Exhibit 10.34
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of
February__, 2004, among SteelCloud, Inc., a Virginia corporation ("Buyer"),
Asgard Holding LLC, a Delaware limited liability company and wholly-owned
subsidiary of Buyer ("Designated Subsidiary"); Asgard Holding LLC ("Asgard
Holding"), a Florida limited liability company, Asgard Technology LLC ("Asgard
Technology"), a Florida limited liability company (Asgard Holding and Asgard
Technology shall collectively be referred to herein as "Seller"); and
T-Formation Fund I, LP, Xxxxx Xxx, Xxxxxxxxxxx Xxx and Xxx X. Xxxx ("Designated
Members").
Buyer through its Designated Subsidiary desires to acquire,
and Seller desires to transfer, substantially all of the assets, properties,
rights, business and goodwill of Seller upon the terms and conditions set forth
in this Agreement.
To induce Buyer and Designated Subsidiary to enter into and
perform this Agreement, Designated Members, who as the owners of 72.95% of the
outstanding membership interests collectively of Seller will derive substantial
benefit from this Agreement, have agreed to be parties to this Agreement as
specified herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants set forth herein, the parties agree as follows:
section 1
TRANSFER OF ASSETS
1.1 Purchase and Sale of Assets. Based upon and subject to the
representations, warranties, covenants, agreements, and other terms and
conditions set forth in this Agreement, Seller shall sell, convey, transfer,
assign, and deliver free and clear of any liens, charges, restrictions, security
interests, mortgages or encumbrances thereon on the Closing Date (as defined in
Section 7.1), and Buyer's Designated Subsidiary shall purchase, acquire, and
accept , as provided herein, all of the assets, properties, rights, business and
goodwill of Seller of every kind and description, wherever located, except for
the "Excluded Assets" listed in Section 1.3.
1.2 Transferred Assets. The assets, properties, rights, business and
goodwill to be conveyed, transferred, assigned, and delivered by Seller free and
clear of any liens, charges, restrictions, security interests, mortgages or
encumbrances thereon on the Closing Date pursuant to Section 1.1 are sometimes
herein called the "Transferred Assets" and shall include, without limitation,
all of the assets and properties shown on or reflected in the Consolidated
Balance Sheet of Seller as at December 31, 2003 ("Seller's Base Balance Sheet")
and all assets and properties acquired by Seller after the date of Seller's Base
Balance Sheet and to the Closing Date. The Transferred Assets also shall include
100% of the issued and outstanding membership interests or shares of capital
stock of Seller's subsidiaries. Without limiting the foregoing, the Transferred
Assets shall include the following:
(a) Accounts Receivable. All of Seller's accounts receivable
(the "Accounts Receivable"), including, without limitation, those set forth on
Schedule 1.2(a) hereto, which sets forth the amount of each receivable, the
number of days outstanding, and the name and mailing address of the obligor on
each such receivable as of the Closing Date.
(b) Vehicles, Furniture, Fixtures, and Equipment. All of
Seller's motor vehicles, furniture, fixtures, machinery, equipment, parts, and
tools (the "Equipment"), including, without limitation, the Equipment set forth
on Schedule 1.2(b) hereto.
(c) Inventory. All of Seller's inventory, including, without
limitation, raw materials, supplies, work in process, and finished goods (the
"Inventory"), including, without limitation, the Inventories set forth on
Schedule 1.2(c).
(d) Claims and Rights to the Transferred Assets. All of
Seller's claims and rights (and benefits arising therefrom) related to the
Transferred Assets against all persons and entities, including, without
limitation, all rights against suppliers under warranties covering any of the
Equipment and Inventory, other than claims and rights to any tax refunds and
insurance refunds from any Excluded Assets.
(e) Business Contracts. All of Seller's sales orders and sales
contracts, quotations, bids, sales, and sales representative agreements, service
agreements, license agreements, supply agreements, franchise agreements, and
technical service agreements (the "Business Contracts"), including, without
limitation, each Business Contract set forth on Schedule 1.2(e) hereto. In the
event that the rights of Seller pertaining to any property or asset used in or
necessary to the Transferred Assets, which have accrued or will accrue to
Seller, as the case may be, where the consent of another person would be invalid
or constitute a breach of any agreement or commitment to which Seller is a party
or by which Seller may be bound, shall not have been obtained, such property or
asset or the proceeds thereof shall be held and/or received by Seller for the
benefit of Buyer and Buyer may act as agent therefor in order to obtain for
Buyer the benefits that would flow from ownership of such property or asset. For
so long as any assumed contract for which a consent to assignment is legally
required but such consent to assignment or the like has not been obtained, Buyer
shall be obligated to promptly pay to Seller any payment, royalty, fee, or other
form of compensation which would be payable to a third party under such assumed
contract by Seller, as the case may be, but for the fact that Buyer has acquired
the Transferred Assets as of the Closing (the "Third Party Payments").
(f) Intellectual Property. The "Intellectual Property" as
defined in Section 4.1(w), including, without limitation, the AsgardSecureNet
software and proprietary processes embodied in Seller's two pending patents.
Attached to Schedule 1.2(f) are copies of all license agreements (other than
license agreements for standard "shrink wrapped, off the shelf," commercially
available, third party products used by Seller), product formulas, copyrighted
materials, trademarks, trade names, patents and all applications therefor used
in the conduct of or relating to the business conducted by Seller.
(g) Customer Lists. All of Seller's current and historical
customer lists and customer records. Schedule 1.2(g) hereto sets forth a list of
all previous (within the last year from the date hereof) and existing customers
of Seller and its subsidiaries and their last known business addresses.
(h) Life Insurance. All of Seller's right title and interest
to the key-man life insurance policy on the life of Xxxxxxxxxxx Xxx (the "Life
Policy") as described on Schedule 1.2(h).
(i) Books and Records. All of Seller's books and records
including, without limitation, blueprints, drawings, and other technical papers,
and all accounts receivable, inventory, maintenance, employee records, and asset
history records.
(j) Computer Software and Hardware. All computer software and
hardware used or intended for use in connection with the business of Seller,
owned, leased, or licensed by or to Seller.
-2-
(k) Leased Real Property and Personalty. The leasehold
interests created by all leases of real property and personal property used in
connection with the business of Seller, under which Seller or any subsidiary is
a lessee, including those leases that are capitalized leases and any maintenance
contracts and deposits in connection therewith (all such real property and/or
personal property that Seller or any subsidiary is leasing as lessee shall
herein be referred to as "Leased Real Property/ Personalty"), including the
Leased Real Property/Personalty set forth on Schedule 1.2(k) hereto and any
other Leased Real Property/Personalty transferrable by Seller. Attached to
Schedule 1.2(k) are copies of all the lease agreements listed on Schedule
1.2(k).
(l) Names. All right, title, and interest in and to the name
"Asgard Holding" and "Asgard Technology" and any and all names associated with
all products sold by Seller at any time within the preceding 12 months, and any
derivations thereof (the "Names").
(m) Phone Numbers. All telephone and facsimile numbers used by
Seller.
(n) Deposits and Prepaid Expenses. All of Seller's deposits,
bank accounts, notes receivable, and prepaid expenses (the "Deposits")
including, without limitation, the Deposits set forth on Seller's Base Balance
Sheet (including any deposits with respect to the Leased Personalty assumed by
Buyer pursuant to Section 1.2), as reduced in the ordinary course of business in
accordance with past historical practices.
(o) Stock of Subsidiaries. All of the capital stock,
membership or other interests of each subsidiary of Seller and all other
securities owned by Seller. Schedule 1.2(o) hereto sets forth the name,
jurisdiction of incorporation, organization or formation, and equity interests
held by each subsidiary of Seller and all other securities owned by Seller.
Each Schedule provided for in Section 1.2 also sets forth separately,
as appropriate, the assets and properties of each subsidiary of Seller, and any
purported restriction on the sale, transfer, or assignment thereof.
1.3 Excluded Assets. The following assets of Seller shall be excluded
from the purchase and sale contemplated by this Agreement (the "Excluded
Assets"):
(a) Rights Hereunder. Seller's rights under this Agreement.
(b) Corporate Documents. Seller's articles of organization,
charter, minute books and record books, provided that copies thereof shall be
provided to Buyer upon Buyer's request.
(c) Seller's Records of Negotiations. Seller's records
relating to the negotiation and sale of Seller's assets.
(d) Employee Records. All of Seller's records with respect to
employees, provided that access thereto shall be provided to Buyer upon written
request.
(e) All of the assets listed on Schedule 1.3.
(f) Tax Records. All of Seller's books and records with
respect to taxes, provided that access thereto shall be provided to Buyer upon
written request.
-3-
SECTION 2
ASSUMPTION OF LIABILITIES
2.1 Liabilities Assumed. Upon the sale and purchase of the
Transferred Assets as provided in this Agreement, Designated Subsidiary shall
assume and pay or discharge when due (i) the accounts payable of Seller, listed
on Schedule 2.1, reflected and accrued on Seller's Base Balance Sheet or
incurred and accrued after the date of Seller's Base Balance Sheet in the
ordinary course of business and as contemplated by this Agreement, in each case
not to exceed $45,000, all as the same shall exist on the Closing Date (the
"Accounts Payable"), except for the Excluded Liabilities set forth in Section
2.2, (ii) obligations arising under the Business Contracts, (iii) the Leased
Real Property/ Personalty and (iv) the Life Policy and any premiums related
thereto due after the Closing Date. Such obligations and liabilities being
assumed pursuant to this Section 2.1 are sometimes referred to herein as
"Assumed Liabilities."
2.2 Excluded Liabilities. Other than the Assumed Liabilities, whether
reflected in Seller's Base Balance Sheet or incurred and accrued after the date
of Seller's Base Balance Sheet in the ordinary course of business and as
contemplated by this Agreement, Designated Subsidiary shall not be obligated to
directly or indirectly pay, perform, or discharge any other liabilities of
Seller, including but not limited to the following liabilities of Seller:
(a) Liabilities Hereunder. Any obligations or liabilities of
Seller under this Agreement.
(b) Legal and Accounting Fees. Any obligations or liabilities
for legal, accounting, and other fees and expenses incurred by or on behalf of
Seller, any of its subsidiaries, or Designated Members in connection with the
negotiation of the transactions contemplated by this Agreement, the sale of the
Transferred Assets, the assumption of the Assumed Liabilities, and the documents
related thereto.
(c) Tax Liabilities. Any tax obligations or liabilities of
Seller or any of its subsidiaries, whether or not owed on or prior to the
Closing Date, including, without limitation, (i) any liabilities (federal,
state, local, or foreign) for taxes on or measured by the income of Seller or
any of its subsidiaries; (ii) any liabilities for federal, state, local, or
foreign income and employee FICA taxes that Seller or any of its subsidiaries is
legally obligated to withhold through the Closing Date whether or not Seller or
any of its subsidiaries has withheld the same as required by law; (iii) any
liabilities for employer FICA and unemployment taxes; (iv) any liabilities for
franchise and excise taxes relating to the status of Seller or any of its
subsidiaries; (v) any liabilities for property taxes; and (vi) any other taxes
of any kind or description.
(d) Liability to Buyer for Breach. Any obligations or
liabilities of Seller to the extent that their existence or magnitude
constitutes or results in a breach of a representation, warranty, or covenant
made by Seller or Designated Members, or makes the information contained in this
Agreement, any Exhibit, any Schedule, or any other document delivered by or on
behalf of Seller or Designated Members (or their representatives) pursuant to or
in connection with this Agreement or any of the transactions contemplated hereby
untrue in any material adverse respect.
(e) Liabilities to Employees. Any obligations or liabilities
with respect to payroll, bonuses, severance benefits, vacation pay, and other
employment benefits or sums, including, without limitation, FICA, worker's
compensation premiums, or unemployment taxes to or on behalf of employees of
Seller or any of its subsidiaries, and any and all liabilities or obligations of
Seller, or any Affiliate or subsidiary of Seller, arising under any collective
bargaining agreement or union contract. For purposes of this Agreement, the term
"Affiliate" shall mean any entity in which any Designated Member is an officer
or director or in which any Designated Member or Seller, directly or indirectly,
owns or controls ten percent or more of the equity securities of the entity, or
any person related to any Designated Member by blood or marriage.
-4-
(f) Property and Personal Injury Liabilities. Any claims
against or liabilities of Seller or any of its subsidiaries for injury to or
death of persons or damage to or destruction of property (including, without
limitation, any worker's compensation claim) occurring prior to the Closing Date
regardless of when such claim or liability is asserted, including, without
limitation, any claim or liability for damages in connection with the foregoing,
it being understood and agreed that any claim or liability asserted after the
Closing Date arising out of the sale of any product either sold or produced by
Seller or any of its subsidiaries or the performance of any services by Seller
or any of its subsidiaries prior to the Closing Date, shall be considered to be
a claim against or a liability of Seller or any of its subsidiaries for injury
to or death of persons or damage to or destruction of property and therefore,
except as otherwise provided for herein, not assumed hereunder by Buyer or
Designated Subsidiary.
(g) Liability for Medical, Dental, and Disability. Any
obligations or liabilities for medical, dental, and disability (both long-term
and short-term) benefits, whether insured or self-insured, based upon claims
incurred or disabilities commencing prior to the Closing Date and any liability
for the foregoing, that arises by virtue of an employment relationship at any
time with Seller or any of its subsidiaries.
(h) Liability to Others for Breach. Any liabilities for any
breach of any representation, warranty, or covenant, or for any claim for
indemnification, contained in any contract or other document referred to in
Section 1.2, agreed to be performed pursuant hereto by Buyer, to the extent that
such breach or claim arose out of or by virtue of the performance or
nonperformance by Seller or any of its subsidiaries thereunder prior to the
Closing Date, it being understood that, as between Seller and Buyer, this
paragraph shall apply notwithstanding any provisions that may be contained in
any form of consent to the assignment of any such contract or document that, by
its terms, imposes such liabilities upon Buyer and which assignment is accepted
by Buyer notwithstanding the presence of such a provision, and that the failure
by Seller or any of its subsidiaries to discharge any such liability shall
entitle Buyer to indemnification in accordance with the provisions of Section
10.1.
