&O Indemnity Cap"). MR. XXX XXX XXXX, IN HIS
INDIVIDUAL CAPACITY, HEREBY WAIVES ANY AND ALL RIGHTS TO INDEMNIFICATION,
WHETHER PURSUANT TO THE TERMS OF THIS SECTION 7.6, OR UNDER THE COMPANY'S
ARTICLES OF INCORPORATION AND BYLAWS, OR AS PROVIDED FOR IN HIS WRITTEN
INDEMNITY AGREEMENT OR OTHERWISE, FOR MATTERS WHICH CONSTITUTE A CLAIM FOR WHICH
PURCHASER OR THE SURVIVING CORPORATION IS ENTITLED TO INDEMNIFICATION FOR
DAMAGES PURSUANT TO SECTION 8.2(B)(III) FOR AMOUNTS IN EXCESS OF THE D&O
INDEMNITY CAP. Notwithstanding anything contained herein to the contrary, the
Surviving Corporation shall not indemnify any Company D&O Indemnitee for any
indemnification obligation of such Company D&O Indemnitee pursuant to the terms
of this Agreement (A) for Damages incurred by such Company D&O Indemnitee as a
result of their indemnification obligations as a Shareholder pursuant to Section
8 with respect to breaches of any representation or warranty contained in
Section 5 or any covenant of the Company contained herein or (B) breaches of any
representation or warranty contained in Section 4 made by such Company D&O
Indemnitee in
40
their capacity as a Shareholder. The Company D&O Indemnitees shall be third
party beneficiaries for the purposes of enforcing this Section 7.6.
7.7 TAX MATTERS.
Purchaser, Merger Sub and the Company each shall use its reasonable best
efforts to cause the Merger to qualify as a "reorganization" within the meaning
of Section 368(a) of the IRC. Purchaser, Merger Sub and the Company agree to
file all Tax Returns consistent with the treatment of the merger as a
"reorganization" within the meaning of Section 368(a) of the IRC. This Agreement
is intended to constitute a "plan of reorganization" within the meaning of
Treasury Regulation Section 1.368-2(g).
7.8 BLUE SKY LAWS.
Purchaser shall take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of the Purchaser common stock in connection with the Merger.
7.9 REPAID INDEBTEDNESS.
All Repaid Indebtedness, for which any officer of the Company has provided
a personal guarantee, shall be paid in full by Purchaser or the Surviving
Corporation within ten (10) days of Closing, and each such guarantor shall be
provided with evidence of the full and final release and discharge of any
obligations with respect to any such Repaid Indebtedness. Each such guarantor
shall be entitled to enforce this Section 7.9 as a third party beneficiary, and
Purchaser and Surviving Corporation severally agree to indemnify each such
person with respect to any cost, damage or loss suffered or incurred as a result
of any breach hereof.
8. INDEMNIFICATION; REMEDIES
8.1 SURVIVAL.
Subject to the limitations set forth in Sections 8.4 and 8.5, all
representations, warranties, covenants and obligations of the Parties contained
in this Agreement or contained in any other agreement, certificate or other
document delivered in connection with this Agreement, will survive the Closing
and will remain in full force and effect thereafter, regardless of any
investigation made at any time by any Party.
8.2 INDEMNIFICATION BY SHAREHOLDERS.
(a) Indemnification by Shareholders.
Subject to the limitations set forth in Section 8.5(a) below, each
Shareholder, severally, shall indemnify and hold harmless Purchaser and the
Surviving Corporation and the respective shareholders, directors, employees and
agents of Purchaser and the Surviving Corporation and their respective
Affiliates (collectively, the "Purchaser Indemnified Persons") with respect to,
and shall pay to the Purchaser Indemnified Persons the amount of, any actual
Liability, loss, claim, damage and expense (including reasonable costs of
reasonable investigation and defense
41
and reasonable out of pocket attorneys' fees), whether or not involving a third
party claim that are incurred, suffered or paid by the Purchaser Indemnified
Persons (collectively, "Damages"), arising from or relating to any Breach of any
representation or warranty made by such Shareholder in Section 4 of this
Agreement or any other agreement, certificate or other document delivered by or
on behalf of such Shareholder or in connection with this Agreement or the
Contemplated Transactions.
(b) Indemnification by Indemnifying Shareholders.
