MEMBERSHIP INTEREST PURCHASE AGREEMENT
between
IMAGEWARE SYSTEMS, INC.,
a California corporation
and
CASTLE HOLDINGS LLC,
a Nevada limited liability company,
________________
Dated as of August 10, 2001
________________
TABLE OF CONTENTS
PAGE
SECTION 1. SALE AND PURCHASE OF LLC SHARES; RELATED TRANSACTIONS......................................... ..1
1.1. Sale and Purchase of LLC Shares.................................................................1
1.2. Purchase Price..................................................................................2
1.3. Closing.........................................................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.........................................................3
2.1 Due Organization; No Subsidiaries; Etc..........................................................3
2.2 Articles of Organization and Operating Agreements; Records......................................3
2.3 Capitalization, Etc............................................................................
2.4 Financial Statements...........................................................................
2.5 Absence of Changes.............................................................................
2.6 Title to Assets................................................................................
2.7 Receivables....................................................................................
2.8 Inventory......................................................................................
2.9 Equipment and Tangible Personal Property.......................................................
2.10 Real Property...................................................................................8
2.11 Proprietary Assets..............................................................................8
2.12 Contracts; Consents.............................................................................8
2.13 No Undisclosed Liabilities.....................................................................11
2.14 Compliance With Legal Requirements.............................................................12
2.15 Governmental Authorizations....................................................................12
2.16 Tax Matters....................................................................................12
2.17 Employee and Labor Matters.....................................................................12
2.18 Benefit Plans..................................................................................13
2.19 Environmental Matters..........................................................................
2.20 Insurance......................................................................................14
2.21 Related Party Transactions.....................................................................15
2.22 Proceedings; Orders............................................................................15
2.23 Authority; Binding Nature of Agreements........................................................16
2.24 Non-Contravention; Consents....................................................................17
2.25 Brokers........................................................................................17
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TABLE OF CONTENTS
(CONTINUED)
PAGE
2.26 Full Disclosure................................................................................16
2.27 Investment Representations.....................................................................17
2.28 Solvency.......................................................................................17
2.29 Payment of Fees and Expenses...................................................................17
2.30 Projections....................................................................................17
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................................................18
3.1 Due Organization; Good Standing................................................................18
3.2 Authority; Binding Nature of Agreements........................................................18
3.3 Capitalization.................................................................................18
3.4 SEC Filings....................................................................................18
3.5 Financial Statements...........................................................................19
3.6 Liabilities....................................................................................19
3.7 No Material Adverse Change.....................................................................19
3.8 Proceedings; Orders............................................................................19
3.9 Non-Contravention; Consents....................................................................19
3.10 Compliance With Legal Requirements.............................................................20
3.11 Brokers........................................................................................20
3.12 Valid Issuance.................................................................................20
SECTION 4. CLOSING DELIVERABLES............................................................................20
4.1 Agreements and Documents of Seller.............................................................20
4.2 Agreements and Documents of the Purchaser......................................................21
SECTION 5. POST CLOSING COVENANTS OF SELLER AND PURCHASED..................................................22
5.1 Filings and Consents...........................................................................22
5.2 Disposition of Contingent Shares...............................................................23
SECTION 6. INDEMNIFICATION.................................................................................23
6.1 Survival of Representations and Covenants......................................................23
6.2 Indemnification by Seller......................................................................24
6.3 Threshold; Cap.................................................................................25
6.4 Security for Indemnification Rights............................................................25
6.5 Exclusivity of Indemnification Remedies........................................................25
6.6 Exercise of Remedies by Indemnitees Other Than Purchase........................................25
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 7. MISCELLANEOUS PROVISIONS........................................................................25
7.1 Further Assurances.............................................................................26
7.2 Fees and Expenses..............................................................................26
7.3 Attorneys' Fees................................................................................26
7.4 Notices .......................................................................................26
7.5 Time Of the Essence............................................................................26
7.6 Headings ......................................................................................27
7.7 Counterparts...................................................................................28
7.8 Governing Law Venue............................................................................28
7.9 Successors and Assigns.........................................................................28
7.10 Remedies Cumulative; Specific Performance......................................................28
7.11 Waiver ........................................................................................28
7.12 Amendments.....................................................................................28
7.13 Severability...................................................................................29
7.14 Parties in Interest............................................................................29
7.15 Entire Agreement...............................................................................29
7.16 Construction...................................................................................29
iii
MEMBERSHIP INTEREST PURCHASE AGREEMENT
THIS
MEMBERSHIP INTEREST PURCHASE AGREEMENT is entered into as of
August 10, 2001, by and between IMAGEWARE SYSTEMS, INC., a
California
corporation (the "Purchaser") and CASTLE HOLDINGS LLC, a Nevada limited
liability company ("Seller"). Certain capitalized terms used in this
Agreement are defined in Exhibit A.
RECITALS
A. Seller owns ninety thousand (90,000) Common Shares of Castleworks
LLC (the "Castleworks Shares"), a Nevada limited liability company
("Castleworks"), which constitute all of the outstanding equity and other
interests of Castleworks.