(i) Liability Regarding Employee Welfare and Pension Benefits.
Any obligations or liabilities of Seller arising out of or in connection with
any past or present employee welfare and pension benefit plans of Seller or any
of its subsidiaries including, without limitation, any obligations or
liabilities of Seller or any of its subsidiaries to or on behalf of any past or
present employee of Seller or any of its subsidiaries arising under any
collective bargaining agreement, union contract, union health and welfare fund,
or similar program.
(j) Liability for Violation of Law. Any obligations or
liabilities of Seller or any of its subsidiaries arising out of or in connection
with any violation of a statute or governmental rule, regulation, or directive,
which violation arises out of any act or omission that occurred or commenced
prior to the Closing Date.
(k) Environmental Laws. Any obligations or liabilities of
Seller or any of its subsidiaries with respect to, or relating to, Environmental
Laws (as hereinafter defined), or environmental matters.
(l) Transfer and Use Tax Liabilities. Any obligations or
liabilities of Seller or any of its subsidiaries with respect to sales, use, or
transfer taxes, if any, arising as a result of the transfer of the Transferred
Assets by Seller to Buyer or Designated Subsidiary by virtue of the consummation
of the transactions contemplated hereby. Buyer or Designated Subsidiary shall
deliver to Seller a resale exemption certificate as to Inventory sold hereunder.
-5-
(m) ERISA. Any liabilities or obligations of Seller with
respect to, or arising under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any Pension Plan, Welfare Plan or Employee
Benefit Plan, as each are hereinafter defined or as defined by ERISA, and any
related trust agreements or annuity contracts.
(n) Employee Grievances. Any obligations or liabilities of
Seller or any of its subsidiaries with respect to, or arising under, any
grievance brought by any employee of Seller or any of its subsidiaries while in
the employ of Seller or any of its subsidiaries or filed pursuant to any
collective bargaining agreement to which Seller or any of its subsidiaries is a
party or by which Seller is bound.
(o) Seller's Indebtedness. Any obligations or liabilities with
respect to indebtedness of Seller or any of its subsidiaries.
(p) Members and Affiliates. Any obligations or liabilities of
Seller or any of its subsidiaries with respect to any member of Seller or any
Affiliate of Seller or any such member.
(q) Liabilities Not Assumed Hereunder. Consistent with and
without limitation by the specific enumeration of the foregoing, any obligations
or liabilities not expressly assumed by Buyer or Designated Subsidiary pursuant
to the provisions of Section 2.1 hereof.
2.3 No Expansion of Third Party Rights. The assumption by Buyer or
Designated Subsidiary of the Assumed Liabilities, and the transfer thereof by
Seller, shall in no way expand the rights and remedies of any third party
against Seller or Buyer or Designated Subsidiary as assignee of Seller as
compared to the rights and remedies which such third party would have had
against Seller or Buyer or Designated Subsidiary as assignee of Seller had Buyer
or Designated Subsidiary not assumed such liabilities. Without limiting the
generality of the preceding sentence, the assumption by Buyer or Designated
Subsidiary of such liabilities shall not create any third party beneficiary
rights.
2.4 Designated Subsidiary. Buyer and Seller contemplate that Buyer
may organize a newly formed, wholly owned subsidiary (referred to herein as
"Designated Subsidiary") to acquire the Transferred Assets and assume the
Assumed Liabilities. Any such assignment pursuant to this Section 2.4, shall not
relieve Buyer of its duties hereunder, and Buyer hereby guaranties the full and
complete performance of any and all of the obligations of the Designated
Subsidiary undertaken or contemplated hereby.
SECTION 3
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Transferred Assets to
be acquired pursuant to Section 1.1 shall be, in addition to the assumption of
liabilities pursuant to Section 1.2, an amount equal $3,100,153.20 (the
"Purchase Price").
3.2 Payment of Purchase Price. The purchase price shall be payable as
follows:
(i) $630,015.36 in cash or a cashier's check or wire transfer
at the Closing (as defined in Section 7.1);
-6-
(ii) the issuance of a $56,688.63 note payable to Xxxxxx X.
Xxxxx, and the issuance of a $113,449.21 note payable to EMT Investments, Inc.
the debts of which the Buyer is assuming from Seller, in the form of which is
attached hereto as Exhibits B1 and B2 (the "Promissory Notes"); and
(iii) 575,000 shares of Buyer's common stock ("Buyer's Common
Stock") valued at $4.00 per share for purposes of this Agreement only ("Share
Price"), as adjusted pursuant to Section 3.3. 22,500 shares of Buyer's Common
Stock shall be deposited with Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP as
escrow agent ("Escrow Agent"), and released to either Seller or Buyer in
accordance with Section 3.3 and shall be distributed in accordance with the
terms of the escrow agreement, the form of which is attached as Exhibit B.
552,500 shares of Buyer's Common Stock shall be delivered to Seller at Closing.
Seller and any transferee of Buyer's Common Stock from Seller, shall be entitled
to the registration rights provided pursuant to that certain Registration Rights
Agreement, the form of which is attached as Exhibit A, with respect to the
shares of Buyer's Common Stock issued pursuant to this Agreement.
3.3 Adjustment to Purchase Price.
Accounts Receivable. Based on the Share Price, Buyer shall deposit
with the Escrow Agent that number of shares of Buyer's Common Stock included in
the Purchase Price equal to the face value of Seller's accounts receivable as
reflected on the Seller's Base Balance Sheet ("Accounts Receivable Escrow
Shares"). In the event that any portion of the Accounts Receivable shall be
deemed to be uncollectible ("Uncollectible Accounts Receivable") in the ordinary
course of business 90 days after Closing, then the Purchase Price pursuant to
Section 3.1 shall be reduced and that number of Accounts Receivable Escrow
Shares determined by dividing the dollar amount of the Uncollectible Accounts
Receivable by the Share Price shall be returned to Buyer for cancellation. Any
remaining Accounts Receivable Escrow Shares shall be assigned and delivered to
Seller on the 91st day after the Closing Date. Buyer agrees to assign and
deliver any of the Uncollectible Accounts Receivable back to Seller, provided
the Purchase Price is reduced as a result of such Uncollectible Accounts
Receivable.
3.4 Allocation of Purchase Price. The purchase price shall be
allocated among the Transferred Assets owned by Seller in accordance with their
respective fair market values. Without limiting the foregoing, Buyer and Seller
agree that the total purchase price (including liabilities assumed) for the
assets and properties purchased pursuant to this Agreement shall be allocated to
those assets and properties as set forth in Schedule 3.4 hereto, and Buyer and
Seller agree that the allocation set forth in Schedule 3.4 hereto has been made
in accordance with the requirements of Section 1060 of the Internal Revenue Code
of 1986, as amended and any applicable Treasury Regulations promulgated
thereunder. Buyer and Seller, each at its own expense, also agree to file
appropriate forms with the Internal Revenue Service setting forth the
information required to be furnished to the Internal Revenue Service by Section
1060 of the Internal Revenue Code of 1996, as amended (the "Code") and the
applicable Treasury Regulations thereunder.
SECTION 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller and Designated Members.
Except as otherwise set forth in the Seller Disclosure Schedules heretofore
delivered by Seller to and acknowledged as received by Buyer, Seller and
Designated Members jointly and severally represent and warrant to Buyer and
Designated Subsidiary as follows:
-7-
(a) Due Formation, Good Standing, and Qualification. Each of
Seller and its subsidiaries is a limited liability company duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
organization with all requisite power and authority to own, operate, and lease
its assets and properties and to carry on its business as now being conducted.
Neither Seller nor any of its subsidiaries is subject to any material disability
by reason of the failure to be duly qualified as a foreign entity for the
transaction of business or to be in good standing under the laws of any
jurisdiction. As used in this Agreement with reference to Seller, the term
"subsidiaries" shall include all direct and indirect subsidiaries of Seller.
Schedule 4.1(a) hereto constitutes a list setting forth, as of the date of this
Agreement, each jurisdiction in which Seller and its subsidiaries is qualified
to do business.
(b) Authority. Seller has the power and authority to enter
into this Agreement and, subject to the requisite approval of Seller's members,
to carry out the transactions contemplated hereby. The Board of Managers of
Seller has duly authorized the execution, delivery, and performance of this
Agreement. Except for any required approval by Seller's members of the
transactions contemplated hereby, no other proceedings on the part of Seller or
its subsidiaries are necessary to authorize the execution and delivery by Seller
of this Agreement or the consummation by Seller or its subsidiaries of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by, and constitutes a legal, valid, and binding agreement of, Seller
and Designated Members, enforceable against Seller and Designated Members in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought.
(c) Membership Interests. As of the date hereof, Seller has
outstanding classes of membership interests as listed on Schedule 4.1(c).
Schedule 4.1(c) also lists the names and addresses of all of the members of
Seller.
(d) Options, Warrants, and Rights. Neither Seller nor any of
its subsidiaries has outstanding any options, warrants, or other rights to
purchase, or securities or other obligations convertible into or exchangeable
for, or contracts, commitments, agreements, arrangements, or understandings, to
issue, any membership interests or other securities, other than those referred
to in Section 4.1(c).
(e) Subsidiaries. Schedule 4.1(e) constitutes a list setting
forth, as of the date of this Agreement, (i) the name, jurisdiction of
organization, and list of members of each subsidiary of Seller, and (ii) the
name and a description of every other person, corporation, partnership, joint
venture, or other business association in which Seller directly or indirectly
owns a material interest. The outstanding shares of [capital stock] [membership
interests] of the subsidiaries of Seller are owned by Seller free and clear of
all claims, liens, charges, and encumbrances. Seller does not own, directly or
indirectly, any capital stock or other equity securities of any entity or have
any direct or indirect equity or ownership interest in any entity or other
business other than with respect to its subsidiaries.
(f) Financial Statements. The Consolidated Balance Sheets of
Seller and subsidiaries as at December 31, 2003, as well as the Consolidated
Statements of Income of Seller and its subsidiaries for the year ended December
31, 2003, and all related schedules and notes to the foregoing, have been
prepared by Seller without audit. All of the foregoing financial statements have
to the best of our knowledge been prepared in accordance with generally accepted
accounting principles, which were applied on a consistent basis, are correct and
complete, and present fairly and accurately, in all material respects, the
consolidated financial position, results of operations, and changes in financial
position of Seller and its subsidiaries as of their date and for the period
indicated, except for normal year-end audit adjustments and the absence of
footnotes. To the best of our knowledge, neither Seller nor any of its
subsidiaries has any material liabilities or obligations of a type that would be
-8-
included in a balance sheet prepared in accordance with generally accepted
accounting principles, whether related to tax or non-tax matters, accrued or
contingent, due or not yet due, liquidated or unliquidated, or otherwise, except
as and to the extent disclosed or reflected in Seller's Base Balance Sheet,
incurred since the date of that balance sheet in the ordinary course of business
and as contemplated by this Agreement. Seller will provide Buyer and its
auditors with any and all documents that Buyer and its auditors deem necessary
in order to complete any and all audits of Sellers financial statements in
connection with Buyer's periodic reporting requirements pursuant to the
Securities Exchange Act of 1934, as amended.
(g) Actions in the Ordinary Course of Business. Since the date
of Seller's Base Balance Sheet, neither Seller nor any of its subsidiaries (i)
has taken any action outside the ordinary and usual course of business; (ii) has
borrowed any money or become contingently liable for any obligation or liability
of another; (iii) has failed to pay any of its debts and obligations as they
become due; (iv) has incurred any debt, liability, or obligation of any nature
to any party, except for obligations arising from the purchase of goods or the
rendition of services in the ordinary course of business; or (v) has failed to
use its best efforts to preserve its business organization intact, to keep
available the services of its employees and independent contractors, or to
preserve its relationships with its customers, suppliers, and others with which
it deals.
(h) No Material Change. Since the date of Seller's Base
Balance Sheet, there has not been and there is not threatened (i) any material
adverse change in the condition (financial or otherwise), business, assets,
properties, prospects or operating results of Seller and its subsidiaries taken
as a whole, (ii) any loss or damage (whether or not covered by insurance) to any
of the assets or properties of Seller or its subsidiaries, which materially
affects or impairs their ability to conduct their business, or (iii) any
mortgage or pledge of any assets or properties of Seller or any of its
subsidiaries, or any indebtedness incurred by Seller or any of its subsidiaries,
other than indebtedness, not material in the aggregate, incurred in the ordinary
course of business.
(i) Title to Properties. Seller and its subsidiaries have good
and marketable title to all of their respective real and personal assets and
properties, including all assets and properties reflected in Seller's Base
Balance Sheet or acquired subsequent to the date of Seller's Base Balance Sheet,
except assets or properties disposed of subsequent to the date of Seller's Base
Balance Sheet in the ordinary course of business and as contemplated by this
Agreement. Such assets and properties are subject to no mortgage, indenture,
pledge, lien, claim, encumbrance, charge, security interest or title retention,
or other security arrangement, except for liens for the payment of federal,
state, and other taxes, the payment of which is neither delinquent nor subject
to penalties, and except for other liens and encumbrances incidental to the
conduct of the business of Seller and its subsidiaries or the ownership of their
assets or properties, which were not incurred in connection with the borrowing
of money or the obtaining of advances and which do not in the aggregate
materially detract from the value of the assets or properties of Seller and its
subsidiaries taken as a whole or materially impair the use thereof in the
operation of their respective businesses, except in each case as disclosed in
Seller's Base Balance Sheet. All leases pursuant to which Seller or any of its
subsidiaries lease any substantial amount of real or personal property are valid
and effective in accordance with their respective terms.
(j) Condition of Assets and Properties. The buildings,
equipment, machinery, fixtures, furniture, furnishings, office equipment, and
all other tangible personal assets and properties of Seller and its subsidiaries
presently used in, or necessary for the operation of, Seller's business are sold
"as is".
-9-
(k) Litigation. There are no actions, suits, proceedings, or
other litigation pending or, to the knowledge of Seller or Designated Members,
threatened against Seller or any of its subsidiaries, at law or in equity, or
before or by any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality that, if determined
adversely to Seller or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the business, assets, properties,
operations, operating results, prospects, or condition, financial or otherwise,
of Seller and its subsidiaries taken as a whole.