Subject to the limitations set forth in Section 8.5(b) below, each
Shareholder listed on Schedule 8.2(b) attached hereto (the "Indemnifying
Shareholders") severally in accordance with the respective percentages set forth
on such schedule (the "Indemnification Percentage"), shall indemnify and hold
harmless the Purchaser Indemnified Persons with respect to, and shall pay to the
Purchaser Indemnified Persons the amount of any Damages arising from or relating
to any of the following:
(i) any Breach of any representation or warranty made by the Company
in this Agreement or any other agreement, certificate or document delivered
by the Company in connection with this Agreement or the Contemplated
Transactions;
(ii) any Breach by the Company of any covenant, obligation or
agreement of the Company in this Agreement or in any other agreement,
certificate or other document delivered by the Company in connection with
this Agreement or the Contemplated Transactions; or
(iii) any claim by any current or former shareholder of the Company
relating to (A) the amount or allocation of the Merger Consideration; (B)
any issuances, redemptions, repurchases, transfers, exercise, cancellation
or surrender of any Company Shares, Company Options or other equity
securities (including stock options and warrants) of the Company at any
time prior to the Effective Time by the Company or by any current or former
shareholder of the Company; or (C) acts or omissions by any Company D&O
Indemnitee in connection with the negotiation, authorization or approval of
this Agreement, or the Contemplated Transactions, regardless of any
disclosure of any such claim or matter.
The Indemnification Percentage for each Indemnifying Shareholder shall be
calculated as follows: (x) the Merger Consideration received by such
Indemnifying Shareholder; divided by (y) the aggregate Merger Consideration
Received by all Indemnifying Shareholders, and set forth on Schedule 8.2(b).
Notwithstanding anything else contained herein to the contrary, the
Indemnification Percentage applicable to any claim or portion of a claim for
indemnification made pursuant to this Section 8.2 that arises after any
Indemnifying Shareholder has actually paid claims, which in the aggregate exceed
such Indemnifying Shareholder's maximum indemnification liability under the
terms of this Agreement shall be adjusted such that the indemnification
obligations of such Indemnifying Shareholder shall be re-allocated pro rata
among the remaining Indemnifying Shareholders in proportion to their relative
Merger Consideration.
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8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY PURCHASER.
Subject to the limitations set forth in Section 8.7 below, Purchaser shall
indemnify and hold harmless Shareholders, and shall pay to Shareholders the
amount of, any Damages arising from or relating to any of the following:
(a) any Breach of any representation or warranty made by Purchaser or
Merger Sub in this Agreement or in any other agreement, certificate or other
document delivered by or on behalf of Purchaser or Merger Sub in connection with
this Agreement; and
(b) any Breach by Purchaser of any covenant, obligation or agreement of
Purchaser or Merger Sub in this Agreement or in any other agreement, certificate
or other document delivered by or on behalf of Purchaser or Merger Sub in
connection with this Agreement.
8.4 TIME LIMITATIONS.
Except in the case of fraud, any claim for indemnification by any Purchaser
Indemnified Person pursuant to Sections 8.2(a) and 8.2(b)(i) must be made no
later than the date which is eighteen (18) months after the Closing Date, except
that: (i) there shall be no limits on the time for making a claim for
indemnification relating to the representations and warranties contained in
Sections 4 (except Section 4.1(e)), 5.1, 5.2, or 5.3; (ii) a claim for
indemnification relating to the representations and warranties contained in
Sections 4.1(e), 5.9, 5.11, or 5.21 may be made until the expiration of the
applicable statute of limitations; and (iii) a claim for indemnification
relating to the representations and warranties contained in Sections 5.6(b) and
5.19 may be made until the date which is five (5) years after the Closing Date,
regardless of any applicable statutes of limitations. Except in the case of
fraud, any claim for indemnification by any Shareholder pursuant to paragraph
(a) of Section 8.3 must be made by the date which is eighteen (18) months after
the Closing Date, except that there shall be no limit on the time for making a
claim for indemnification relating to the representations and warranties
contained in Sections 6.1 or 6.2.
8.5 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS OF SHAREHOLDERS.
(a) Limitations on Indemnification Obligations of Shareholders.
No Shareholder shall be responsible for any indemnification obligations
pursuant to Section 8.2(a) in excess of the Actual Proceeds Received by such
Shareholder. Actual Proceeds Received by any Shareholder means an amount equal
to: (i) either (A) the then Fair Market Value of the Purchaser Shares held by
the Shareholder or (B) the proceeds received by such Shareholder upon the sale
of their respective Purchaser Shares; plus (ii) the amount of principal and
interest paid, or, in the case of unpaid principal and accrued interest, payable
on the Notes; plus (iii) the aggregate amount of Cash Consideration actually
received by such Shareholder.
(b) Limitations on Indemnification Obligations of Indemnifying
Shareholders.