B. Seller owns one hundred thousand (100,000) Common Shares of E-Focus
West LLC (the "E-Focus Shares"), a Nevada limited liability company ("E-Focus"),
which constitute all of the outstanding equity and other interests of E-Focus.
C. Seller wishes to sell the Castleworks Shares and the E-Focus Shares
(collectively, the "LLC Shares") to the Purchaser on the terms set forth in this
Agreement.
AGREEMENT
The Purchaser and Seller, intending to be legally bound, agree as
follows:
SECTION 1. SALE AND PURCHASE OF LLC SHARES; RELATED TRANSACTIONS
1.1 SALE AND PURCHASE OF LLC SHARES. At the Closing, Seller shall sell,
assign, transfer and deliver the LLC Shares, free and clear of all Encumbrances,
to the Purchaser, and the Purchaser shall purchase, assume and accept the LLC
Shares from Seller, on the terms and subject to the conditions set forth in this
Agreement.
1.2 PURCHASE PRICE.
(a) The aggregate purchase price payable by the Purchaser for the
LLC Shares (the "Purchase Price") shall be payable in cash and Purchaser Common
Stock (as defined in Section 3.3) as follows:
(I) cash in the amount of one hundred thousand dollars
($100,000) (the "Cash Consideration");
(II) 600,000 shares of Purchaser Common Stock, 550,000 shares
of which shall be issued to Seller or its members at the Closing (the "Closing
Shares") and 50,000 shares of which shall be issued at the Closing and held by
the Escrow Agent in accordance with the terms of the Escrow Agreement (the
"Escrow Shares"); and
1.
(III) in the event that the closing sales price of one share of
Purchaser Common Stock as quoted on the American Stock Exchange (as reported on
the website of the American Stock Exchange at XXX.XXXX.XXX) (or any other
national securities exchange or over-the-counter market on which the Purchaser
Common Stock is then traded or quoted) shall fail to be equal to or greater than
Six Dollars and Fifty Cents ($6.50) (the "Target Price") for at least any ten
trading days (the "Target Duration") during the period beginning as of the date
of the Closing and ending on the date which is twelve months from the date of
the Closing (the "Measurement Period"), an additional 100,000 shares of
Purchaser Common Stock (the "Contingent Shares"), it being understood that such
Contingent Shares shall be issued at the Closing and held by the Escrow Agent in
accordance with the terms of the Escrow Agreement.
(B) The Closing Shares, the Escrow Shares and the Contingent Shares
are collectively referred to herein as the "Purchase Shares."
1.3 CLOSING.
(A) The closing of the sale of the LLC Shares to the Purchaser (the
"Closing") shall take place at the offices of Xxxxxx Godward, LLP, counsel to
the Purchaser, at 10:00 a.m. (Pacific Daylight Time) on the date this Agreement
is signed (or at such other place or time as the Purchaser and Seller may
jointly designate). "Closing Date" shall mean the time and date as of which the
Closing actually takes place.
(B) At the Closing:
(I) the Purchaser shall pay to Seller by wire transfer the Cash
Consideration and shall issue and deliver to Seller (or to the members of
Seller, as directed by Seller) certificates representing the Closing Shares;
(II) the Purchaser shall issue and deliver to the Escrow Agent
a certificate representing the Escrow Shares and a certificate representing the
Contingent Shares, such shares to be held by the Escrow Agent in accordance with
the Escrow Agreement; and
(III) the parties shall deliver each of the closing
deliverables set forth in Section 4.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants, to and for the benefit of the
Indemnitees, as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(A) Seller, Castleworks and E-Focus are limited liability companies
duly organized, validly existing and in good standing under the laws of the
State of Nevada, and each of these limited liability companies has all necessary
power and authority:
(I) to conduct its business in the manner in which its business
is currently being conducted;
2.
(II) to own and use its assets in the manner in which its
assets are currently owned and used; and
(III) to perform its obligations under all its Contracts.
(B) Except for the jurisdictions identified in Part 2.1(b) of the
Disclosure Schedule, Seller, Castleworks and E-Focus are not required to be
qualified, authorized, registered or licensed to do business as a foreign
limited liability company. Seller, Castleworks and E-Focus are in good standing
as a foreign limited liability company in each of the jurisdictions identified
in Part 2.1(b) of the Disclosure Schedule.
(C) Part 2.1(c) of the Disclosure Schedule accurately sets forth (i)
the names of the managers of each of Seller, Castleworks and E-Focus and (ii)
the names of the officers of each of Seller, Castleworks and E-Focus.
(D) None of Seller, Castleworks or E-Focus nor any of their
respective managers or members, has ever approved, or commenced any proceeding
or made any election contemplating, the dissolution, liquidation sale or other
disposition of Seller, Castleworks or E-Focus or the winding up or cessation of
Seller's, Castleworks' or E-Focus' business or affairs.