(l) Rights and Licenses. Neither Seller nor any of its
subsidiaries is subject to any material disability or liability by reason of its
failure to possess any patent, patent right, trademark, trademark right, trade
name, trade name right, or license. Schedule 4.1(l) hereto contains a true,
correct, and complete list of all Licenses and Permits necessary for the conduct
of the business of Seller and its subsidiaries. Each of Seller and its
subsidiaries has all Licenses and Permits necessary for the conduct of the
business conducted by it and the ownership and use of its assets and properties
and the premises occupied by it, and the conduct of its business as presently
conducted.
(m) No Violation. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by Seller or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Seller or any of its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Seller
or any of its subsidiaries is subject or by which Seller or any of its
subsidiaries is bound.
(n) Taxes. Seller has duly filed in correct form all Tax
Returns (as defined hereinafter) relating to the activities of Seller and its
subsidiaries required or due to be filed (with regard to applicable extensions)
on or prior to the date hereof. All such Tax Returns are accurate and complete
in all material respects, and Seller has paid or made provision for the payment
of all Taxes (as defined hereinafter) that have been incurred or are due or
claimed to be due from Seller or any of its subsidiaries by federal, state, or
local taxing authorities for all periods ending on or before the date hereof,
other than Taxes or other charges that are not delinquent or are being contested
in good faith and have not been finally determined and have been disclosed to
Buyer.
(o) Accounts Receivable. The accounts receivable of Seller and
its subsidiaries have been acquired in the ordinary course of business, are
valid and enforceable, and are fully collectible, subject to no defenses,
deductions, set-offs, or counterclaims, except to the extent of the reserve
reflected in Seller's Base Balance Sheet or in such other amount which is not
material in the aggregate. Each such account receivable is fully collectible to
the extent of the face value thereof.
(p) Contracts. Neither Seller nor any of its subsidiaries is a
party to (i) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, or profit sharing,
(ii) any collective bargaining or other contract or agreement with any labor
union, (iii) any lease, installment purchase agreement, or other contract with
respect to any real or personal property used or proposed to be used in its
operations, excepting, in each case, items included within aggregate amounts
disclosed or reflected in Seller's Base Balance Sheet, (iv) any employment
agreement or other similar arrangement not terminable by it upon 30 days or less
notice without penalty to it, (v) any contract or agreement for the purchase of
any commodity, material, fixed asset, or equipment in excess of $10,000, (vi)
any contract or agreement creating an obligation of $10,000 or more, (vii) any
contract, agreement, mortgage, or lease, which by its terms does not terminate
or is not terminable by it without penalty to it, (viii) any loan agreement,
indenture, promissory note, conditional sales agreement, or other similar type
of arrangement, or (ix) any material license agreement. All material mortgages,
leases, contracts, agreements, and other arrangements to which Seller or any of
its subsidiaries is a party are valid and enforceable in accordance with their
terms; Seller, its subsidiaries, and all other parties to each of the foregoing
have performed all material obligations required to be performed to date;
neither Seller, nor any of its subsidiaries, nor any such other party is in
material default or in arrears under the terms of any of the foregoing; and to
our knowledge no condition exists or event has occurred that, with the giving of
notice or lapse of time or both, would constitute a default under any of them.
-10-
(q) Compliance with Law and Other Regulations. Each of Seller
and its subsidiaries is in compliance in all material respects with all
requirements (including those relating to environmental matters) of federal,
state, or local law and all requirements of all governmental bodies and agencies
having jurisdiction over it, the conduct of its business, the use of its assets
and properties, and all premises occupied by it. There is no environmental
contamination, toxic waste or other discharge, spill, construction component,
structural element or condition adversely affecting any of the properties of
Seller or its subsidiaries, nor has Seller or any of its subsidiaries received
any official notice or citation that any of its properties in any way contravene
any federal, state, or local law or regulation relating to environmental,
health, or safety matters, including without limitation any requirements of
CERCLA or any OSHA requirements. Without limiting the foregoing, each of Seller
and its subsidiaries has properly filed all reports, paid all monies, and
obtained all licenses, permits, certificates, and authorizations needed or
required for the conduct of its business and the use of its assets and
properties and the premises occupied by it in connection therewith and is in
compliance in all material respects with all conditions, restrictions, and
provisions of all of the foregoing. Neither Seller nor any of its subsidiaries
has received any notice from any federal, state, or local authority or any
insurance or inspection body that any of its assets, properties, facilities,
equipment, or business procedures or practices fails to comply with any
applicable law, ordinance, regulation, building, or zoning law or requirement of
any public authority or body.
(r) Employee Benefit and Employment Matters. Seller and its
"ERISA Affiliates" (as determined under Section 414(b), (c), (m) or (o) of the
Code) (i) maintain, administer, or contribute to, or at any time during the past
six years have maintained, administered, or contributed to, only those employee
pension benefit plans (as defined in Section 3(2) of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Subtitles of ERISA) described in Schedule
4.1(r) hereto (the "Seller Pension Plans"); and (ii) Seller and its ERISA
Affiliates maintain, administer, or contribute to only those employee welfare
benefit plans (as defined in Section 3(1) of ERISA, whether or not excluded from
coverage under specific Titles or Subtitles of ERISA) described in Schedule
4.1(r) hereto (the "Seller Welfare Plans"). Seller and all ERISA Affiliates
maintain, administer, or contribute to only those bonus, deferred compensation,
stock purchase, stock option, severance plan, insurance, or similar arrangements
described in Schedule 4.1(r) hereto ("Seller Employee Benefit Plans"). Except as
disclosed in Schedule 4.1(r) hereto, the Internal Revenue Service has determined
that each Seller Pension Plan intended to be "qualified" under Section 401(a) of
the Code is so qualified and that the trust forming a part thereof is tax exempt
under Section 501(a) of the Code from the date of its establishment until the
date hereof, and Seller does not know of any matter that would adversely affect
such qualified or tax-exempt status of such plan or trust. Full payment has been
made, or will be made in accordance with Sections 404(a)(6) and 412 of the Code,
of all amounts that either Seller or any ERISA Affiliate is required to pay
under the terms of each of the Seller Pension Plans and Seller Welfare Plans,
and all such amounts are properly accrued on Seller's Base Balance Sheet; and
none of the Seller Pension Plans or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Sections 302 of
ERISA and 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each of such Plans ended prior to the date of this
Agreement. Neither any Seller Pension Plan or Seller Welfare Plan nor any Seller
Pension Plan or Seller Welfare Plan fiduciary has engaged in any transaction in
violation of Section 406 of ERISA or any "prohibited transaction" (as defined in
Section 4975(c)(1) of the Code) other than any such transaction that is exempt
under Section 408 of ERISA or section 4975(d) of the Code. Seller has furnished
-11-
to Buyer as an attachment to Schedule 4.1(r) hereto true and complete copies of
each Seller Pension Plan, Seller Welfare Plan, and Seller Employment Benefit
Plan and related trust agreements or annuity contracts, Internal Revenue Service
determination letters and summary plan descriptions; all of the foregoing plans,
agreements, and commitments are valid, binding, in full force and effect, and
there are no defaults thereunder; and none of the rights of Seller or any of its
ERISA Affiliates thereunder will be impaired by this Agreement or the
consummation of the transactions contemplated by this Agreement. Neither Seller
nor any of its subsidiaries is a party to any collective bargaining agreement
and, to the best of Seller's knowledge, there is no material request for union
representation pending or threatened against Seller or any of its subsidiaries.
Neither Seller nor any of its ERISA Affiliates has incurred any liability to the
Pension Benefit Guarantee Corporation ("PBGC") as a result of the voluntary or
involuntary termination of any Seller Pension Plan subject to Title IV of ERISA;
there is currently no active filing by Seller or any of its ERISA Affiliates
with the PBGC (and no proceeding has been commenced by the PBGC) to terminate
any Seller Pension Plan subject to Title IV of ERISA maintained or funded, in
whole or in part, by Seller or any of its ERISA Affiliates; and neither Seller
nor any of its ERISA Affiliates has made a complete or partial withdrawal from a
multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA). The employment of each employee of Seller
and its subsidiaries is terminable at will without cost to Seller or any of its
subsidiaries. Each of Seller and its subsidiaries has complied with all other
applicable federal, state, and local laws relating to the employment of labor,
including, but not limited to, the provisions thereof relative to wages, hours,
collective bargaining, working conditions, and payment of taxes of any kind, and
neither Seller nor any of its subsidiaries is liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing or has
any obligations for any vacation, sick leave, or other compensatory time. All
officers and independent contractors of Seller and its subsidiaries are paid
salaries or other compensation in accordance with the amounts set forth in
Schedule 4.1(r) hereto, and Schedule 4.1(r) correctly and accurately sets forth
all salaries, expenses, and personal benefits paid to or accrued for all
directors, officers, and principal shareholders of Seller and its subsidiaries
as of the date of this Agreement, all of which are reflected as appropriate in
Seller's Base Balance Sheet.
(s) Insurance. Schedule 4.1(s) hereto contains a description
(identifying insurer, coverage, premiums, named insured, deductibles, and
expiration date) of all policies of fire, liability, and other forms of
insurance that currently are maintained in force by or for the account of Seller
or any of its subsidiaries with respect to the business and assets of Seller or
its subsidiaries (such policies are hereinafter referred to as the "Policies").
Each of Seller and its subsidiaries is presently, insured by insurers
unaffiliated with Seller with respect to its property and the conduct of its
business in such amounts and against such risks as are adequate to protect its
business and assets, including, without limitation, liability insurance. The
insurance coverage provided by the Policies presently in force will not in any
material respect be affected by, and will not terminate or lapse by reason of,
the transactions contemplated hereby.
(t) No Payments to Directors, Officers, Managers, Members, or
Others. Since the date of Seller's Base Balance Sheet, there has not been any
purchase or redemption of any membership interests or its subsidiaries or any
transfer, distribution, or payment by Seller or its subsidiaries, directly or
indirectly, of any assets or properties to any director, officer, manager,
member, or other person other than the payment of compensation for services
actually rendered at rates not in excess of the rates prevailing on the date of
Seller's Base Balance Sheet, other than bonuses aggregating not more than
$22,000.
(u) No Prohibited Payments. Neither Seller and its
subsidiaries nor, to the knowledge of Designated Members, any officer, director,
employee, independent contractor, or agent, acting on behalf of Seller or its
subsidiaries, has at any time (i) made any contributions to any candidate for
political office in violation of law or failed to disclose fully any
contributions to any candidate for political office in accordance with any
applicable statute, rule, regulation, or ordinance requiring such disclosure,
(ii) made any payment to any local, state, federal, or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by applicable law, (iii) made
any payment outside the ordinary course of business to any purchasing or selling
agent or person charged with similar duties of any entity to which Seller or its
subsidiaries sell products or render services or from which Seller or its
subsidiaries buy products or services for the purpose of influencing such agent
or person to buy products or services from or sell products or services to
Seller or its subsidiaries, or (iv) engaged in any transaction, maintained any
bank account, or used any corporate funds, except for transactions, bank
accounts, and funds that have been and are reflected in the normally maintained
books and records of Seller or its subsidiaries.
-12-
(v) Articles of Organization, Operating Agreement and Minute
Books. Seller has heretofore delivered to Buyer true and complete copies of the
articles of organization and operating agreement of Seller and its subsidiaries
as currently in effect. The minute books of Seller and its subsidiaries contain
complete and accurate records of all meetings and other actions held or taken by
the Boards of Managers (or committees of the Boards of Managers) and members of
Seller and its subsidiaries, as the case may be, since their organization.
(w) Intellectual Property.
(i) Intellectual Property consists of the following:
(a) all patents, trademarks, trade names, service marks, trade
dress, copyrights and any renewal rights therefor, mask works, net lists,
schematics, technology, manufacturing processes, supplier lists, trade secrets,
know-how, moral rights, computer software programs or applications (in both
source and object code form), applications and registrations for any of the
foregoing owned by Seller, specifically including but not limited to the
proprietary processes embodied in Seller's pending patents;
(b) all goodwill associated with trademarks, trade names,
service marks and trade dress owned by Seller;
(c) all software, including, but not limited to, the
AsgardSecureNet software, firmware listings, updated software source code, and
complete system build software and instructions related to all software owned by
Seller;
(d) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein owned by Seller;
(e) all other tangible or intangible proprietary information
and materials owned by Seller; and
(f) all license and other rights in any third party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property, including without limitation the types of
intellectual property and tangible and intangible proprietary information
described in (a) through (e) above (other than license agreements for standard
"shrink wrapped, off the shelf," commercially available, third party products
used by Seller);
that are owned or held by or on behalf of Seller or that are being, and/or have
been, used, or are currently under development for use, in the business of
Seller as it has been, is currently or is currently anticipated to be (up to the
Closing), conducted. Intellectual Property described in clauses (a) to (e) above
is referred to herein as "Seller Owned Intellectual Property" and Intellectual
Property described in clause (f) above is referred to herein as "Seller Licensed
Intellectual Property." Unless otherwise noted, all references to "Intellectual
Property" shall refer to both Seller Owned Intellectual Property and Seller
Licensed Intellectual Property.
(ii) Schedule 4.1(w) lists: (a) all patents, copyrights,
mask works, trademarks, service marks, domain names, trade dress, any renewal
rights for any of the foregoing, and any applications and registrations for any
of the foregoing (including the status of such applications and registrations),
that are included in Seller Owned Intellectual Property; (b) all hardware
products and tools, software products and tools, and services that are currently
published, offered, or under development by Seller; (c) all licenses,
sublicenses and other agreements to which Seller is a party and pursuant to
which any end user or other third party is authorized to have access to or use
Intellectual Property or exercise any other right with regard thereto (including
without limitation rights to use or display Seller "brand features"); (d) all
Seller Licensed Intellectual Property (other than license agreements for
standard "shrink wrapped, off the shelf," commercially available, third party
products used by Seller); and (e) any obligations of exclusivity,
noncompetition, nonsolicitation, first refusal, or first negotiation to which
Seller is subject under any agreement that does not fall within the ambit of (c)
or (d) above. The disclosures described in (c), (d) and (e) hereof include the
names and dates of the relevant agreements, as well as the identities of the
parties thereto.