(i) Subject to the further limitations contained in Section 8.5(b)(ii)
below, the Indemnifying Shareholders will have no liability under Section
8.2(b)(i) until the total of all Damages relating to such claims for
indemnity exceeds Fifty Thousand Dollars ($50,000) in the aggregate (the
"Indemnification Threshold"), but then the Indemnifying
43
Shareholders shall be liable for all amounts from the first dollar;
provided, however, that: (A) no individual claim for Damages less than Two
Thousand Five Hundred Dollars ($2,500) shall be considered indemnifiable
Damages and therefore shall not be taken into account in determining
whether such Indemnification Threshold has been met; and (B) the
Indemnification Threshold shall not apply to any Breaches of
representations and warranties contained in Sections 5.1, 5.2, 5.3, 5.6(b),
5.9, 5.11 and 5.19., and further provided that
(ii) The Indemnifying Shareholders will have no liability under
Section 8.2(b)(i) for Breaches of representations and warranties contained
in Sections 5.6(b) and 5.19 until the total of all Damages relating to such
claims for indemnity exceeds Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate, but then the Indemnifying Shareholders shall be liable
for all amounts from the first dollar; provided, however, that no
individual claim for Damages less than Two Thousand Five Hundred Dollars
($2,500) shall be considered Indemnifiable Damages and therefore shall not
be taken into account in determining whether such Indemnification Threshold
has been met.
(iii) Except for claims for indemnification for Breaches of
representations and warranties contained in Sections 4, 5.1, 5.2, 5.3,
5.6(b) and 5.19, in the case of fraud, or for claims made pursuant to
Section 8.2(b)(iii), the maximum indemnification amount to which Purchaser
Indemnified Persons may be entitled under this Agreement shall be the
greater of (A) the unpaid principal amount (including all accrued but
unpaid interest thereon) of the Notes or (B) Three Million Dollars
($3,000,000) (the "Indemnification Cap"). Notwithstanding anything else
contained herein to the contrary, for Breaches of representations and
warranties contained in Sections 5.6(b) and 5.19 the Indemnification Cap
shall be Six Million Dollars ($6,000,000) (the "Intellectual Property
Cap"), which is inclusive of, and not in addition to, the Indemnification
Cap. On the date which is three (3) years after the Closing Date, the
Intellectual Property Cap shall be reduced to Three Million Dollars
($3,000,000). Notwithstanding anything else contained herein to the
contrary, for Breaches of representations and warranties contained in 5.1,
5.2, and 5.3 and for claims made pursuant to Section 8.2(b)(iii), the
Indemnification Cap shall be an amount equal to the Merger Consideration.
(iv) No Indemnifying Shareholder shall be responsible for any
indemnification obligations pursuant to Section 8.2(b)(i) in excess of the
Actual Proceeds Received by such Indemnifying Shareholder, except in the
case of fraud, in which case the Indemnifying Shareholder shall be liable
for the Merger Consideration received by such Indemnifying Shareholder.
(c) Damages shall be without duplication (e.g., if Purchaser is reimbursed
for Damages by insurance or by another responsible party, Purchaser would not be
reimbursed for the same Damages as suffered by Purchaser and could only be
indemnified for additional incremental Damages).
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8.6 RIGHT OF OFFSET AS FIRST SOURCE OF PAYMENT.
Upon compliance with the provisions of Sections 8.9 or 8.10 hereof, as the
case may be, any claims for indemnification against an Indemnifying Shareholder
payable to any Purchaser Indemnified Person shall first be offset on a pro-rata
basis against the Notes until the total amount of the Notes has been
extinguished in accordance with the provisions of the Notes. Except as set forth
in Section 8.5 above, nothing in this Section 8.6 shall limit the right of any
Purchaser Indemnified Person to recover for Damages pursuant to the terms of
this Section 8 in excess of the total aggregate amount of the Notes.
8.7 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS OF PURCHASER.
(a) Purchaser will have no liability under Section 8.3 until the total of
all Damages relating to such claims for indemnity exceeds the Indemnification
Threshold, but then Purchaser shall be liable for all amounts from the first
dollar; provided, however, that the Indemnification Threshold shall not apply to
any Breaches of representations and warranties contained in Sections 6.1 and
6.2.
(b) Except for claims for indemnification for Breaches of representations
and warranties contained in Sections 6.1 and 6.2 or in the case of fraud, the
maximum indemnification amount to which the Shareholders may be entitled under
this Agreement shall be the Indemnification Cap.
8.8 SHAREHOLDER REPRESENTATIVE.
(a) In the event the Merger is approved by the Shareholders, effective upon
such vote, and without any further action of any Shareholder, Xxx Xxx Xxxx is
constituted and appointed as Shareholder Representative for and on behalf of
each Shareholder. Shareholder Representative shall be authorized on behalf of
any Indemnifying Shareholder to give and receive notices and communications, to
agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all actions necessary or appropriate in the
judgment of Shareholder Representative for the accomplishment of the foregoing,
in each case without having to seek or obtain the consent of any person under
any circumstance. Shareholder Representative may resign at any time, and such
agency may be changed by approval of the holders of a majority-in-interest of
the Company Shares immediately prior to the Effective Time. No bond shall be
required of Shareholder Representative, and Shareholder Representative shall not
receive compensation for his or her services. Notice or communications to or
from Shareholder Representative pursuant to Section 9.1 of this Agreement shall
constitute notice to or from each of the Indemnifying Shareholders.