(E) Except as set forth in Part 2.1(e) of the Disclosure Schedule,
Castleworks and E-Focus have no subsidiaries, and have never owned, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
interest of any nature in, any Entity. Seller currently has no subsidiaries
other than Castleworks and E-Focus, except as set forth in Part 2.1(e) of the
Disclosure Schedule.
2.2 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENTS; RECORDS.
(A) Seller has delivered to the Purchaser accurate and complete
copies of:
(I) Articles of organization and operating agreements for each
of Seller, Castleworks and E-Focus, including all amendments thereto;
(II) the share register or other membership interest records of
each of Seller, Castleworks and E-Focus; and
(III) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the managers of each of Castleworks and E-Focus and of the members
of each of Castleworks and E-Focus. There have been no meetings or other
proceedings of the managers or the members of Castleworks or E-Focus that are
not fully reflected in such minutes or other records.
2.3 CAPITALIZATION, ETC.
(A) The authorized equity of Castleworks consists of membership
interests represented by one million (1,000,000) Preferred Shares and one
million (1,000,000) Common Shares, of which ninety thousand (90,000) Common
Shares have been issued, all of which are outstanding and owned, beneficially
and of record, by Seller.
3.
(B) The authorized equity of E-Focus consists of membership
interests represented by one million (1,000,000) Preferred Shares and one
million (1,000,000) Common Shares, of which one hundred thousand (100,000)
Common Shares have been issued, all of which are outstanding and owned,
beneficially and of record, by Seller.
(C) The authorized equity of Seller consists of membership interests
represented by one million (1,000,000) Preferred Shares and one million
(1,000,000) Common Shares, which Common Shares may be issued from time to time
in two series designated respectively as Series A and Series B, of which one
hundred five thousand eight hundred eighty-two (105,882) Series A Common Shares
have been issued (the "Castle Holdings Shares"), all of which are outstanding
and owned, beneficially and of record, as follows:
(I) 15,882 Series A Common Shares by Xxxxxxx Kodak Company;
(II) 30,000 Series A Common Shares by TDI Castles LLC;
(III) 30,000 Series A Common Shares by Xxxx Xxxxx; and
(IV) 30,000 Series A Common Shares by Xxxxx Xxxxx.
(D) Except as set forth in Part 2.3(d) of the Disclosure Schedule, the
individuals set forth in Section 2.3(c) have good and valid title to the Castle
Holdings Shares, free and clear of any Encumbrances. Seller has, and the
Purchaser will acquire at the Closing, good and valid title to the LLC Shares
free and clear of any Encumbrances.
(E) All of the Castle Holdings Shares and the LLC Shares (i) have been duly
authorized and validly issued, (ii) are fully paid and non-assessable, and (iii)
have been issued in full compliance with all applicable securities laws and
other applicable Legal Requirements.
(F) There is no:
(I) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any equity interest in, or
other security of, Castleworks or E-Focus;
(II) outstanding security, instrument or obligation that is or
may become convertible into or exchangeable
for any equity interest in, or other security of, Castleworks or E-Focus;
(III) Contract under which Castleworks or E-Focus is or may
become obligated to sell or otherwise issue any equity interest or other
security; or
(IV) to the Knowledge of Seller, any condition or circumstance
that may directly or indirectly give rise to or provide a reasonable basis for
the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any equity interest in, or other security of,
Castleworks or E-Focus.
4.
2.4 FINANCIAL STATEMENTS.
(A) Seller has delivered to the Purchaser the following financial
statements and notes (collectively, the "Seller Financial Statements"):
(I) the unaudited consolidated balance sheet of Seller and the
unaudited balance sheets of Castleworks and E-Focus as of December 31, 2000, and
the related unaudited statements of operations and changes in members' equity
for the year then ended, together with the notes thereto;
(II) the unaudited balance sheet of Castleworks as of May 31,
2001 (the "Castleworks Unaudited Interim Balance Sheet"), and the related
statements of operations and changes in members' equity for the 5 months then
ended, together with the notes thereto;
(III) the unaudited balance sheet of E-Focus as of May 31, 2001
(the "E-Focus Unaudited Interim Balance Sheet"), and the related statements of
operations and changes in members' equity for the 5 months then ended, together
with the notes thereto;
(B) All of the Seller Financial Statements are accurate and complete
in all respects, and the dollar amount of each line item included in the Seller
Financial Statements is accurate in all respects. The financial statements and
notes referred to in Section 2.4(a)(i) present fairly in all material respects
the financial position of Seller, Castleworks and E-Focus as of December 31,
2000 and the consolidated results of operations and changes in members' equity
of Seller and its subsidiaries for the year then ended. The financial statements
and notes referred to in Sections 2.4(a)(ii) and 2.4(a)(iii) present fairly in
all material respects the financial position of Castleworks and E-Focus as of
the respective dates thereof and the results of operations and changes in
members' equity of Castleworks and E-Focus for the periods covered thereby.
Unless otherwise indicated therein, the Seller Financial Statements have been
prepared in accordance with generally accepted accounting principles, applied on
a consistent basis throughout the periods covered.