-13-
(iii) Seller Intellectual Property consists solely of items
and rights that are either: (a) owned by Seller, (b) in the public domain, or
(c) rightfully used and authorized for use by Seller and its successors pursuant
to a valid license or other agreement. All Seller Owned Intellectual Property
which consists of license or other rights to third party property also is set
forth in Schedule 4.1(w). Seller has all rights in the Seller Intellectual
Property reasonably necessary to carry out Seller's current, and anticipated
future (up to the Closing) activities and has or had all rights in Seller
Intellectual Property reasonably necessary to carry out Seller's former
activities, including without limitation, if necessary to carry out such
activities, rights to make, use, exclude others from using, reproduce, modify,
adapt, create derivative works based on, translate, distribute (directly and
indirectly), transmit, display and perform publicly, license, rent, lease,
assign, and sell the Seller Owned Intellectual Property in all geographic
locations and fields of use, and to sublicense any or all such rights to third
parties, including the right to grant further sublicenses. All software and
firmware listings that are part of Seller Owned Intellectual Property are
adequately commented in accordance with current software industry standards.
(iv) Seller is not, nor as a result of the execution or
delivery of this Agreement, or performance of Seller's obligations hereunder or
thereunder, will Seller be, in violation of any license, sublicense or other
agreement relating to the Seller Owned Intellectual Property to which Seller is
a party or otherwise bound. Except as specifically described in Schedule 4.1(w),
Seller is not obligated to provide any consideration (whether financial or
otherwise) to any third party, nor is any third party otherwise entitled to any
consideration, with respect to any exercise of rights by Seller or its
successors in Seller Intellectual Property.
(v) The use, reproduction, modification, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any Seller
Owned Intellectual Property or any other authorized exercise of rights in or to
Seller Owned Intellectual Property by Seller or its licensees does not and will
not infringe any copyright, patent, trade secret, trademark, service xxxx, trade
name, firm name, logo, trade dress, mask work, moral right, other intellectual
property right, right of privacy, right of publicity or right in personal or
other data of any person. Further, the use, reproduction, modification, sale, or
any other exercise of rights in any Seller Licensed Intellectual Property or any
other authorized exercise of rights in or to Seller Licensed Intellectual
Property by Seller or its licensees does not and will not infringe any
copyright, patent, trade secret, trademark, service xxxx, trade name, firm name,
logo, trade dress, mask work, moral right, other intellectual property right,
right of privacy, right of publicity or right in personal or other data of any
person. No claims (a) challenging the validity, effectiveness, or ownership by
Seller of any of Seller Owned Intellectual Property, or (b) to the effect that
the use, reproduction, modification, manufacturing, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Seller Owned
Intellectual Property by Seller or its licensees infringes or will infringe on
any intellectual property or other proprietary or personal right of any person
have been asserted or, to Seller's knowledge, are threatened by any person nor
are there any valid grounds for any bona fide claim of any such kind. All
granted or issued patents and mask works and all registered trademarks listed on
Schedule 4.1(w) and all copyright registrations held by Seller are valid,
enforceable and subsisting. To the Seller's knowledge, there is no unauthorized
use, infringement or misappropriation of any of Seller Owned Intellectual
Property by any third party, employee or former employee or other third party.
-14-
(vi) No parties other than Seller possess any current or
contingent rights to any source code that is part of Seller Owned Intellectual
Property (including, without limitation, through any escrow account).
(vii) Schedule 4.1(w) lists all parties who have created
any material portion of, or otherwise have any rights in or to, Seller Owned
Intellectual Property other than employees of Seller whose work product was
created by them entirely within the scope of their employment by Seller and
constitutes works made for hire owned by Seller. Seller has secured from all
parties who have created any material portion of, or otherwise have any rights
in or to, Seller Owned Intellectual Property valid and enforceable written
assignments or licenses of any such work or other rights to Seller and has
provided true and complete copies of such assignments or licenses to Buyer.
(viii) Schedule 4.1(w) includes a true and complete list of
support and maintenance agreements relating to Seller Owned Intellectual
Property, or to which Seller is a party as to Seller Licensed Intellectual
Property, including the identity of the parties and the respective dates of such
agreements and remedies for their breach.
(ix) Seller has obtained legally binding written agreements
from all employees and third parties with whom Seller has shared confidential
proprietary information (a) of Seller, or (b) received from others which Seller
is obligated to treat as confidential, which agreements require such employees
and third parties to keep such information confidential.
(x) Seller has obtained any and all necessary consents from
consumers with regard to the collection and dissemination of personal consumer
information and except as provided by laws or regulations of general
applicability, Buyer may use such information without restriction. Seller's
practices regarding the collection and use of consumer personal information
comply with current privacy standards within the industry as enunciated by the
Online Privacy Alliance or Trust.
(x) Inventories. The Inventories are in good and merchantable
condition and are stated at not more than the lower of cost or market, with
adequate adjustments for obsolete, obsolescent, or otherwise not readily
marketable items. Since the date of Seller's Base Balance Sheet, there have not
been and there are not required to be any write-downs in the value of the
Seller's Inventories or write-offs with respect to such Inventories. The raw
materials, work in progress, and finished goods inventory of Seller being
transferred hereunder are all in good condition and are usable and currently
being used in the present production and sales activities of Seller and its
subsidiaries, and neither Seller nor any of its subsidiaries has on hand or on
order any raw materials, work in progress, or finished goods inventory in excess
of its normal requirements (based upon sales experience for the last 12 months)
for products that are included in its current line and for which Seller is now
taking orders. Without limiting the foregoing, (i) Seller and its subsidiaries
do not have more than a six-month supply of raw materials, work in progress or
finished goods inventory, all of which is saleable at prices currently quoted by
Seller and its subsidiaries, and (ii) all work in progress and finished goods
inventory being transferred to Buyer or Designated Subsidiary pursuant to this
Agreement are in accordance with customers' specifications and the sale thereof
to customers will not result in any liability of any kind to Buyer or Designated
Subsidiary.
(y) No Finder's Fee. Seller has not incurred, nor will it
incur, directly or indirectly, any liability for brokers' or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
-15-
(z) Accuracy of Statements; Full Disclosure. Neither this
Agreement nor any statement, list, certificate, or other information furnished
or to be furnished by Seller or any Designated Member to Buyer in connection
with this Agreement or any of the transactions contemplated hereby contains or
will contain an untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of circumstances in which they are made, not misleading.
Seller has disclosed to Buyer all of the contracts, commitments and liabilities,
direct or contingent, that are associated with the Transferred Assets.
4.2 Representations and Warranties of Designated Members. Each
Designated Member severally represents, warrants, and acknowledges to Buyer and
Designated Subsidiary as follows:
(a) Power of Designated Members to Execute Agreement. Such
Designated Member has the full power and authority to execute, deliver, and
perform this Agreement, and this Agreement is the legal and binding obligation
of such Designated Member and is enforceable against such Designated Member in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought.
(b) Agreement Not in Breach of Other Instruments Affecting
Designated Members. The execution and delivery of this Agreement, the
consummation of the transactions hereby contemplated, and the fulfillment of the
terms hereof will not result in the breach of any term or provision of, or
constitute a default under, or conflict with, or cause the acceleration of any
obligation under any agreement or other instrument of any description to which
such Designated Member is a party or by which such Designated Member is bound,
or any judgment, decree, order, or award of any court, governmental body, or
arbitrator, or any applicable law, rule, or regulation.
4.3 Representations and Warranties of Buyer. Except as otherwise set
forth in the Buyer Disclosure Schedule heretofore delivered by Buyer to Seller,
Buyer represents and warrants to Seller and Designated Members as follows:
(a) Due Incorporation, Good Standing, and Qualification. Each
of Buyer and its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation, with
all requisite corporate power and authority to own, operate, and lease its
assets and properties and to carry on its business as now being conducted.
Neither Buyer nor any of its subsidiaries is subject to any material disability
by reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction. As used in this Agreement with reference to Buyer, the term
"subsidiaries" shall include all direct or indirect subsidiaries of Buyer
including Designated Subsidiary, other than Seller and all direct and indirect
subsidiaries of Seller. No warranty relating to Buyer or its subsidiaries shall
be deemed to be breached as a result of any circumstances that would constitute
a breach of warranty by Seller.
(b) Corporate Authority. Buyer has the corporate power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby. The Board of Directors of Buyer has duly authorized the
execution, delivery, and performance of this Agreement. No other corporate
proceedings on the part of Buyer or its subsidiaries, including the approval of
Buyer's stockholders, are necessary to authorize the execution and delivery by
Buyer of this Agreement or the consummation by Buyer or Designated Subsidiary of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by and constitutes a legal, valid, and binding agreement of Buyer,
enforceable against it in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect relating to
creditors' rights, and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefore may be
brought.
-16-
(c) Capital Stock. As of the date hereof, Buyer has authorized
capital stock consisting of 50,000,000 shares of Common Stock, $0.001 par value,
of which 12,953,570 shares are issued and outstanding, and 1,997,000 shares of
blank check preferred stock, $0.001 par value, of which no shares are issued and
outstanding. As of such date, 3,044,402 shares of Buyer Common Stock were
reserved for issuance upon the exercise of outstanding stock options and
warrants. All of the issued and outstanding shares of capital stock of Buyer and
each of its subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable.
(d) Options, Warrants, and Rights. Neither Buyer nor any of
its subsidiaries has outstanding any options, warrants, or other rights to
purchase, or securities or other obligations convertible into or exchangeable
for, or contracts, commitments, agreements, arrangements or understandings to
issue, any shares of its capital stock or other securities, other than those
referred to in Section 4.3(c).
(e) Subsidiaries. The outstanding shares of capital stock of
the subsidiaries of Buyer owned by Buyer or any of its subsidiaries are owned
free and clear of all claims, liens, charges, and encumbrances. Buyer does not
own, directly or indirectly, any capital stock or other equity securities of any
corporation or have any direct or indirect equity or ownership interest in any
corporation or other business, other than with respect to its subsidiaries.
(f) Financial Statements. The Consolidated Balance Sheet of
Buyer and its subsidiaries as at October 31, 2002, as well as the Consolidated
Statements of Income, the Consolidated Statements of Stockholders' Equity, and
the Consolidated Statements of Cash Flows of Buyer and its subsidiaries for the
period ended October 31, 2002, and all related schedules and notes to the
foregoing, have been reported on by Xxxxx Xxxxxxxx LLP, independent public
accountants, and the Consolidated Balance Sheet of Buyer and its subsidiaries as
at July 31, 2003 and the Consolidated Statement of Income, the Consolidated
Statement of Stockholders' Equity and the Consolidated Statement of Cash Flow of
Buyer and its subsidiaries for the nine months ended July 31, 2003 have been
prepared by Buyer without audit. All of the foregoing financial statements have
been prepared in accordance with generally accepted accounting principles which
were applied on a consistent basis (except as described therein), are correct
and complete, and present fairly, in all material respects the financial
position, results of operations, and changes of financial position of Buyer and
its subsidiaries as of their respective dates and for the periods indicated.
Neither Buyer nor any of its subsidiaries has any material liabilities or
obligations of a type that would be included in a balance sheet prepared in
accordance with generally accepted accounting principles, whether related to tax
or non-tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated or otherwise, except as and to the extent disclosed or reflected in
the Consolidated Balance Sheet of Buyer and its subsidiaries as at July 31, 2003
("Buyer's Base Balance Sheet"), or incurred since July 31, 2003 in the ordinary
course of business and as contemplated by this Agreement.
(g) No Violation. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by Buyer or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Buyer
or any of its subsidiaries is subject or by which Buyer or any of its
subsidiaries is bound.
(h) Taxes. Buyer has duly filed in correct form all Tax
Returns relating to the activities of Buyer and its subsidiaries required or due
to be filed (with regard to applicable extensions) on or prior to the date
hereof. All such Tax Returns are accurate and complete in all material respects,
and Buyer has paid or made provision for the payment of all Taxes that have been
incurred or are due or claimed to be due from Buyer or any of its subsidiaries
by federal, state, or local taxing authorities for all periods ending on or
before the date hereof, other than Taxes or other charges that are not
delinquent or are being contested in good faith and have not been finally
determined and have been disclosed to Seller. The amounts set up as reserves for
Taxes on the books of Buyer and its subsidiaries are sufficient in the aggregate
for the payment of all unpaid Taxes (including any interest or penalties
thereon), whether or not disputed, accrued, or applicable. No claims for taxes
or assessments are being asserted or threatened against Buyer or any of its
subsidiaries.
-17-
(i) SEC Reports. Buyer's Form 10-K Report for the year ended
October 31, 2002, and all subsequent reports and proxy statements filed by Buyer
thereafter with the SEC pursuant to Section 13(a) or 14(a) of the Securities
Exchange Act of 1934, do not contain a misstatement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading as of the time the document was filed. No
report, proxy statement, or other document has been required to be filed by
Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934
that has not been filed. All such reports, registrations, and statements, which
are filed between the date hereof and the Closing Date, will 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 made therein, in light of
the circumstances in which they are made, not misleading.
(j) Accuracy of Statements. Neither this Agreement nor any
statement, list, certificate, or other information furnished or to be furnished
by Buyer to Seller in connection with this Agreement or any of the transactions
contemplated hereby contains or will contain an untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
(k) Status of Buyer Common Stock to be Issued. The shares of
Buyer Common Stock to be issued in partial payment for the Transferred Assets
will be, when issued, validly authorized and issued, fully paid and
nonassessable, and will be subject to the resale restrictions under state or
federal securities laws, including, without limitation, Rule 144 promulgated
pursuant to the Securities Act of 1933, as amended ("Rule 144"). At such time as
such resale restrictions allow the sale of Buyer Common Stock, Buyer shall
assist Sellers in such sale and shall use its reasonable best efforts to provide
such documentation reasonably requested to all the Sellers to sell the Buyer
Common Stock within two (2) days of a request and if requested cause its counsel
to prepare the customary legal opinion necessary to sell such Buyer Common
Stock.