(b) A decision, act, consent or instruction of Shareholder Representative
shall constitute a decision of all Indemnifying Shareholders and shall be final,
binding and conclusive upon each such Indemnifying Shareholder, and Purchaser
may rely upon any decision, act, consent or instruction of Shareholder
Representative as being the decision, act, consent or instruction of each and
every such Indemnifying Shareholder. Purchaser is hereby relieved from
45
any liability to any person for any acts done by it in accordance with such
decision, act, consent or instruction of Shareholder Representative.
(c) Shareholder Representative has only the duties expressly stated in this
Agreement and shall have no other duty, express or implied. Shareholder
Representative is not, nor shall be deemed, a fiduciary of the Indemnifying
Shareholders in any capacity or for any purpose. Shareholder Representative
shall have no responsibility or liability for any representation, warranty or
covenant of the Company, Purchaser or Merger Sub except, if applicable, solely
in his or her capacity as an Indemnifying Shareholder. Shareholder
Representative shall not be liable to any Indemnifying Shareholder for any act
done or omitted hereunder as representative of the Indemnifying Shareholders
while acting in good faith even though such act or omission constitutes, or may
constitute, negligence or gross negligence on the part of such Shareholder
Representative. Shareholder Representative shall, in no case or event, be liable
to any Indemnifying Shareholder for punitive, incidental or consequential
damages. Without limiting the generality of the foregoing, the Shareholder
Representative shall not be liable for forgeries or false impersonations by
other parties. Shareholder Representative may engage attorneys, accountants and
other professionals and experts. Shareholder Representative shall not receive
any compensation for his services in such capacity; provided, however, that
Shareholder Representative shall be entitled to reimbursement from the
Indemnifying Shareholders for his reasonable out-of-pocket expenses, including
reasonable attorney's fees, incurred in performing his duties and functions. At
the request of Shareholder Representative, such amounts shall be paid by the
Purchaser, up to a maximum of Fifty Thousand Dollars ($50,000), on behalf of the
Indemnifying Shareholders and immediately deducted, on a pro-rata basis, from
the principal amount of Notes. Notwithstanding anything contained in the
immediately preceding sentence, any amounts owed by Purchaser to Shareholder
Representative for his reasonable out-of-pocket expenses, including reasonable
attorney's fees, incurred in performing his duties and functions shall be
subordinated to Purchaser's right of set off pursuant to the terms of Section
8.6 hereof. Shareholder Representative may in good faith rely conclusively on
information, reports, statements, opinions, including financial statements,
about the Company or another person, that were prepared or presented by (i) one
or more officers or employees of the Company, or (ii) legal counsel, public
accountants, investment bankers or other persons as to matters Shareholder
Representative believes in good faith are within the person's knowledge,
professional or expert competence. Any action taken by Shareholder
Representative based on such reliance shall be deemed conclusively to have been
taken in good faith and in full satisfaction of such Shareholder
Representative's duties. The Indemnifying Shareholders shall indemnify
Shareholder Representative and hold Shareholder Representative harmless from and
against any loss, liability or expense incurred without bad faith on the part of
Shareholder Representative and arising out of or in connection with the
acceptance or administration of Shareholder Representative's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by
Shareholder Representative.
(d) Shareholder Representative shall have reasonable access to information
about the Company, Purchaser and the Surviving Corporation and the reasonable
assistance of the Company's, Purchaser's or the Surviving Corporation's officers
and employees for purposes of performing his duties and exercising his rights
hereunder, provided, however, that Shareholder Representative shall treat
confidentially and not disclose any nonpublic information from or
46
about the Company, Purchaser or the Surviving Corporation to anyone (except on a
need-to-know basis to individuals who agree to treat such information
confidentially).
(e) The parties acknowledge and agree that, notwithstanding the fact that
Xxxxxxx Xxxxx LLP acted as special counsel to the Company (which effective as of
the Closing shall be wholly owned by Purchaser in the form of the Surviving
Corporation) in connection with the transactions contemplated by this Agreement,
Xxxxxxx Xxxxx LLP shall, if so requested, be permitted to represent the
Shareholder Representative, the Shareholders and /or the Indemnifying
Shareholders, and their respective heirs, executors, administrators, affiliates,
successors and assigns, in connection with any and all matters, negotiations
and/or disputes which may arise out of or in connection with this Agreement or
the Contemplated Transactions.