2.5 ABSENCE OF CHANGES.Except as set forth in Part 2.5 of the Disclosure
Schedule, since May 31, 2001:
(A) there has not been any material adverse change in Castleworks'
or E-Focus' business, condition, assets, liabilities, operations, financial
performance or net income (or in any aspect or portion thereof), and no event
has occurred that might reasonably be expected to have a Material Adverse Effect
on Castleworks or E-Focus;
(B) there has not been any material loss, damage or destruction to,
or any interruption in the use of, any of Castleworks' or E-Focus' assets
(whether or not covered by insurance);
(C) Neither of Castleworks or E-Focus has (i) declared, accrued, set
aside or paid any distribution to any Person in respect of any of its equity
interests, (ii) repurchased, redeemed or otherwise reacquired any of its equity
interests or other securities or (iii) sold or otherwise issued any of its
equity interests or any other securities;
5.
(D) Neither of Castleworks or E-Focus has made any capital
expenditure in excess of $25,000;
(E) Neither of Castleworks or E-Focus has sold or otherwise
transferred, and has not leased or licensed, any asset to any other Person
except for products sold by Castleworks or E-Focus from its inventory in the
Ordinary Course of Business;
(F) Neither of Castleworks or E-Focus has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness;
(G) Neither of Castleworks or E-Focus has pledged or hypothecated
any of its assets or otherwise permitted any of its assets to become subject to
any Encumbrance;
(H) Neither of Castleworks or E-Focus has made any loan or advance
to any other Person;
(I) Neither of Castleworks or E-Focus has (i) established or adopted
any Employee Benefit Plan, or (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees or (iii) made any promises to its employees
with regard to future employment;
(J) Neither of Castleworks or E-Focus has entered into, and neither
of Castleworks or E-Focus, nor any of the assets owned or used by Castleworks or
E-Focus, has become bound by, any Contract that is not an Excluded Contract;
(K) No Contract by which Castleworks or E-Focus or any of the assets
owned or used by Castleworks or E-Focus is or was bound, or under which
Castleworks or E-Focus has or had any rights or interest, has been amended or
terminated except as in the Ordinary Course of Business;
(L) Neither of Castleworks or E-Focus has incurred, assumed or
otherwise become subject to any material Liability, other than accounts
payable incurred by Castleworks or E-Focus in the Ordinary Course of Business
and which do not exceed, in the aggregate, $10,000;
(M) Neither of Castleworks or E-Focus has discharged any Encumbrance
or discharged or paid any indebtedness or other Liability, except for its own
accounts payable that are either reflected as current liabilities in the
"liabilities" column of the Castleworks Unaudited Interim Balance Sheet or
E-Focus Unaudited Interim Balance Sheet or have been incurred since the date of
such balance sheets in the Ordinary Course of Business;
(N) Neither of Castleworks or E-Focus has forgiven any debt or
otherwise released or waived any right or claim;
(O) Neither of Castleworks or E-Focus has changed any of its methods
of accounting or accounting practices in any respect;
6.
(P) Neither of Castleworks or E-Focus has entered into any
transaction or taken any other action outside the Ordinary Course of Business
except for the Transaction;
(Q) Neither of Castleworks or E-Focus has agreed, committed or
offered (in writing or otherwise), and has not attempted, to take any of the
actions referred to in clauses "(c)" through "(p)" above; and
(R) Each of Castleworks and E-Focus has (i) operated its business
in the Ordinary Course of Business and consistent with past practice and (ii)
preserved intact its relationships with its employees, customers, suppliers,
providers, payors and other Persons with which it has significant business
relationships.
2.6 TITLE TO ASSETS.
(A) Seller owns, and has good, valid and marketable title to, the
LLC shares.
(B) Each of Castleworks and E-Focus owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including:
(I) all assets reflected on the Castleworks Unaudited Interim
Balance Sheet and on the E-Focus Unaudited Interim Balance Sheet (except for
inventory sold by Castleworks or E-Focus since the respective dates of such
balance sheets in the Ordinary Course of Business);
(II) all assets acquired by Castleworks or E-Focus since, with
respect to Castleworks, the date of the Castleworks Unaudited Interim Balance
Sheet, and, with respect to E-Focus, the date of the E-Focus Unaudited Interim
Balance Sheet (except for inventory sold by Castleworks or E-Focus since the
respective dates of such balance sheets in the Ordinary Course of Business);
(III) all assets referred to in Sections 2.7, 2.8, 2.9 and 2.11
of this Agreement, all of Castleworks' and E-Focus' rights under their
respective Contracts, and all other assets reflected in the books and records of
Castleworks or E-Focus as being owned by Castleworks or E-Focus.
Except as set forth in Part 2.6(b) of the Disclosure Schedule, all of said
assets are owned by Castleworks or E-Focus free and clear of any Encumbrances.