(l) Intent and Access. Buyer and its Designated Subsidiary
have been furnished with such information, both financial and non-financial,
with respect to the operations, business, capital structure, and financial
position of Seller and its subsidiaries as they believe necessary and have been
given the opportunity to ask questions of and receive answers from Seller and
its subsidiaries and their officers and managers concerning Seller and its
subsidiaries.
(m) No Finder's Fee. Buyer has not incurred, nor will it
incur, directly or indirectly, any liability for brokers' or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
-18-
SECTION 5
COVENANTS
5.1 Covenants of Seller. Seller agrees that, unless Buyer otherwise
agrees in writing and except as set forth in the Seller Disclosure Schedule, at
all times prior to the Closing Date:
(a) Truth of Representations and Warranties. Seller and its
subsidiaries shall not take or suffer or permit any action that would render
untrue any of the representations or warranties of Seller herein contained, and
Seller and its subsidiaries shall not omit to take any action, the omission of
which would render untrue any such representation or warranty.
(b) Preservation of Business. Seller shall use its best
reasonable efforts to (i) preserve intact the present business organization of
Seller and its subsidiaries, (ii) preserve the present goodwill and advantageous
relationships of Seller and its subsidiaries with all persons having business
dealings with Seller or its subsidiaries, and (iii) preserve and maintain in
force all licenses, registrations, franchises, patents, trademarks, copyrights,
bonds, rights to formulas, and other similar rights of Seller and its
subsidiaries. Seller and its subsidiaries shall not enter into any employment
agreements with any of their officers or management personnel that may not be
canceled by them without penalty upon notice not exceeding 30 days.
(c) Ordinary Course. Seller and its subsidiaries shall operate
their business only in the usual, regular, and ordinary course and manner.
Without limiting the foregoing, Seller and its subsidiaries shall not (i)
encumber or mortgage any property or assets, (ii) incur any obligation
(contingent or otherwise) or purchase or acquire, or transfer or convey, any
assets or properties or enter into any transaction or make or enter into any
contract or commitment, except in the ordinary course of business and as
contemplated by this Agreement, (iii) acquire any stock or other equity interest
in any corporation, trust, or other entity, (iv) expend more than $5,000 in any
month except in the ordinary course of business consistent with prior periods
and as permitted by this Agreement; or (v) pay, directly or indirectly, any
assets or properties to any director, officer, manager, member, or other person
other than the payment of compensation for services actually rendered at rates
not in excess of the rates prevailing on the date of Seller's Base Balance
Sheet, other than bonuses aggregating not more than $22,000, without the written
approval of Buyer, which shall not be unreasonably withheld.
(d) Books and Records. Seller and its subsidiaries shall
maintain their books, accounts, and records in the usual, regular, and ordinary
manner and on a basis consistent with prior years, and Seller and its
subsidiaries shall comply with all laws applicable to them or to the conduct of
their business.
(e) No Organic Change. Neither Seller nor its subsidiaries
shall (i) amend their operating agreement, articles of organization, charters or
bylaws, as the case may be, (ii) make any change in their membership interests,
or capital stock by reclassification, subdivision, reorganization, or otherwise,
or (iii) merge or consolidate with or sell any assets to any other corporation,
trust, or entity or change the character of their business, except as
contemplated by this Agreement.
-19-
(f) No Issuance by Seller of Membership Interests, Options, or
Other Securities. Neither Seller nor its subsidiaries shall (i) issue any
membership interests or shares of capital stock, or (ii) grant any option,
warrant, or other right to purchase or to convert any obligation into membership
interests or shares of capital stock, as the case may be.
(g) Compensation. Neither Seller nor its subsidiaries shall
(i) increase the compensation payable (including bonus compensation) to any
officer or director or to other management personnel from the amount payable as
of the date of Seller's Base Balance Sheet, (ii) introduce or change any pension
or profit sharing plan or any other employee benefit arrangement, or (iii) pay,
directly or indirectly, any assets or properties to any director, officer,
manager, member, or other person other than the payment of compensation for
services actually rendered at rates not in excess of the rates prevailing on the
date of Seller's Base Balance Sheet, other than bonuses aggregating not more
than $22,000.
(h) Distributions. Seller shall not declare, make, or pay any
distributions with respect to Seller's outstanding membership interests, or
purchase, redeem, or otherwise acquire any of its outstanding membership
interests or permit any of its subsidiaries to do so.
(i) Consents and Approvals. Seller and its subsidiaries shall
use their best reasonable efforts to obtain all necessary consents and approvals
of other persons and governmental authorities to the performance by Seller and
its subsidiaries of the transactions contemplated by this Agreement. Seller
shall make or cause to be made all filings, applications, statements, and
reports to all federal and state government agencies or entities that are
required to be made prior to the Closing Date by or on behalf of Seller or its
subsidiaries pursuant to any statute, rule, or regulation in connection with the
transactions contemplated by this Agreement.
(j) Entry Into Obligations. Seller and its subsidiaries shall
not (i) enter into any lease, contract, agreement, or other obligation with any
party other than contracts for the sale of products or services and contracts
for the purchase of supplies or services in the ordinary and usual course of
business or, whether or not in the ordinary course of business, which involve
obligations in excess of $1,000 or which extend beyond six months from the date
of this Agreement, (ii) amend, modify, or terminate any presently existing
lease, contract, agreement, or other obligation, (iii) enter into any service
agreement, maintenance agreement, contract, or other arrangement relating to the
operation or maintenance of the assets and properties of Seller or its
subsidiaries other than in the ordinary course of business, or (iv) enter into
any amendment, modification, extension, or any other change of any lease,
contract, agreement, or other obligation.
(k) Confidentiality. Seller and its subsidiaries shall not
reveal, orally or in writing, to any person, other than Buyer and Designated
Subsidiary and their representatives, any of the business procedures or
practices followed by them in the conduct of their business or any other
information of a confidential nature.
-20-
(l) Insurance. Seller and each of its subsidiaries shall
maintain in force through the Closing Date all of the property, casualty, crime,
directors and officers, and other forms of insurance that they are presently
carrying and shall refrain from making any change in any such insurance
coverage.
(m) Maintenance of Assets and Properties. Seller and each of
its subsidiaries shall keep the premises occupied by them and all of the
equipment and other tangible assets and personal property of Seller and its
subsidiaries in good operating condition. Seller and its subsidiaries shall not
remove any personal property from any facility of Seller or its subsidiaries
unless same are replaced with similar items of at least equal quality prior to
the Closing Date. Seller and its subsidiaries shall not permit any modifications
or additions to and shall not sell or permit to be sold or otherwise transferred
or disposed of any item or group of items constituting personal property, except
items sold in the ordinary course of business. Seller and its subsidiaries shall
not convey any interest in any of their assets or properties or subject any of
their assets or properties, or any portion thereof, to any additional liens,
encumbrances, or similar matters.
(n) Satisfaction of Obligations and Liabilities. Each of
Seller and its subsidiaries shall (i) pay or cause to be paid all of the
obligations and liabilities arising out of its business as they mature including
those related to taxes, except for those that are in good faith disputed with
the written approval of Buyer, (ii) maintain and perform in all material
respects its obligations under all agreements and contracts to which it is bound
in accordance with their terms, and (iii) comply in all material respects with
all requirements of applicable federal, state, and local laws, regulations, and
rules. Seller and its subsidiaries shall pay or cause to be paid in full all
bills and invoices for labor, goods, materials, services, and utilities of any
kind relating to their business, which were contracted for by Seller or any of
its subsidiaries or which were delivered to or performed on the their
properties.
(o) Recommendation of Board of Directors. Except to the extent
required by fiduciary duty under applicable law as advised by outside counsel,
the board of [directors] [managers] of Seller shall not modify its action taken
on or prior to the date of this Agreement approving the transactions
contemplated hereby and recommending approval of the transactions contemplated
hereby by Seller's members.
(p) Approval of Members. Seller shall (i) cause a meeting of
its members to be duly called and held in accordance with the laws of the state
of Florida and Seller's Articles of Organization and bylaws as soon as
reasonably practicable for the purpose of voting on the adoption and approval of
this Agreement; (ii) recommend to its members approval of this Agreement, except
to the extent that the Board of Managers of Seller determines, upon written
advice of outside counsel, that such act is not permitted by the board of
managers of Seller in the discharge of its fiduciary duties to Seller; and (iii)
use its best efforts to obtain a minimum approval of 67% of its members entitled
to vote.
-21-
(q) Consents and Approvals. Seller shall use its best
reasonable efforts to obtain all consents and approvals of other persons,
including mortgagees or lessors of property owned or leased by Seller or its
subsidiaries and governmental authorities, necessary to the performance by
Seller of the transactions contemplated by this Agreement and necessary to
continue operating Seller's business in the current manner. Seller shall make
all filings, applications, statements, and reports to all federal, state, and
local government agencies and entities, including mortgagees or lessors of
property owned by Seller or its subsidiaries, which are required to be made
prior to the Closing Date by or on behalf of Seller or its subsidiaries pursuant
to any statute, rule, or regulation in connection with the transactions
contemplated by this Agreement.
(r) Employees. Neither Seller nor its subsidiaries shall hire
any employees except in the ordinary course of business and consistent with past
practice or adopt any employee benefit plan or arrangement for the benefit of
employees.
(s) Investments. Neither Seller nor its subsidiaries shall
create or acquire any subsidiary, invest in or acquire an equity interest in any
entity, or purchase any investment assets.
(t) Acquisitions and Dispositions. Neither Seller nor its
subsidiaries shall (i) transfer, sell, pledge, dispose of, or encumber any
assets or incur or modify any indebtedness, except in the ordinary course of
business and consistent with past practice and as contemplated by this
Agreement, or (ii) acquire directly or indirectly or redeem any membership
interests or shares of its capital stock or that of its subsidiaries.
(u) Right of Inspection. Seller shall make available to Buyer
and its representatives for inspection at all reasonable times all of the
assets, properties, facilities, and agreements (including all documents of any
description evidencing any right or obligation of Seller or its subsidiaries)
and the books, accounts, records, and financial statements of Seller and its
subsidiaries as they shall reasonably request and allow Buyer and its
representatives the right to make whatever copies of such materials they
require, and Seller shall permit Buyer and its independent accountants to audit
or make such audit tests respecting the accounts of Seller and its subsidiaries
as Buyer or its accountants consider appropriate.
(v) Complete Liquidation and Dissolution. Seller shall
completely liquidate and dissolve on the earlier to occur of (i) six months from
the Closing Date, or (ii) the distribution of Buyer's Common Stock to the
members of Seller, and in connection therewith, Seller shall distribute to its
members all of its assets and properties after paying outstanding obligations
and liabilities not being assumed by Buyer or its Designated Subsidiary and
providing adequate reserves.
(w) Filing of Tax Returns. As promptly as practicable after
the Closing Date, Seller shall file all federal, state, and local corporate and
income tax returns for its last fiscal year.
-22-
5.2 Covenants of Buyer. Buyer agrees that, unless Seller otherwise
agrees in writing and except as set forth in the Buyer Disclosure Schedule or
contemplated by this Agreement, at all times prior to the Closing Date:
(a) Truth of Representations and Warranties. Buyer and its
subsidiaries shall not take or suffer or permit any action that would render
untrue any of the representations or warranties of Buyer herein contained, and
Buyer and its subsidiaries shall not omit to take any action, the omission of
which would render untrue any such representation or warranty.
(b) Consents and Approvals. Buyer shall use its best efforts
to obtain all necessary consents and approvals of other persons and governmental
authorities to the performance by Buyer and its subsidiaries of the transactions
contemplated by this Agreement. Buyer shall make or cause to be made all
filings, applications, statements, and reports to all federal and state
government agencies and entities that are required to be made prior to the
Closing Date by or on behalf of Buyer or its subsidiaries pursuant to any
statute, rule, or regulation in connection with the transactions contemplated by
this Agreement.
(c) Right of Inspection. Buyer shall make available to Seller
and its representatives for inspection at all reasonable times all of the
assets, properties, facilities, records, agreements (including all documents of
any description evidencing any right or obligation of Buyer or its
subsidiaries), and financial statements of Buyer and its subsidiaries as they
shall reasonably request and allow Seller and its representatives the right to
make whatever copies of such materials they require.
(d) Offer of Employment to Seller's Employees. Buyer shall on
the Closing Date offer employment to the employees of Seller (listed on Schedule
5.2(d) attached hereto) and assume any such employees 2004 accrued vacation if
such employee accepts employment with Buyer.
5.3 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to Section 8, neither Seller or any of its managers,
officers, directors, affiliates, representatives, or agents, nor the Designated
Members shall:
(a) directly or indirectly, encourage, solicit, initiate,
entertain, participate in or accept proposals from, or enter into discussions or
negotiations with, any corporation, partnership, person, or other entity or
group (other than Buyer, its affiliates, employees, representatives, and
advisors) concerning any merger, sale of assets, sale of membership interests,
tender offer, or similar transaction involving Seller or any of its
subsidiaries; or
(b) subject to the fiduciary duties of Seller's Board of
[Directors] [Managers] under applicable law as advised by its counsel, disclose,
directly or indirectly, any non-public information to any corporation,
partnership, person, or other entity or group (other than to Buyer, its
affiliates, employees, representatives, or agents) concerning the business and
assets of Seller or its subsidiaries, afford to any such party access to the
books or records of Seller or its subsidiaries, or otherwise assist or encourage
any such party in connection with any of the foregoing.