8.9 PROCEDURE FOR INDEMNIFICATION - THIRD-PARTY CLAIMS.
(a) Any party seeking information or reimbursement for Damages hereunder
(the "Indemnified Party") shall as promptly as practical notify the party from
which such indemnification is sought (the "Indemnifying Party") upon which the
Indemnified Party intends to base a claim for indemnification or reimbursement
hereunder; provided, however, that if the Indemnified Party is seeking
information or reimbursement for Damages hereunder from the Indemnifying
Shareholders collectively, the Indemnified Party shall as promptly as practical
so notify the Shareholder Representative (in such capacity, the "Indemnifying
Party Representative"). The failure of an Indemnified Party so to notify the
Indemnifying Party (or Indemnifying Party Representative, as applicable) shall
not relieve the Indemnifying Party from any liability under this Agreement to
the Indemnified Party with respect to such claim except to the extent the
Indemnifying Party is actually prejudiced or damaged by the failure to receive
timely notice.
(b) The Indemnifying Party or the Indemnifying Party Representative, as
applicable, shall have the right, at its option and expense, to participate in
the defense of such a proceeding or claim, but not to control the defense,
negotiation or settlement thereof, which control shall at all times rest with
the Indemnified Party, unless the proceeding or claim involves only money
damages (not an injunction or other equitable relief) and the Indemnifying Party
or Indemnifying Party Representative, as applicable, (a) irrevocably
acknowledges in writing full responsibility for and agrees to fully indemnify
the Indemnified Party, and (b) furnishes satisfactory evidence of its financial
ability to indemnify the Indemnified Party, in which case Indemnifying Party or
Indemnifying Party Representative, as applicable, may assume such control
through counsel of its choice and at its expense; however, the Indemnified Party
shall continue to have the right to be represented, at its own expense, by
counsel of its choice in connection with the defense of such a proceeding or
claim. If the Indemnifying Party or Indemnifying Party Representative, as
applicable, does not acknowledge and accept responsibility for and assume
control of the defense of such proceeding or claim, then the entire defense of
the proceeding or claim, and any settlement made by the Indemnified Party and
any judgment entered in the proceeding or claim, shall be deemed to have been
consented to by, and shall be binding on, the Indemnifying Party, except that
the right of the Indemnifying Party to contest its indemnification obligation
under Section 8.2 or 8.3 of this Agreement, as the case may be, shall not be
extinguished. If the Indemnifying Party or Indemnifying Party Representative, as
applicable, does assume control of the defense of such a proceeding or claim, it
will not, without the prior written consent of the
47
Indemnified Party, settle the proceeding or claim or consent to entry of any
judgment relating thereto which does not include as an unconditional term
thereof the giving by the claimant to the Indemnified Party a release from all
liability in respect of the proceeding or claim. The parties hereto agree to
cooperate fully with each other in connection with the defense, negotiation or
settlement of any such proceeding or claim.
8.10 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS.
(a) Claim Procedure. Claims for Damages under Sections 8.2(b)(i) and
8.2(b)(ii) shall me made on or prior to the tenth (10th) business day after the
termination of the applicable survival date (the "Survival Date"), to the extent
the claims arose on or prior to Survival Date by delivering to the Shareholder
Representative a certificate signed by the chief financial or chief executive of
Purchaser (an "Officer's Certificate"):
(i) stating that, on or before the expiration of the applicable
Survival Date, Purchaser or the Surviving Corporation has incurred,
suffered or paid Damages and the amount of such Damages and, if applicable,
that the Damages being claimed exceed the applicable Indemnification
Threshold; and
(ii) specifying in reasonable detail the individual items of Damages
included in the amount so stated, the date each such item was incurred or
paid and the specific nature of the claim to which Damages are related.
(b) Objections to Claims. The Shareholder Representative shall have a
period of thirty (30) days after delivery of the Officer's Certificate to
evaluate and respond. After the expiration of such thirty (30) day period,
Purchaser shall be entitled to reimbursement of Damages in accordance with the
provisions of this Article 8, which shall include the right of setoff described
more fully in Section 8.6 hereof, provided, however, that that no such setoff or
payment shall be made or be due if the Shareholder Representative shall object
in a written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to Purchaser prior to the expiration of such
thirty (30) day period; provided further that in the event Purchaser or the
Surviving Corporation has incurred Damages as a result of payment of amounts to
or on behalf of any Company D&O Indemnitees pursuant to Section 7.6 to the
extent that it results from a matter for which Purchaser or the Surviving
Corporation otherwise is entitled to indemnification under Section 8.2(b)(iii),
then the Shareholder Representative shall not be entitled to dispute such claim
unless Purchaser or the Surviving Corporation cannot properly document the
amounts that the Surviving Corporation has paid in providing such
indemnification. In case the Shareholder Representative shall so object in
writing to any claim or claims by Purchaser or the Surviving Corporation made in
any Officer's Certificate, the Shareholder Representative and Purchaser shall
follow the procedures set forth in Section 9.7(a).