2.7 RECEIVABLES. Part 2.7 of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of Castleworks and E-Focus as of the date of the
Castleworks Unaudited Interim Balance Sheet and the date of the E-Focus
Unaudited Interim Balance Sheet, respectively. Except as set forth in Part 2.7
of the Disclosure Schedule, all existing accounts receivable of Castleworks and
E-Focus (including those accounts receivable reflected on the Castleworks
Unaudited Interim Balance Sheet and the E-Focus Unaudited Interim Balance Sheet
that have not yet been collected and those accounts receivable that have arisen
since the dates of such interim balance sheets and have not yet been collected):
(i) represent valid obligations of customers of Castleworks and E-Focus arising
from bona fide transactions entered into in the Ordinary Course of Business and
7.
(ii) are current and will be collected in full, except for an allowance for
uncollectible accounts not to exceed what is properly reserved on such interim
balance sheets.
2.8 INVENTORY. The Castleworks Unaudited Interim Balance Sheet and the
E-Focus Unaudited Interim Balance Sheet accurately sets forth the amount of
inventory held by Castleworks and E-Focus, respectively, as of the dates of such
interim balance sheets. Subject to amounts reserved on such interim balance
sheets, the values at which all inventories are carried reflect the historical
inventory valuation policy of Castleworks and E-Focus, stating such inventories
at the lower of cost (determined on a first-in, first-out method) or market
value. Each of Castleworks and E-Focus has good and marketable title to its
inventories, free and clear of any Encumbrances. Such inventories are in good
and merchantable condition in all material respects, are suitable and usable for
the purposes for which they are intended, and are in a condition such that they
can be sold in the Ordinary Course of Business consistent with past practice.
Such inventories do not consist of in any material respect items that are
obsolete, damaged or slow-moving. Such inventories do not consist of any items
held on consignment. Neither Castleworks nor E-Focus is under any obligation or
liability with respect to accepting returns of items or inventory in the
possession of its customers. The inventory levels maintained by Castleworks and
E-Focus (i) are not excessive in light of Castleworks' and E-Focus' normal
operating requirements and (ii) are adequate for the conduct of Castleworks' and
E-Focus' operations in the Ordinary Course of Business.
2.9 EQUIPMENT AND TANGIBLE PERSONAL PROPERTY. The equipment, furniture,
fixtures, improvements and other tangible assets (other than inventory) owned by
Castleworks and E-Focus are adequate for the conduct of Castleworks' and
E-Focus' business in the manner in which such business is currently being
conducted. Each such asset (i) is structurally sound, free of defects and
deficiencies and in good condition and repair (ordinary wear and tear excepted),
(ii) complies in all respects with, and is being operated and otherwise used in
full compliance with, all applicable Legal Requirements; and (iii) is adequate
for the uses to which it is being put.
2.10 REAL PROPERTY. Except for the leaseholds created under the real
property leases identified in Part 2.10 of the Disclosure Schedule, Castleworks
and E-Focus do not own any real property or any interest in real property. Each
of Castleworks and E-Focus enjoys peaceful and undisturbed possession of such
premises. Such premises are adequate for the conduct of Castleworks' and
E-Focus' business as it is currently conducted, and neither Seller nor any
subsidiary of Seller is a party to any contractual or legal restrictions that
preclude or restrict the ability to use such premises for the purposes for which
they are currently being used.
2.11 PROPRIETARY ASSETS.
(A) Part 2.11(a)(i) of the Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned by Castleworks or E-Focus and registered
with any Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 2.11(a)(ii) of the Disclosure Schedule identifies and provides
a brief description of each Proprietary Asset owned by Castleworks or E-Focus
that is material to the business of Castleworks or E-Focus. Part 2.11(a)(iii) of
the Disclosure Schedule identifies
8.
and provides a brief description of, and identifies any ongoing royalty or
payment obligations in excess of $10,000 with respect to, each Proprietary Asset
that is licensed or otherwise made available to Castleworks or E-Focus by any
Person and is material to the business of Castleworks or E-Focus (except for any
Proprietary Asset that is licensed to Castleworks or E-Focus under any third
party software license generally available to the public at a cost of less than
$5,000), and identifies the Contract under which such Proprietary Asset is being
licensed or otherwise made available to Castleworks or E-Focus. Castleworks has
good and valid title to all Castleworks Proprietary Assets identified or
required to be identified in Parts 2.11(a)(i) and 2.11(a)(ii) of the Disclosure
Schedule, free and clear of all Encumbrances, and E-Focus has good and valid
title to all E-Focus Proprietary Assets, identified or required to be identified
in Parts 2.11(a)(i) and 2.11(a)(ii) of the Disclosure Schedule, free and clear
of all Encumbrances. Castleworks and E-Focus have a valid right to use, license
and otherwise exploit all Proprietary Assets identified in Part 2.11(a)(iii) of
the Disclosure Schedule. Except as set forth in Part 2.11(a)(iv) of the
Disclosure Schedule, neither Castleworks nor E-Focus has developed jointly with
any other Person any Proprietary Asset that is material to the business of
Castleworks or E-Focus and with respect to which such other Person has any
rights. Except as set forth in Part 2.11(a)(v) of the Disclosure Schedule, there
is no Contract (with the exception of end user license agreements in the form
previously delivered to the Purchaser) pursuant to which any Person has any
right (whether or not currently exercisable) to use, license or otherwise
exploit any Castleworks Proprietary Asset or E-Focus Proprietary Asset.