-23-
In the event Seller shall receive any offer of the type
referred to in this Section 5.3, Seller shall promptly communicate to Buyer the
terms of any such offer. In addition: (i) in the event the transactions
contemplated hereby are not consummated as a result of Sellers refusal to close
this transaction for any reason, other than Buyer's failure to be have the
ability to satisfy the conditions of Section 6.2, Seller shall pay promptly to
Buyer as liquidated damages $100,000, and (ii) in the event Seller either (a) on
or before March 28, 2004 authorizes, recommends, or enters into, any merger,
consolidation, or other business combination involving Seller or its
subsidiaries or any agreement with respect to the sale of a substantial portion
of the assets or securities of Seller or any of its subsidiaries (which shall be
deemed to mean 25% or more thereof on a consolidated basis) or the sale of its
intellectual property or that of its subsidiaries, other than the transactions
contemplated hereby, or (b) fails to recommend or withdraws its recommendation
to Seller's members of the approval of the transactions provided for herein or
Designated Members do not vote to approve this Agreement and the transactions
contemplated hereby, Seller shall pay promptly to Buyer, as liquidated damages,
the amount of $100,000.
5.4 Best Reasonable Efforts. Subject to the terms and conditions of
this Agreement, and subject to fiduciary duties under applicable law, as advised
by counsel, each of the parties hereto agrees to use its best reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper, or advisable to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
using its best reasonable efforts to obtain all necessary, proper, or advisable
permits, consents, authorizations, requests, and approvals of third parties and
governmental authorities. If at any time after the Closing Date, any further
action is necessary or desirable to carry out the purposes of this Agreement
(including providing any information in any way related to the assets to be
purchased pursuant to this Agreement), the proper managers, officers and
directors of each party to this Agreement shall take all such action.
5.5 Public Announcements. Buyer and Seller shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law on the advice of counsel or by any listing agreement with any
national securities exchange.
SECTION 6
CONDITIONS PRECEDENT TO OBLIGATIONS
6.1 Conditions Precedent to the Obligations of Buyer. The obligations
of Buyer under this Agreement are, at the option of Buyer, subject to the
satisfaction of the following conditions on or before the Closing Date.
-24-
(a) Accuracy of Representations and Warranties. The representations and
warranties of Seller and Designated Members herein contained shall have been
true and correct in all material respects when made and, in addition, shall
be true and correct in all material respects on the Closing Date with the
same force and effect as though made on and as of the Closing Date, except
as affected by transactions contemplated hereby.
(b) Performance of Agreements. Seller and each Designated Member shall have in
all material respects performed all obligations and agreements and complied
with all covenants and conditions contained in this Agreement to be
performed and complied with by them on or prior to the Closing Date and
shall have delivered all documents, instruments, and materials required by
Section 7.2.
(c) Approvals. All necessary action on the part of the directors, managers and
members of Seller approving this Agreement and approving the transactions
contemplated hereby shall have been duly and validly taken and a minimum of
67% of the members entitled to vote on the approval of this Agreement shall
have voted in favor of the transactions contemplated herein. All necessary
consents and approvals of other persons and governmental authorities to the
performance of the transactions contemplated by this Agreement shall have
been obtained.
(d) Opinion of Counsel for Seller. Buyer shall have received an opinion of
Akerman Senterfitt counsel for Seller, dated the Closing Date, in form and
substance satisfactory to Buyer and its counsel, to the effect that:
(i) Each of Seller and its subsidiaries is a limited liability company duly
organized, validly existing, and in good standing under the laws of the
state of its organization and has the power and authority under the laws of
such state to own, lease, and operate its properties, to carry on its
business as then being conducted, and to consummate the transactions
contemplated hereby;
(ii) all necessary proceedings of the Board of [Directors] [Managers] and the
members of Seller to approve and adopt this Agreement and to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly
taken;
(iii) Seller has the corporate power and authority and each Designated Member
has the power to execute and deliver this Agreement, and this Agreement has
been duly authorized, executed, and delivered by each of them and
constitutes the legal, valid, and binding obligation of each of them;
-25-
(iv) such counsel knows of no actions, suits, or proceedings pending or
threatened against Seller or any of its subsidiaries or any Designated
Member at law or in equity, or before or by any federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality that would result in a breach of the representation and
warranty set forth in Section 4.1(k) of this Agreement; and
(v) the consummation of the transactions contemplated by this Agreement will not
violate or result in a breach of or constitute a default by Seller or any of
its subsidiaries or any Designated Member under any provision of any
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, award, ordinance, regulation, or any other restriction of
any kind or character known to such counsel, to which Seller or any of its
subsidiaries or any Designated Member is a party or by which any of them are
bound.
With respect to the opinions expressed pursuant to clauses (iv) and (v)
above, such opinion may be based upon a certificate or certificates of an
officer or officers of Seller or its subsidiaries or any Designated Member and
such other matters as such counsel deems appropriate, and such counsel may rely
on opinions of other counsel reasonably satisfactory to Buyer, which opinion is
delivered in connection with this Agreement.
(e) Assurances as to Intellectual Property. Buyer shall have received a copy of
a letter from Xxxxxxxxxxx and Xxxxxxxx, P.A., counsel to Seller, dated as of the
Closing Date, in form and substance satisfactory to Buyer and its counsel to the
effect that:
i. Seller has filed patent applications with
respect to the Intrusion Detection System and
Wireless Network Security;
ii. a prior-art search was completed prior
to filing the patent applications for the
Intellectual Property referenced in Section 6.1(e)(i)
above, and the Intellectual Property does not
infringe any third parties' rights;
iii. to the best of its knowledge Seller has
good and marketable title to any and all of its
Intellectual Property;
iv. they are not aware of any infringement
claims against Seller; and
v. to the best of its knowledge the
Intellectual Property of Seller does not violate the
rights of any third party.
(f) No Material Adverse Change. There shall be no material adverse
change in the business, assets, properties, prospects, operating results, or
condition (financial or otherwise) of Seller and its subsidiaries taken as a
whole.
-26-
(g) Litigation. No action or proceeding by any governmental
agency shall have been instituted or threatened that would enjoin, restrain, or
prohibit, or might result in substantial damages in respect of, this Agreement
or the consummation of the transactions contemplated by this Agreement and
would, in the reasonable judgment of Buyer, make it inadvisable to consummate
such transactions, and no court order shall have been entered in any action or
proceeding instituted by any other party that enjoins, restrains, or prohibits
this Agreement or consummation of the transactions contemplated by this
Agreement. No actions, suits, proceedings, or other litigation pending or, to
the knowledge of Seller, threatened against Seller or any of its subsidiaries,
at law or in equity, or before or by any federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or instrumentality
exists that, if determined adversely to Seller or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the business,
assets, properties, or prospects or on the condition, financial or otherwise, of
Seller and its subsidiaries taken as a whole.
(h) Delivery of Documents. All other documents required to be
delivered by Seller and Designated Members on or prior to the Closing Date shall
be delivered or shall be tendered by the Closing Date.
(i) Certificates of Seller and Designated Members. Buyer and
Designated Subsidiary shall have received from Seller a certificate executed by
the chairman and secretary of Seller and a certificate of Designated Members,
dated the date of the Closing Date, certifying that all representations and
warranties of Seller and Designated Members, respectively, set forth in this
Agreement are true, complete, and correct in all material respects on and as of
the Closing Date as if made at that time, and that each of Seller and Designated
Members has performed and complied in all material respects with all agreements,
covenants, and conditions required by this Agreement to be performed or complied
with by them at or before the Closing Date.
(j) Employment Agreements. Xxxxxxxxxxx Xxx shall have agreed
to enter into an employment agreement with Buyer, in the form attached hereto as
Exhibit 6.1(j). If Buyer decides, in its sole discretion, to also offer
employment to any or all of Seller's other employees, Seller's management team
shall have used its reasonable best efforts to assist Buyer in employing the
individuals desired by Buyer.
(k) Due Diligence. Buyer shall have completed to its own
satisfaction due diligence in relation to Seller.
6.2 Conditions Precedent to the Obligations of Seller. The
obligations of Seller and Designated Members under this Agreement are, at the
option of Seller and Designated Members, subject to the satisfaction of the
following conditions on or before the Closing Date:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Buyer herein contained shall have been true and correct in all
material respects when made and, in addition, shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, except as affected by
transactions contemplated hereby.
(b) Performance of Agreements. Buyer and Designated Subsidiary shall have in all
material respects performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date and shall have
delivered all consideration, documents, instruments, and other materials
required by Section 7.3 hereof.
-27-
(c) Corporate Approval. All necessary corporate action on the part of the
directors of Buyer and Designated Subsidiary approving this Agreement and
approving the transactions contemplated hereby shall have been taken, and
Seller's members shall have approved this Agreement and the transactions
contemplated hereby as required by applicable law.
(d) Opinion of Counsel for Buyer. Seller shall have received an opinion of
Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP, counsel for Buyer and
Designated Subsidiary, dated the Closing Date, satisfactory in form and
substance to Seller and its counsel, to the effect that:
(i) Each of Buyer and Designated Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation and has the corporate power and authority under the law of
such state to own, lease, and operate its properties, to carry on its
businesses as then being conducted, and to consummate the transactions
contemplated hereby;
(ii) all necessary corporate proceedings of the Board of Directors and
stockholders of Buyer and Designated Subsidiary to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly and validly taken;
(iii) Buyer has the corporate power and authority to execute and deliver this
Agreement, and this Agreement has been duly authorized, executed, and
delivered by it and constitutes its legal, valid, and binding obligation;
(iv) such counsel knows of no actions, suits, or proceedings pending or
threatened against Buyer or any of its subsidiaries at law or in equity, or
before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality that would
result in a breach of the representation and warranty set forth in Section
4.2(j) of this Agreement; and
(v) to the knowledge of counsel, the consummation of the transactions
contemplated by this Agreement will not violate or result in a breach of or
constitute a default by Buyer or any of its subsidiaries under any provision
of any indenture, mortgage, lien, lease, agreement, contract, instrument,
order, judgment, decree, award, ordinance, regulation, or any other
restriction of any kind or character known to such counsel, to which Buyer
or any of its subsidiaries is a party or by which any of them are bound.
(vi) the shares of Buyer Common Stock to be issued in accordance with this
Agreement are duly authorized and will be, upon the consummation of the
transactions contemplated hereby, validly issued, fully paid and
non-assessable, and shall not be transferable absent registration or an
exemption from registration.
-28-
With respect to the opinions expressed pursuant to clauses
(iv) and (v) of this subparagraph, such opinion may be based upon a certificate
or certificates of an officer or officers of Buyer or its subsidiaries and such
other matters as such counsel deems appropriate, and such counsel may rely on
opinions of other counsel reasonably satisfactory to Seller, which opinion is
delivered in connection with this Agreement.
(e) No Material Adverse Change. There shall be no material
adverse change in the business, properties, or financial condition of Buyer and
its subsidiaries taken as a whole.
(f) Litigation. No action or proceeding by any governmental
agency shall have been instituted or threatened that would enjoin, restrain, or
prohibit, or might result in substantial damages in respect of, this Agreement
or the consummation of the transactions contemplated by this Agreement and
would, in the reasonable judgment of Seller, make it inadvisable to consummate
such transactions, and no court order shall have been entered in any action or
proceeding instituted by any other party that enjoins, restrains, or prohibits
this Agreement or consummation of the transactions contemplated by this
Agreement.
(g) Delivery of Documents. All documents required to be
delivered by Buyer on or prior to the Closing Date, including but not limited to
a Xxxx of Sale, Assignment and Assumption Agreement, Registration Rights
Agreement, Employment Agreement, Promissory Notes and Real Property Lease
Assignment and Assumption Agreement shall be delivered or tendered by the
Closing Date.
(h) Certificates of Buyer and Designated Subsidiary. Seller
shall have received from Buyer and Designated Subsidiary a certificate executed
by the Chairman of Buyer and Designated Subsidiary, dated the date of the
Closing Date, certifying that all representations and warranties of Buyer set
forth in this Agreement are true, complete, and correct in all material respects
on and as of the Closing Date as if made at that time and that Buyer and
Designated Subsidiary have performed and complied in all material respects with
all agreements, covenants, and conditions required by this Agreement to be
performed or complied with by Buyer and Designated Subsidiary on or before the
Closing Date.
SECTION 7
THE CLOSING
7.1 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place no later than February 15, 2004
at the offices of Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP, 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m., eastern standard time, or at
such other date, time, and place as may be agreed upon by Buyer and Seller,
which date is sometimes herein called the "Closing Date."
7.2 Deliveries by Seller. At the Closing, Seller shall deliver:
-29-
(a) Instruments of Conveyance. Such deeds, bills of sale,
instruments of assignment and assumption, and other instruments and documents as
may be necessary to convey to Buyer or Designated Subsidiary title to the
Transferred Assets.
(b) Certificates. The certificate of the Managing Member of
Seller and Designated Members required by Section 6.1(i).
(c) Certificates of Secretary. The certificates of the
Secretary of Seller certifying to the resolutions constituting all necessary
corporate action by the board of directors and by the members of Seller to
authorize the consummation of the transactions provided for herein.
(d) Consents. The written consents to assignment of all
parties whose written consent is necessary to the continued effectiveness and
validity, after assignment as provided herein, of all contracts, agreements,
indentures, or leases to which Seller or its subsidiaries are parties, and
written evidence of other consents and approvals of the transactions
contemplated hereby.
(e) Legal Opinion. The opinion of Akerman Senterfitt and
Xxxxxxxxxxx and Xxxxxxxx, P.A. required by Sections 6.1(d) and 6.1(e).
(f) Books and Records. All of the books, records, and files of
Seller and its subsidiaries, excepting only Seller's minute books, membership
books or records, and [employee and] tax records.
(g) Closing Documents. The documents required by Section 6.2
All assignments, consents, certificates, and other documents
delivered by Seller shall be in form reasonably satisfactory to counsel for
Buyer.
7.3 Deliveries by Buyer or Designated Subsidiary. At the Closing,
Buyer or its Designated Subsidiary shall deliver:
(a) Assumption of Liabilities. One or more assumptions of
liabilities necessary to assume the obligations and liabilities being assumed
hereunder.
(b) Purchase Price. Payment of the purchase price provided for
in Section 2.1.
(c) Buyer's Certificate. The certificate executed by Buyer's
Chairman required by Section 6.2(h).
(d) Secretary's Certificate. The Certificate of the Secretary
or an Assistant Secretary of Buyer certifying to the resolutions constituting
all necessary corporate action by the Board of Directors of Buyer and its
Designated Subsidiary to authorize the consummation of the transactions provided
for herein.