9. GENERAL PROVISIONS
9.1 NOTICES.
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided
48
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a Party may designate by notice to the other Parties). An electronic
communication ("Electronic Notice") shall be deemed written notice for purposes
of this Section 9.1 if sent with return receipt requested to the electronic mail
address specified by the receiving party in a signed writing in a non-electronic
form. Electronic Notice shall be deemed received at the time the party sending
Electronic Notice receives verification of receipt by the receiving party. Any
party may change any address to which notice is to be given to it by giving
notice as provided above of such change of address.
If to any Shareholder, to the address set forth below such Shareholder's name on
the signature pages hereto.
If to Company: ClickFind, Inc.
000 Xxxxx Xxxx
Xxxxx, XX 00000
Attention: Chief Executive Officer
(000) 000-0000 (fax)
Email: xxxxxx@xxxxxxxxx.xxx
with a copy (which shall not
constitute notice) to: Xxxxxxx Xxxxx LLP
000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxx
(000) 000-0000 (fax)
If to the Shareholder Representative: Xxx Xxx Xxxx
000 Xxxxx Xxxx
Xxxxx, XX 00000
(000) 000-0000 (fax)
Email: xxxxxx@xxxxxxxxx.xxx
with a copy (which shall not
constitute notice) to: Xxxxxxx Xxxxx LLP
000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: J. Xxxxxxx Xxxxx
(000) 000-0000 (fax)
49
If to Purchaser, Merger Sub
or Surviving Corporation, to: DATATRAK International, Inc.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Black, CFO
(000) 000-0000 (fax)
Email: xxxxx.xxxxx@xxxxxxxx.xxx
with a copy (which shall not
constitute notice) to: Xxxxxx, Halter & Xxxxxxxx LLP
1400 XxXxxxxx Investment Center
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000-0000
Attention: Xxxxxx X. XxXxx, Esq.
(000) 000-0000 (fax)
9.2 WAIVER.
The rights and remedies of the Parties are cumulative and not alternative.
Neither the failure nor any delay by any Party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement
will operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one Party or the Shareholder
Representative, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the affected Party or the Shareholder
Representative, as applicable; (b) no waiver that may be given by a Party or the
Shareholder Representative will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one Party or the
Shareholder Representative will be deemed to be a waiver of any obligation of
such Party or the Shareholder Representative or of the right of the Party or the
Shareholder Representative giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.
9.3 ENTIRE AGREEMENT AND AMENDMENT.
This Agreement supersedes all prior agreements among the Parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement among the Parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by Purchaser, Merger
Sub and the Company and the Shareholders holding a majority of the Company
Shares (provided that any amendment that reduces the amount of or modifies the
type of Merger Consideration a Shareholder receives hereunder will require that
Shareholder's consent).
50
9.4 SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.5 SECTION HEADINGS; CONSTRUCTION.
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. In every place where they are
used in this Agreement, the words "include" and "including" are intended and
shall be construed to mean "include, without limitation" and "including, without
limitation," respectively. References in this document to "Sections" refer to
the correspondingly numbered Sections of this Agreement and Plan of Merger,
unless otherwise expressly specified in the context.
9.6 TIME OF THE ESSENCE.
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
9.7 MEDIATION, JURISDICTION AND VENUE.
(a) Mediation. In the event of any dispute among the Parties arises out of
or is related to this Agreement or the Contemplated Transactions, including,
without limitation, a dispute pursuant to Section 8.10 hereof, the Parties shall
be required to enter into non-binding mediation of such dispute or disagreement
for a minimum of ten (10) hours prior to the initiation of any action or
proceeding against the other. Upon notice by either Party to the other of the
initiating Party's desire to mediate, the Parties shall endeavor to settle the
dispute by mediation under the then current Center for Public Resources ("CPR")
Model procedure for mediation of business disputes. The location for the
mediation shall be in Chicago, Illinois, or such other location as may be agreed
upon by the Parties, and the neutral third party will be selected from the CPR
Panel of Neutrals applicable to such geographical area. If the Parties encounter
difficulty in agreeing on a Neutral, they will seek the assistance of CPR in the
selection process. A mediation proceeding shall thereafter be scheduled at a
time mutually convenient to the Parties involved. The mediation shall be held
within thirty (30) days following the notification by a party of a desire for
mediation or within thirty (30) days following a valid, timely objection to
claims by the Shareholder Representative pursuant to Section 8.10(b). If the
parties cannot agree on a date for mediation, then the CPR shall select a date
it believes is reasonable for the Parties, given all of the alleged conflicts in
dates. The Parties shall equally share the cost of the mediator. If no
resolution of the mediated dispute can be reached pursuant to the terms of this
Section 9.7(a), the Parties shall be free to pursue any and all remedies
available to the Parties, whether at law or in equity, including, without
limitation, the setoff right more fully described in Section 8.6 hereof.