(B) Seller, Castleworks and E-Focus have taken reasonable measures
and precautions to protect and maintain the confidentiality, secrecy and value
of all material Proprietary Assets of Castleworks and of E-Focus (except
Proprietary Assets whose value would be unimpaired by disclosure). Without
limiting the generality of the foregoing, except as set forth in Part 2.11(b) of
the Disclosure Schedule, (i) none of Seller, Castleworks or E-Focus has
disclosed or delivered or permitted to be disclosed or delivered to any Person,
and no Person other than Castleworks or E-Focus has or had access to, or any
rights with respect to, the Castleworks Source Code or any portion thereof or
the E-Focus Source Code or any portion thereof; (ii) each current or former
employee of Seller, Castleworks or E-Focus who is or was involved in, or who has
contributed to, the creation or development of any material Castleworks
Proprietary Asset or E-Focus Proprietary Asset has executed and delivered to
Castleworks or E-Focus, as appropriate, an agreement (containing no exceptions
to or exclusions from the scope of its coverage) providing for the ownership by
Castleworks or E-Focus of the Proprietary Assets resulting from such employment
relationship and for the confidentiality of such Proprietary Assets, and all
such agreements have been previously delivered by Seller to the Purchaser and
(iii) each current and former consultant and independent contractor to Seller,
Castleworks or E-Focus who is or was involved in, or who has contributed to, the
creation or development of any material Castleworks Proprietary Asset or E-Focus
Proprietary Asset has executed and delivered to Seller an agreement (containing
no exceptions to or exclusions from the scope of its coverage) providing for the
ownership by Castleworks or E-Focus, as appropriate, of the Proprietary Assets
resulting from such consulting or contracting agreement and for the
confidentiality of such Proprietary Assets, and Seller has delivered to the
Purchaser each such agreement. No current or former employee, officer, manager,
member, consultant or independent contractor of Seller, Castleworks or E-Focus
has any right, claim or interest in or with respect to any Castleworks
Proprietary Asset or E-Focus Proprietary Asset.
9.
(C) Subject to Disclosure Schedule 2.11(a)(i), all patents,
trademarks, service marks and copyrights held by the Castleworks or E-Focus are
valid and subsisting. None of the Castleworks Proprietary Assets or E-Focus
Proprietary Assets misappropriates (or to the best of Seller's knowledge,
conflicts with or infringes) any Proprietary Asset owned or used by any other
Person. None of the products, systems, software, computer programs, source code,
models, algorithms, formula, compounds, inventions, designs, technology,
proprietary rights or intangible assets that is or has been designed, created,
developed, assembled, manufactured or sold by Castleworks or E-Focus is
misappropriating or making any unlawful or unauthorized use of (or to the best
of Seller's knowledge, infringing) any Proprietary Asset owned or used by any
other Person, and none of such products has at any time misappropriated or made
any unlawful or unauthorized use of (or to the best of Seller's knowledge,
infringed) any Proprietary Asset owned or used by any other Person. None of
Seller, Castleworks or E-Focus has received any notice or other communication
(in writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful or unauthorized use of, any
Proprietary Asset owned or used by any other Person. To the best of Seller's
knowledge, no other Person is infringing, misappropriating or making any
unlawful or unauthorized use of, and no Proprietary Asset owned or used by any
other Person infringes or conflicts with, any material Castleworks Proprietary
Asset or E-Focus Proprietary Asset.
(D) The Castleworks Proprietary Assets and the E-Focus Proprietary
Assets constitute all the Proprietary Assets necessary to enable Castleworks and
E-Focus to conduct its business in the manner in which such business has been
and is being conducted. None of Seller, Castleworks or E-Focus has (i) licensed
any of the material Castleworks Proprietary Assets or E-Focus Proprietary Assets
to any Person on an exclusive basis, (ii) except as set forth in Part 2.11(d) of
the Disclosure Schedule, entered into any Contract under which any Person has
the right to distribute or license any of the material Castleworks Proprietary
Assets or E-Focus Proprietary Assets, other than non-exclusive marketing
arrangements with vendors or resellers entered into in the Ordinary Course of
Business or (iii) entered into any covenant not to compete or Contract limiting
or purporting to limit the ability of the Castleworks or E-Focus to exploit
fully any material Castleworks Proprietary Assets or E-Focus Proprietary Assets
or to transact business in any market or geographical area or with any Person.