(e) Legal Opinion. The opinion of Xxxxxxx, Savage, Kaplowitz,
Wolf & Marcus, LLP, required by Section 6.2(d).
-30-
(f) Consents and Approvals. Written evidence of all consents
and approvals of the transactions contemplated hereby.
All certificates and other documents delivered by Buyer or its
Designated Subsidiary shall be in form reasonably satisfactory to counsel for
Seller.
7.4 Further Assurances. From time to time, on and after the Closing
Date, as and when requested by Buyer or its assigns, the proper officers and
directors of Seller as of the Closing Date shall, for and on behalf and in the
name of Seller or otherwise, execute and deliver all such deeds, bills of sale,
assignments, and other instruments and shall take or cause to be taken such
further or other actions as Buyer or its assigns may deem necessary or desirable
in order to confirm of record or otherwise to Buyer or Designated Subsidiary
title to and possession of all of the Transferred Assets and otherwise to carry
out fully the provisions and purposes of this Agreement. Without limiting the
foregoing, Seller shall make available the books and records retained by Seller
pursuant to Section 1.3 available to Buyer upon three days prior notice and
shall allow Buyer to make extracts, copies, or summaries thereof. The parties
shall cooperate with each other and with their respective counsel and
accountants in connection with any steps to be taken as a part of their
respective obligations under this Agreement, including the preparation of
financial statements. Seller shall make all of its books and records available
to Xxxxx Xxxxxxxx LLP and to cooperate fully with Buyer and Xxxxx Xxxxxxxx LLP,
including making any standard representations and signing any standard audit
representations letters, in order to complete any audit that may be required
under applicable rules and regulations of the SEC, as determined by Xxxxx
Xxxxxxxx LLP.
SECTION 8
WAIVER, MODIFICATION, ABANDONMENT
8.1 Waivers. The failure of Seller or Designated Members to comply
with any of their obligations, agreements, or conditions as set forth in this
Agreement may be waived expressly in writing by Buyer, by action of its Board of
Directors. The failure of Buyer or Designated Subsidiary to comply with any of
their obligations, agreements, or conditions as set forth in this Agreement may
be waived expressly in writing by Seller, by action of its Board of Directors,
without the vote of its members.
8.2 Modification. This Agreement may be modified at any time in any
respect by the mutual consent of all of the parties, notwithstanding prior
approval by the shareholders of Seller. Any such modification may be approved
for any party by its Board of Directors, without further shareholder approval,
except that amount of consideration to be paid for the Transferred Assets may
not be decreased (except as provided herein) without the consent of the
shareholders of Seller given by the same vote as is required under applicable
state law for approval of this Agreement.
8.3 Abandonment. The transactions contemplated by this Agreement may
be abandoned on or before the Closing Date, notwithstanding approval of this
Agreement by the members of Seller:
-31-
(a) By the mutual agreement of the Boards of Directors or
Managers of Buyer and Seller, or
(b) By the Board of Directors of Buyer, if any of the
conditions provided in Section 6.1 shall not have been satisfied, complied with,
or performed in any material respect by the Closing Date, and Buyer shall not
have waived such failure of satisfaction, noncompliance, or nonperformance, or
(c) By the Board of Directors of Seller, if any of the
conditions provided in Section 6.2 shall not have been satisfied, complied with,
or performed in any material respect by the Closing Date, and Seller shall not
have waived such failure of satisfaction, noncompliance, or nonperformance, or
(d) At the option of Buyer or Seller, if there shall have been
instituted and be pending or threatened any legal proceeding before any court or
governmental agency seeking to restrain or prohibit or to obtain damages in
respect of this Agreement or the consummation of the transactions contemplated
by this Agreement, or if any order restraining or prohibiting the transactions
contemplated by this Agreement shall have been issued by any court or
governmental agency and shall be in effect.
In the event of any termination pursuant to this Section 8.3
(other than pursuant to subparagraph (a) hereof) written notice setting forth
the reasons thereof shall forthwith be given by Seller if it is the terminating
party, to Buyer, or by Buyer, if Buyer is the terminating party, to Seller. This
Agreement shall terminate automatically if the Closing Date shall not have
occurred on or before February 15, 2004 (subject to extension as specified
herein), or such later date as shall have been agreed to by the parties hereto
under Section 8.2.
8.4 Effect of Abandonment. Subject to the provisions of Section 5.3
and subject to the Confidentiality Agreement, if the transactions contemplated
by this Agreement are abandoned as provided for in this Section, (a) this
Agreement shall forthwith become wholly void and of no effect without liability
to any party to this Agreement or to the managers, directors, officers,
representatives, and agents of any such party, (b) Buyer and Seller shall each
pay its own fees and expenses incident to the negotiation, preparation, and
execution of this Agreement and the obtaining of the necessary approvals
thereof, including fees and expenses of its counsel, accountants, investment
bankers, and other experts, and (c) Seller and Buyer (and their representatives)
shall return to the other all copies of books, records, documents, or other
papers given by Seller or Buyer (or their representatives) to the other (or
their representatives). Notwithstanding anything herein to the contrary, the
obligations set forth in the Confidentiality Agreement shall survive any
abandonment or termination of this Agreement.
-32-
SECTION 9
NON-COMPETITION
9.1 Non-competition. For purposes of this Section 9 only, the term
"Designated Members" shall mean T-Formation Fund I, LLC, Xxxxxxxxxxx Xxx and Xxx
X. Xxxx and shall not include Xxxxx Xxx. Because of the importance of Designated
Members to the development and operation of the business of Seller, as well as
their knowledge of and reputation in Seller's industry, Buyer is unwilling to
enter into and perform this Agreement unless Seller and Designated Members all
enter into the non-competition agreement contained in this Section 9. To induce
Buyer to enter into this Agreement and for the benefit of Buyer and Designated
Subsidiary, Seller and Designated Members jointly and severally agree to abide
by the terms of this Section 9.
9.2 Duration and Extent of Restriction. Neither Seller nor Designated
Members shall, for a period ending two years after the Closing Date, within the
United States or foreign countries, engage in a business the same as, similar
to, or in general competition with the business being conducted by Seller and
its subsidiaries at or within 12 months prior to the Closing Date. Seller's
"business" shall be defined as providing computer network and security services.
The term "engage in" shall include, but shall not be limited to, activities,
whether direct or indirect, as proprietor, partner, shareholder, principal,
agent, employee, consultant or lender; provided, however, that the ownership of
not more than 5% in the aggregate by Seller and Designated Members of the stock
of a publicly held corporation shall not be included in such term.
9.3 Restrictions with Respect to Customers. In furtherance of, and
without in any way limiting the restriction in Section 9.1, for the period
specified in Section 9.2, neither Seller nor Designated Members shall, directly
or indirectly,
(a) request any past (which shall mean customers of Seller
during the 24 month period prior to this Agreement), present, or future
customers of Seller or any subsidiary of Seller to curtail or cancel their
business with Buyer or any of its subsidiaries;
(b) disclose the identity of any past (which shall mean
customers of Seller during the 24 month period prior to this Agreement),
present, or future customers of Seller or any subsidiary of Seller, Buyer, or
any subsidiary of Buyer to any other person, firm or corporation engaged in a
business the same as, similar to, or in general competition with the business
being conducted by Seller or its subsidiaries within the territorial limits
described in Section 9.2;
(c) solicit, canvas, or accept, or authorize any other person
to solicit, canvas, or accept, from any past (which shall mean customers of
Seller during the 24 month period prior to this Agreement), present, or future
customers of Seller or any subsidiary of Seller, Buyer or any subsidiary of
Buyer, any business for any other person, firm, or corporation engaged in a
business the same as, similar to, or in general competition with the business of
Seller or its subsidiaries being conducted within the territorial limits
described in Section 9.2; or
(d) induce or attempt to influence any employee of Seller or
any subsidiary of Seller, Buyer or any subsidiary of Buyer to terminate his
employment.
As used in this Section 9.3 "future customer" shall mean a customer with whom
business will have been transacted between the date hereof and the end of the
term specified in Section 9.2.
-33-
9.4 Remedies for Breach. Seller and Designated Members acknowledge
that the restrictions contained in this Section 9, in view of the nature of the
business in which they are engaged, are reasonable and necessary to protect the
legitimate interests of Buyer and its subsidiaries and that any violation of
these restrictions would result in irreparable injury to Buyer and its
subsidiaries. Seller and Designated Members agree that, in the event of a
violation of any of such restrictions, Buyer and Designated Subsidiary shall be
entitled to preliminary and permanent injunctive relief as well as an equitable
accounting of all earnings, profits, and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which Buyer and Designated Subsidiary may be entitled. In the
event of a violation, the period of non-competition referred to in Section 9.2
shall be extended by a period of time equal to that period beginning when such
violation commenced and ending when the activities constituting such violation
shall have been finally terminated in good faith.
SECTION 10
INDEMNIFICATION
10.1 Indemnification by Seller and Designated Members.
(a) General. Seller and Designated Members, jointly and
severally, covenant and agree to defend, indemnify, and hold Buyer harmless for,
from, and against any and all damages, losses, liabilities (absolute and
contingent), fines, penalties, costs, and expenses (including, without
limitation, reasonable counsel fees and costs and expenses incurred in the
investigation, defense or settlement of any claim covered by this indemnity)
with respect to or arising out of any demand, claim, inquiry, investigation,
proceeding, action or cause of action that Buyer may suffer or incur by reason
of (i) the material inaccuracy of any of the representations or warranties of
Seller or any Designated Member contained in this Agreement, or any of the
agreements, certificates, documents, exhibits or schedules delivered in
connection with this Agreement; (ii) the failure to comply with, or the breach,
or the default by Seller or any Designated Member of (any breach by a Designated
Member shall be several liability and not joint liability), any of the
covenants, warranties or agreements made by Seller or any Designated Member
contained in this Agreement, or any of the agreements, certificates, documents,
exhibits or schedules delivered in connection with this Agreement; or (iii) any
of the Excluded Liabilities (collectively "Buyer Indemnification Damages").
(b) Bulk Sales Matters. Seller and each Designated Member,
jointly and severally, covenant and agree to defend, indemnify and hold Buyer
harmless for, from, and against any and all damages, losses, liabilities
(absolute and contingent), fines, penalties, costs, and expenses (including,
without limitation, reasonable counsel fees and costs and expenses incurred in
the investigation, defense, or settlement of any claim covered by this
indemnity) with respect to or arising out of any demand, claim, inquiry,
investigation, proceeding, action, or cause of action that Buyer may suffer or
incur by reason of any liability or obligation of Seller, of whatsoever nature
and type, with respect to or arising under any applicable Bulk Sales Act.
-34-
10.2 Indemnification by Buyer. Buyer covenants and agrees to defend,
indemnify, and hold Seller and Designated Members harmless for, from, and
against any and all damages, losses, liabilities (absolute and contingent),
fines, penalties, costs, and expenses (including, without limitation, reasonable
counsel fees and costs and expenses incurred in the investigation, defense or
settlement of any claim covered by this indemnity) with respect to or arising
out of any demand, claim, inquiry, investigation, proceeding, action, or cause
of action that Seller or any Designated Member may suffer or incur by reason of
(a) the inaccuracy of any of the representations or warranties of Buyer
contained in this Agreement or any of the agreements, certificates, documents,
exhibits, or schedules delivered in connection with this Agreement; or (b) the
failure to comply with, or the breach or the default by Buyer, of any of the
covenants, warranties, or agreements made by Buyer in this Agreement or any of
the agreements, certificates, documents, exhibits, or schedules delivered in
connection with this Agreement. Buyer shall have no obligation to defend,
indemnify, and hold Seller or any Designated Member harmless pursuant to this
Section 10.2 hereof with respect to any liability that is an Excluded Liability
set forth in Section 2.2 hereof; or (c) any Assumed Liability.
10.3 Notice and Right to Defend Third-Party Claims. Promptly upon
receipt of notice of any claim, demand, or assessment or the commencement of any
suit, action, or proceeding with respect to which indemnity may be sought
pursuant to this Agreement, the party seeking to be indemnified or held harmless
(the "Indemnitee") shall notify in writing, if possible, within sufficient time
to respond to such claim or answer or otherwise plead in such action (but in any
event within ten days, the party from whom indemnification is sought (the
"Indemnitor"). In case any claim, demand, or assessment shall be asserted, or
suit, action, or proceeding commenced against the Indemnitee, the Indemnitor
shall be entitled, at the Indemnitor's expense, to participate therein, and, to
the extent that it may wish, to assume the defense, conduct, or settlement
thereof, at its own expense, with counsel satisfactory to the Indemnitee, whose
consent to the selection of counsel shall not be unreasonably withheld or
delayed, provided that the Indemnitor confirms to the Indemnitee that it is a
claim to which its rights of indemnification apply. The Indemnitor shall have
the right to settle or compromise monetary claims without the consent of
Indemnitee; however, as to any other claim, the Indemnitor shall first obtain
the prior written consent from the Indemnitee, which consent shall be exercised
in the sole discretion of the Indemnitee. After notice from the Indemnitor to
the Indemnitee of Indemnitor's intent so to assume the defense, conduct,
settlement, or compromise of such action, the Indemnitor shall not be liable to
the Indemnitee for any legal or other expenses (including, without limitation,
settlement costs) subsequently incurred by the Indemnitee in connection with the
defense, conduct, or settlement of such action while the Indemnitor is
diligently defending, conducting, settling, or compromising such action. The
Indemnitor shall keep the Indemnitee apprised of the status of the suit, action,
or proceeding and shall make Indemnitor's counsel available to the Indemnitee,
at the Indemnitor's expense, upon the request of the Indemnitee. The Indemnitee
shall cooperate with the Indemnitor in connection with any such claim and shall
make personnel, books and records and other information relevant to the claim
available to the Indemnitor to the extent that such personnel, books and records
and other information are in the possession and/or control of the Indemnitee. If
the Indemnitor decides not to participate, the Indemnitee shall be entitled, at
the Indemnitor's expense, to defend, conduct, settle or compromise such matter
with counsel satisfactory to the Indemnitor, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed.