51
(b) Jurisdiction and Venue. Subject to the prior satisfaction of the
procedures set forth in Section 9.7(a) above, any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement shall be brought against any of the Parties in the courts of the State
of Ohio, County of Cuyahoga, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Ohio, and each of the
Parties consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any Party anywhere in the world.
9.8 GOVERNING LAW.
This Agreement will be governed by the laws of the State of Ohio without
regard to conflicts of laws principles.
9.9 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
9.10 JOINT DRAFTING.
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent of
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties, and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any provisions of this
Agreement.
(The remainder of this page is intentionally left blank.)
52
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
and Plan of Merger as of the date first written above.
PURCHASER:
DATATRAK INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Its: President & CEO
MERGER SUB:
CF MERGER SUB, INC.
By: /s/ Xxxxx X. Black
------------------------------------
Its: Treasurer
COMPANY:
CLICKFIND, INC.
By: /s/ Xxx Xxx Xxxx
------------------------------------
Its: President & CEO
Solely for purposes of accepting the appointment as Shareholder Representative
with respect to the matters set forth in Section 8.8 of this Agreement:
SHAREHOLDER REPRESENTATIVE:
/s/ Xxx Xxx Xxxx
----------------------------------------
Xxx Xxx Xxxx
By his, her or its execution below, the undersigned agrees to become a
party as a "CASH AND SECURITIES RECIPIENT" and an "INDEMNIFYING SHAREHOLDER" to
this Agreement and Plan of Merger, and hereby acknowledges (i) that the
undersigned has been provided with sufficient time and information to consider
the merits of becoming a party hereto, and (ii) that, pursuant to the procedures
set forth in Section 2.7 of the Agreement and Plan of Merger, certain
Shareholders will receive different forms of Merger Consideration, and that
those different forms of Merger Consideration ultimately may result in
substantially different values being received by the Shareholders in the Merger.
Without limiting the generality of the foregoing, the undersigned acknowledges
that the Merger Consideration that such person is receiving ultimately may prove
to be worth substantially less than the Merger Consideration provided solely in
cash to the Company's other Shareholders. In addition, each of the undersigned
agree and acknowledge and accept the responsibilities of acting as an
Indemnifying Shareholder. Each of the undersigned further agrees to IRREVOCABLY
AND FOREVER WAIVE AND RELEASE each of Purchaser, the Company, Surviving
Corporation, and each other Shareholder, and each of their respective
subsidiaries, shareholders, partners, members, officers, directors, employees,
representative and agents (including, without limitation, attorneys, advisors
and other professionals), successors, assigns, heirs, or executors from and
against any claim by the undersigned relating to the amount, allocation or type
of Merger Consideration received by the undersigned (other than manifest error
in the calculation of an amount or allocation which is not promptly corrected).
CASH AND SECURITIES RECIPIENTS/
INDEMNIFYING SHAREHOLDERS:
/s/ Xxx Xxx Xxxx
-------------------------------------
XXX XXX XXXX
BY EXECUTION HEREOF XX. XXXX ALSO
EXPRESSLY ACKNOWLEDGES AND AGREES TO
THE WAIVER OF RIGHTS TO
INDEMNIFICATION CONTAINED IN SECTION
7.6 OF THIS AGREEMENT.
/s/ Xxxxx Xxxxxxxxx
----------------------------------------
XXXXX XXXXXXXXX
/s/ Xxxx Xxxxxx /s/ Xxxx Xxxx
------------------------------------- ----------------------------------------
XXXX XXXXXX XXXX XXXX
/s/ Xxxxxxxx Xxx /s/ Xxxxxxxxxxx Xxxxx
------------------------------------- ----------------------------------------
XXXXXXXX XXX XXXXX XXXXX
/s/ Xxxxx Xxxx /s/ Xxxx Xxxxx
------------------------------------- ----------------------------------------
XXXXX XXXX XXXX XXXXX
[COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
By his, her or its execution below, the undersigned agrees to become a
party as a "CASH ONLY RECIPIENT" to this Agreement and Plan of Merger, and
hereby acknowledges (i) that the undersigned has been provided with sufficient
time and information to consider the merits of becoming a party hereto, and (ii)
that, pursuant to the procedures set forth in Section 2.7 of the Agreement and
Plan of Merger, certain Shareholders will receive different forms of Merger
Consideration, and that those different forms of Merger Consideration ultimately
may result in different values being received by the Shareholders in the Merger.