(E) Except as set forth in Part 2.11(e) of the Disclosure Schedule,
each Castleworks Proprietary Asset, E-Focus Proprietary Asset and Castleworks or
E-Focus product that has been sold or licensed by Castleworks or E-Focus to any
Person: (i) conformed and complied in all material respects with any warranty,
Contract, specification, documentation, performance standard, representation or
statement made or provided with respect thereto by Castleworks or E-Focus; and
(ii) none of Seller, Castleworks or E-Focus has received notice of any claim by
any customer or other Person alleging that any Castleworks Proprietary Asset,
E-Focus Proprietary Asset and Castleworks or E-Focus product (including each
version thereof that has been licensed or otherwise made available by Seller to
any Person in the prior three years) does not conform in all material respects
with any warranty, Contract, specification, documentation, performance standard,
representation or statement made or provided by Castleworks or E-Focus, and, to
the knowledge of Seller, there is no basis for any such claim. Castleworks and
E-Focus have established adequate reserves on the Castleworks Unaudited Interim
Balance Sheet and the E-Focus Unaudited Interim Balance Sheet, respectively, to
cover all costs associated with any obligations that Castleworks or E-Focus may
have with respect to
10.
the correction or repair of programming errors or other defects in Castleworks
Proprietary Assets, E-Focus Proprietary Assets and Castleworks or E-Focus
products.
(F) Except with respect to demonstration or trial copies, no
product, system, program or software module designed, developed, sold, licensed
or otherwise made available by Castleworks or E-Focus to any Person contains any
"back door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus" or
other software routines or hardware components designed to permit unauthorized
access or to disable or erase software, hardware or data without the consent of
the user.
(G) Purchaser acknowledges that Seller does not warrant that the
functions contained in any Proprietary Assets, including but not limited to
computer software, Castleworks Source Code, and E-Focus Source Code, will meet
Purchaser's or any other Person's requirement or that the operation of such
computer software and Source Codes will be uninterrupted or error free.
Purchaser expressly assumes responsibility for operation of the computer
software and Source Codes to achieve the intended results, and for the
installation, use and results obtained. No warranties other than those set forth
in this Agreement are expressed or implied by Seller, including the implied
warranties of merchantability and fitness for a particular use.
2.12 CONTRACTS; CONSENTS.
(A) Part 2.12(a) of the Disclosure Schedule identifies each
Castleworks Contract and E-Focus Contract, except for any Excluded Contract.
Seller has delivered to the Purchaser accurate and complete copies of each
Castleworks Contract and each E-Focus Contract identified in Part 2.12(a) of the
Disclosure Schedule, including all amendments thereto. The Castleworks Contracts
and the E-Focus Contracts are all of the Contracts necessary for the conduct of
Castleworks' and E-Focus' business as such business has been conducted and is
currently being conducted. Each Castleworks Contract and each E-Focus Contract
is valid and in full force and effect, and is enforceable by Castleworks or
E-Focus in accordance with its terms.
(B) Except as set forth in Part 2.12(b) of the Disclosure Schedule:
(I) neither Castleworks nor E-Focus has materially violated or
Breached, or declared or committed any default under any Castleworks Contract or
E-Focus Contract, and, to the knowledge of Seller, no other Person has
materially violated or Breached, or declared or committed any default under any
Castleworks Contract or E-Focus Contract;
(II) no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could be
reasonably expected to, (A) result in a material violation or Breach of any of
the provisions of any Castleworks Contract or E-Focus Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Castleworks Contract or E-Focus Contract, (C) give any Person the right to
accelerate the maturity or performance of any Castleworks Contract or E-Focus
Contract, or (D) give any Person the right to cancel, terminate or modify any
Castleworks Contract or E-Focus Contract;
11.
(III) Neither Castleworks nor E-Focus has waived any of its
material rights under any Castleworks Contract or E-Focus Contract;
(C) Part 2.12(c) of the Disclosure Schedule identifies each Consent
and each notice required from any Person for (i) the transfer of the LLC Shares
to the Purchaser at the Closing and (ii) the avoidance, upon transfer of the LLC
Shares to the Purchaser at the Closing, of any of the circumstances set forth in
Section 2.12(b)(ii)(A)-(D) above.
2.13 NO UNDISCLOSED LIABILITIES.
(A) Each of Castleworks and E-Focus has no accrued, contingent or
other Liabilities of any nature, either matured or unmatured, except for (i)
liabilities identified as such in the "liabilities" column of the Castleworks
Unaudited Interim Balance Sheet or the E-Focus Unaudited Interim Balance Sheet,
respectively, (ii) liabilities of the type required to be reflected as current
liabilities in the "liabilities" column of a balance sheet prepared in
accordance with GAAP incurred by Castleworks or E-Focus in the Ordinary Course
of Business since, with respect to Castleworks, the date of the Castleworks
Unaudited Interim Balance Sheet, and, with respect to E-Focus, the date of the
E-Focus Unaudited Interim Balance Sheet and (iii) Castleworks' obligations under
the Castleworks Contracts listed in Part 2.12(a) of the Disclosure Schedule and
under Excluded Contracts and ) E-Focus' obligations under the E-Focus Contracts
listed in Part 2.12(a) of the Disclosure Schedule and under Excluded Contracts,
to the extent that the existence of such obligations is ascertainable solely by
reference to such Contracts.