10.4 (a) Notwithstanding the foregoing, Buyer shall not be entitled
to any Indemnifiable Damages unless the aggregate of all buyer's Indemnifiable
Damages exceeds $10,000 in which case, the buyer shall be entitled to the full
amount of such Buyer Indemnifiable Damages in excess of such amount.
Notwithstanding anything to the contrary set forth herein, the total buyer
Indemnifiable Damages for which the Sellers and any Designated member shall be
collectively liable hereunder shall not exceed the Purchase Price.
-35-
(b) Each of the representations and warranties made by the
Sellers and the Designated Members in this Agreement or pursuant hereto, shall
survive for a period of two (2) years after the Closing Date.
(c) Notwithstanding anything in this Agreement to the
contrary, the remedies provided in this Section 10 shall be the sole and
exclusive remedies for any inaccuracy in, or any breach of any representation,
warranty, covenant or agreement of, or obligation or liability of the Seller and
any Designated Member contained herein, or any document delivered pursuant to
this Agreement or otherwise relating hereto or thereto, provided, however, that
nothing in this Agreement including this paragraph shall be construed to limit
the right of any party in the proper case to seek and obtain specific
performance or injunctive relief.
SECTION 11
GENERAL
11.1 Indemnity Against Finders. Each party hereto shall indemnify and
hold the other parties harmless against any claim for finders' fees based on
alleged retention of a finder by it.
11.2 Controlling Law. This Agreement, and all questions relating to
its validity, interpretation, performance, and enforcement, shall be governed by
and construed in accordance with the laws of Florida, notwithstanding any
Florida or other conflict-of-law provisions to the contrary. The venue for any
action commenced in connection with this Agreement shall be Florida, Broward
County.
11.3 Notices. All notices, requests, demands, and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received when delivered
against receipt or when deposited in the United States mails, first class
postage prepaid, addressed as set forth below:
If to Buyer:
SteelCloud, Inc.
0000 Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
with a copy given in the manner
prescribed above, to:
Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP
000 Xxxx 00xx Xxxxxx, 0xx xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxx X. Xxxxxxxxx, Esq.
If to Seller:
Asgard Holding LLC
c/o Xxx X. Xxxx
000 Xxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy given in the manner
prescribed above, to:
Akerman Senterfitt, Attorneys at Law
Xxx Xxxxxxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxx, Xxxxxxx 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attention Xxxxx X. Xxxxxxxx
Any party may alter the address to which communications or
copies are to be sent by giving notice to such other parties of change of
address in conformity with the provisions of this paragraph for the giving of
notice.
-36-
11.4 Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no party may assign, delegate, or
transfer its rights or obligations under this Agreement (other than as provided
for herein) without the prior written consent of the other parties hereto. Any
assignment, delegation, or transfer made in violation of this Section 11.4 shall
be null and void.
11.5 Entire Agreement. This Agreement and the Consulting Agreement
contain the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
11.6 Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
11.7 Gender. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
11.8 Survival of Representations and Warranties. The representations
or warranties made in or pursuant to Section 4 shall survive the Closing.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
11.10 Subsidiaries. For purposes of this Agreement, all references to
a subsidiary or subsidiaries of Seller or Buyer shall mean any corporation or
partnership in which Seller or Buyer, as the case may be, owns a majority
interest or otherwise controls.
-37-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
STEELCLOUD, INC.
By:
-------------------------------------
Chairman of the Board and
Chief Executive Officer
ASGARD HOLDING LLC
SteelCloud, Inc., its sole member
By:____________________
Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
SELLER:
ASGARD HOLDING LLC
By:
-------------------------------------
Managing Member
ASGARD TECHNOLOGY LLC
By:
-------------------------------------
Managing Member
DESIGNATED MEMBERS:
Witness: T-FORMATION FUND I, LP
By: EMT Investments, Inc.,
its General Partner
By:
-----------------------------------
Xxxxxx X. Xxxxx, President
Xxxxx Xxx
Xxxxxxxxxxx Xxx
Xxx X. Xxxx
-38-
--------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
--------------------------------------------------------------------------------
DATED AS OF FEBRUARY __, 2004
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AMONG
--------------------------------------------------------------------------------
STEELCLOUD, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AND
--------------------------------------------------------------------------------
ASGARD HOLDING LLC,
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ASGARD TECHNOLOGY LLC,
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AND
--------------------------------------------------------------------------------
T-FORMATION FUND I, LP
XXXXX XXX,
XXXXXXXXXXX XXX AND
XXX X. XXXX
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
-39-
SECTION 1 TRANSFER OF ASSETS.............................................................................1
1.1 Purchase and Sale of Assets....................................................................1
1.2 Transferred Assets.............................................................................1
(a) Accounts Receivable...................................................................1
(b) Vehicles, Furniture, Fixtures, and Equipment..........................................1
(c) Inventory.............................................................................2
(d) Claims and Rights to the Transferred Assets...........................................2
(e) Business Contracts....................................................................2
(f) Intellectual Property.................................................................2
(g) Customer Lists........................................................................2
(h) Life Insurance........................................................................2
(i) Books and Records.....................................................................2
(j) Computer Software and Hardware........................................................2
(k) Leased Real Property and Personalty...................................................2
(l) Names.................................................................................3
(m) Phone Numbers.........................................................................3
(n) Deposits and Prepaid Expenses.........................................................3
(o) Stock of Subsidiaries.................................................................3
1.3 Excluded Assets................................................................................3
(a) Rights Hereunder......................................................................3
(b) Corporate Documents...................................................................3
(c) Seller's Records of Negotiations......................................................3
(d) Employee Records......................................................................3
(e) Other Assets..........................................................................3
(f) Tax Records...........................................................................3
SECTION 2 ASSUMPTION OF LIABILITIES......................................................................3
2.1 Liabilities Assumed............................................................................3
2.2 Excluded Liabilities...........................................................................4
(a) Liabilities Hereunder.................................................................4
(b) Legal and Accounting Fees.............................................................4
(c) Tax Liabilities.......................................................................4
(d) Liability to Buyer for Breach.........................................................4
(e) Liabilities to Employees..............................................................4
(f) Property and Personal Injury Liabilities..............................................5
(g) Liability for Medical, Dental, and Disability.........................................5
(h) Liability to Others for Breach........................................................5
(i) Liability Regarding Employee Welfare and Pension Benefits.............................5
(j) Liability for Violation of Law........................................................5
(k) Environmental Laws....................................................................5
(l) Transfer and Use Tax Liabilities......................................................5
(m) ERISA.................................................................................6
(n) Employee Grievances...................................................................6
(o) Seller's Indebtedness.................................................................6
(p) Members and Affiliates................................................................6
(q) Liabilities Not Assumed Hereunder.....................................................6
2.3 No Expansion of Third Party Rights.............................................................6
2.4 Designated Subsidiary..........................................................................6
SECTION 3 PURCHASE PRICE.................................................................................6
3.1 Purchase Price.................................................................................6
3.2 Payment of Purchase Price......................................................................6
3.3 Adjustment to Purchase Price...................................................................7
3.4 Allocation of Purchase Price...................................................................7
-40-
SECTION 4 REPRESENTATIONS AND WARRANTIES.................................................................7
4.1 Representations and Warranties of Seller.......................................................7
(a) Due Formation, Good Standing, and Qualification.......................................7
(b) Authority.............................................................................8
(c) Membership Interests..................................................................8
(d) Options, Warrants, and Rights.........................................................8
(e) Subsidiaries..........................................................................8
(f) Financial Statements..................................................................8
(g) Actions in the Ordinary Course of Business............................................9
(h) No Material Change....................................................................9
(i) Title to Properties...................................................................9
(j) Condition of Assets and Properties....................................................9
(k) Litigation............................................................................9
(l) Rights and Licenses..................................................................10
(m) No Violation.........................................................................10
(n) Taxes................................................................................10
(o) Accounts Receivable..................................................................10
(p) Contracts............................................................................10
(q) Compliance with Law and Other Regulations............................................11
(r) Employee Benefit and Employment Matters..............................................11
(s) Insurance............................................................................12
(t) No Payments to Directors, Officers, Members, or Others...............................12
(u) No Prohibited Payments...............................................................12
(v) Articles of Organization, Operating Agreement and Minute Books.......................13
(w) Intellectual Property................................................................13
(x) Inventories..........................................................................15
(y) No Finder's Fee......................................................................16
(y) Accuracy of Statements; Full Disclosure .............................................16
4.2 Representations and Warranties of Designated Members..........................................20
(a) Power of Designated Members to Execute Agreement.....................................20
(b) Agreement Not in Breach of Other Instruments Affecting Designated Members ...........20
4.3 Representations and Warranties of Buyer.......................................................16
(a) Due Incorporation, Good Standing, and Qualification..................................17
(b) Corporate Authority..................................................................17
(c) Capital Stock........................................................................17
(d) Options, Warrants, and Rights........................................................17
(e) Subsidiaries.........................................................................17
(f) Financial Statements.................................................................17
(g) No Violation.........................................................................18
(h) Taxes................................................................................18
(i) SEC Reports..........................................................................18
(j) Accuracy of Statements...............................................................18
(k) Status of Buyer Common Stock to be Issued............................................18
(l) Intent and Access....................................................................19
(m) No Finder's Fee .....................................................................16
-41-
SECTION 5 COVENANTS.....................................................................................19
5.1 Covenants of Seller...........................................................................19
(a) Truth of Representations and Warranties..............................................19
(b) Preservation of Business.............................................................19
(c) Ordinary Course......................................................................19
(d) Books and Records....................................................................19
(e) No Organic Change....................................................................20
(f) No Issuance by Seller of Membership Interests, Options, or Other Securities..........20
(g) Compensation.........................................................................20
(h) Distributions........................................................................20
(i) Consents and Approvals...............................................................20
(j) Entry Into Obligations...............................................................20
(k) Confidentiality......................................................................20
(l) Insurance............................................................................20
(m) Maintenance of Assets and Properties.................................................21
(n) Satisfaction of Obligations and Liabilities..........................................21
(o) Recommendation of Board of Directors.................................................21
(p) Approval of Members..................................................................21
(q) Consents and Approvals...............................................................21
(r) Employees............................................................................21
(s) Investments..........................................................................22
(t) Acquisitions and Dispositions........................................................22
(u) Right of Inspection..................................................................22
(v) Complete Liquidation and Dissolution ................................................22
(w) Filing of Tax Returns ...............................................................22
5.2 Covenants of Buyer............................................................................22
(a) Truth of Representations and Warranties..............................................22
(b) Consents and Approvals...............................................................22
(c) Right of Inspection..................................................................22
(d) Offer of Employment to Seller's Employees............................................22
5.3 No Solicitation...............................................................................23
5.4 Best Reasonable Efforts.......................................................................23
5.5 Public Announcements..........................................................................23
SECTION 6 CONDITIONS PRECEDENT TO OBLIGATIONS...........................................................24
6.1 Conditions Precedent to the Obligations of Buyer..............................................24
(a) Accuracy of Representations and Warranties...........................................24
(b) Performance of Agreements............................................................24
(c) Approvals ...........................................................................24
(d) Opinion of Counsel for Seller .......................................................24
(e) Assurances as to Intellectual Property ..............................................25
(f) No Material Adverse Change...........................................................25
(g) Litigation...........................................................................25
(h) Delivery of Documents................................................................26
(i) Certificates of Seller and Designated Members........................................26
(j) Non-Competition Agreements...........................................................26
(k) Employment Agreements................................................................26
(l) Due Diligence .......................................................................26
6.2 Conditions Precedent to the Obligations of Seller.............................................26
(a) Accuracy of Representations and Warranties...........................................26
(b) Performance of Agreements............................................................26
(c) Corporate Approval...................................................................27
(d) Opinion of Counsel for Buyer.........................................................26
(e) No Material Adverse Change...........................................................27
(f) Litigation...........................................................................27
(g) Delivery of Documents................................................................28
(h) Certificates of Buyer and Designated Members.........................................28
-42-
SECTION 7 THE CLOSING...................................................................................28
7.1 Closing.......................................................................................28
7.2 Deliveries by Seller..........................................................................28
(a) Instruments of Conveyance............................................................28
(b) Certificates.........................................................................28
(c) Certificates of Secretary............................................................28
(d) Consents.............................................................................28
(e) Legal Opinion........................................................................28
(f) Books and Records....................................................................28
7.3 Deliveries by Buyer or Designated Subsidiary..................................................29
(a) Assumption of Liabilities............................................................29
(b) Purchase Price.......................................................................29
(c) Buyer's Certificate..................................................................29
(d) Secretary's Certificate..............................................................29
(e) Legal Opinion........................................................................29
(f) Consents and Approvals...............................................................29
7.4 Further Assurances............................................................................29
SECTION 8 WAIVER, MODIFICATION, ABANDONMENT.............................................................29
8.1 Waivers.......................................................................................29
8.2 Modification..................................................................................30
8.3 Abandonment...................................................................................30
8.4 Effect of Abandonment.........................................................................30
SECTION 9 NON-COMPETITION...............................................................................31
9.1 Non-competition...............................................................................31
9.2 Duration and Extent of Restriction............................................................31
9.3 Restrictions with Respect to Customers........................................................31
9.4 Remedies for Breach...........................................................................31
SECTION 10 INDEMNIFICATION...............................................................................32
10.1 Indemnification by Seller and Designated Members..............................................32
(a) General..............................................................................32
(b) Bulk Sales Matters...................................................................32
10.2 Indemnification by Buyer......................................................................32
10.3 Notice and Right to Defend Third-Party Claims.................................................33
SECTION 11 GENERAL.......................................................................................34
11.1 Indemnity Against Finders.....................................................................34
11.2 Controlling Law...............................................................................34
11.3 Notices.......................................................................................34
11.4 Binding Nature of Agreement; No Assignment....................................................35
11.5 Entire Agreement..............................................................................35
11.6 Paragraph Headings............................................................................35
11.7 Gender........................................................................................35
11.8 Survival of Representations and Warranties....................................................35
11.9 Counterparts..................................................................................35
11.10 Subsidiaries ..........................................................................................35
-43-