Without limiting the generality of the foregoing, the undersigned understands
and acknowledges that the undersigned is not being requested to provide
indemnification with the representations and warranties of the Company, nor is
the undersigned being asked to acquire and hold (perhaps indefinitely) Purchaser
Shares, both of which, in addition to the other good and valuable consideration
provided to the undersigned hereunder has a significant and immediate value,
such that the undersigned hereby forever waives any claim that it ever may have
to receive Purchaser Shares or Notes that were issued to the Cash and Securities
Recipients, whether or not such Notes or Purchaser Shares ultimately prove to
have a value or result in proceeds substantially in excess of the cash received
by the undersigned. Each of the undersigned further agrees to IRREVOCABLY AND
FOREVER WAIVE AND RELEASE each of Purchaser, the Company, Surviving Corporation,
and each other Shareholder, and each of their respective subsidiaries,
shareholders, partners, members, officers, directors, employees, representative
and agents (including, without limitation, attorneys, advisors and other
professionals), successors, assigns, heirs, or executors from and against any
claim by the undersigned relating to the amount, allocation or type of Merger
Consideration received by the undersigned (other than manifest error in the
calculation of an amount or allocation which is not promptly corrected).
CASH ONLY RECIPIENTS:
[The following individuals signed this counterpart signature page to the
Agreement and Plan of Merger]
/s/ Xxx Xxxxxxxx Xxxxxxxx
----------------------------------------
Print Name: Xxx Xxxxxxxx Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxxxx
----------------------------------------
Entity Name: Xxxxxxx Phleger
& Xxxxxxxx LLP
By: Xxxxxx X. Xxxxxxxxx
Title: its Chapter 7 Trustee
/s/ Xxxxx Xxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxx
/s/ See Loong Chin
----------------------------------------
Print Name: See Loong Chin
/s/ Ye Xxxxx
----------------------------------------
Print Name: Ye Xxxxx
/s/ Xxxx Xxxxxxx
----------------------------------------
Print Name: Xxxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxx Xxxxxxx
/s/ Xxx X. Xxxxxxx
----------------------------------------
Print Name: Xxx X. Xxxxxxx
/s/ J. Xxxxxxx Xxxxx
----------------------------------------
Print Name: J. Xxxxxxx Xxxxx
/s/ Xxxxxxx Xxxx
----------------------------------------
Print Name: Xxxxxxx Xxxx
/s/ Xxxxx Xxxx
----------------------------------------
Print Name: Xxxxx Xxxx
/s/ Xxxxxx Xxxx
----------------------------------------
Print Name: Xxxxxx Xxxx
/s/ Xxxx Xxxxxxxx
----------------------------------------
Print Name: Xxxx Xxxxxxxx
/s/ Xxxxx Xxxxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxxxx
/s/ Madison Xxxxxxxx
----------------------------------------
Print Name: Madison Xxxxxxxx
/s/ Xxxxx Xxxxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxxxx
/s/ Xxx Xxxxxx
----------------------------------------
Print Name: Xxx Xxxxxx
/s/ Xxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxx
/s/ Xxxxx Xxxx
----------------------------------------
Print Name: Xxxxx Xxxx
/s/ Xxxxx Xxxx Xx.
----------------------------------------
Print Name: Xxxxx Xxxx Xx.
/s/ Xxxxxxx Xxxx
----------------------------------------
Print Name: Xxxxxxx Xxxx
/s/ Xxxxxxx Xxxxxxxx
----------------------------------------
Print Name: Xxxxxxx Xxxxxxxx
/s/ September Xxxxx
----------------------------------------
Print Name: September Xxxxx
/s/ Xxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxxx
/s/ Xxxxx Xxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxx
/s/ Xxxxx X. Xxxx
----------------------------------------
Print Name: Xxxxx X. Xxxx
/s/ Xxxxxxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxxxxxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
----------------------------------------
Print Name: Xxxxx Xxxxxxx
/s/ Xxxxxxxx Xxxxxxxx
----------------------------------------
Print Name: Xxxxxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxxxxx
----------------------------------------
Print Name: Xxxxxx Xxxxxxxxx
/s/ Xxxxxx Xxxxxx
----------------------------------------
Print Name: Xxxxxx Xxxxxx
/s/ Xx Xx
----------------------------------------
Print Name: Xx Xx
/s/ Xxxxxx Xxxxx
----------------------------------------
Print Name: Xxxxxx Xxxxx