2.14 COMPLIANCE WITH LEGAL REQUIREMENTS. To the Knowledge of Seller, each
of Castleworks and E-Focus has conducted its business in compliance with all,
and is not in violation of, any applicable Legal Requirement, except where the
noncompliance or violation would not be reasonably expected to have a Material
Adverse Effect on Castleworks or E-Focus. None of Seller, Castleworks or E-Focus
has received any written notification of any asserted present or past failure by
Castleworks or E-Focus to comply with any applicable Legal Requirements or
Order.
2.15 GOVERNMENTAL AUTHORIZATIONS. No Governmental Authorizations are
necessary or required by applicable law in connection with the execution,
delivery and performance of the Transaction Agreements or the Transactions by
Seller and Seller's members or in connection with the operation of
Castleworks' or E-Focus' respective businesses.
2.16 TAX MATTERS.
(A) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by Castleworks or E-Focus (whether pursuant to
any Tax Return or otherwise) has been duly paid in full on a timely basis; and
any Tax required to have been withheld or collected by Castleworks or E-Focus
has been duly withheld and collected; and (to the extent required) each such Tax
has been paid to the appropriate Governmental Body.
(B) The Seller Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with
12.
GAAP; and Castleworks and E-Focus have established,in the Ordinary Course of
Business, reserves adequate for the payment of all Taxes through the Closing
Date.
2.17 EMPLOYEE AND LABOR MATTERS.
(A) Part 2.17(a) of the Disclosure Schedule accurately sets forth,
with respect to each employee of Seller, Castleworks and E-Focus (including any
employee who is on a leave of absence or on layoff status) the name and title of
such employee, the employer of such employee, and such employee's annualized
compensation as of the date of this Agreement;
(B) Part 2.17(b) of the Disclosure Schedule accurately identifies
each former employee of Seller, Castleworks or E-Focus who is receiving or is
scheduled to receive (or whose spouse or other dependent is receiving or is
scheduled to receive) any benefits relating to such former employee's employment
with Seller, Castleworks or E-Focus;
(C) Except as set forth in Part 2.17(c) of the Disclosure Schedule,
none of Seller, Castleworks or E-Focus is a party to or bound by, any employment
agreement or any union contract, collective bargaining agreement or similar
Contract;
(D) Except as set forth on Part 2.17(d) of the Disclosure Schedule,
the employment of each of Seller's, Castleworks' and E-Focus' employees is
terminable at will, and no employee is entitled to severance pay or other
benefits following termination or resignation. To the Knowledge of Seller, no
employee of Seller, Castleworks or E-Focus intends to terminate his employment,
except to become an employee of the Purchaser; and
(E) To the Knowledge of Seller, no employee of Seller, Castleworks
or E-Focus is a party to or is bound by any confidentiality agreement,
noncompetition agreement or other Contract (with any Person) that may have an
adverse effect on (A) the performance by such employee of any of his duties or
responsibilities as an employee of Castleworks, E-Focus or the Purchaser.
2.18 BENEFIT PLANS.
(A) Part 2.18(a) of the Disclosure Schedule identifies and provides
an accurate and complete description of each Employee Benefit Plan of
Castleworks and E-Focus, an accurate and complete copy of which has been
provided to the Purchaser. Except as identified in Part 2.18(a) of the
Disclosure Schedule, neither Castleworks nor E-Focus has ever established,
adopted, maintained, sponsored, contributed to, participated in or incurred any
Liability with respect to any Employee Benefit Plan.
(B) Each Employee Benefit Plan of Castleworks and E-Focus is being
and has at all times been operated and administered in full compliance with the
provisions thereof and in full compliance with all applicable Legal
Requirements. Each contribution or other payment that is required to have been
accrued or made under or with respect to the above has been duly accrued and
made on a timely basis.
2.19 ENVIRONMENTAL MATTERS. None of Seller, Castleworks or E-Focus has ever
received any notice or other communication (in writing or otherwise) from any
Governmental
13.
Body or other Person regarding any actual, alleged, possible or potential
Liability of Castleworks or E-Focus arising from or relating to the presence,
generation, manufacture, production, transportation, importation, use,
treatment, refinement, processing, handling, storage, discharge, release,
emission or disposal of any Hazardous Material. No Person has ever commenced
or, to the Knowledge of Seller, threatened to commence any contribution
action or other Proceeding against Castleworks or E-Focus in connection with
any such actual, alleged, possible or potential Liability; and no event has
occurred, and no condition or circumstance exists, that may directly or
indirectly give rise to, or result in Castleworks or E-Focus becoming subject
to, any such Liability.
2.20 INSURANCE. Part 2.20 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of
Castleworks or E-Focus and identifies any material claims made thereunder,
complete and accurate copies of which have been delivered to the Purchaser. Each
of the insurance policies identified in Part 2.20 of the Disclosure Schedule is
in full force and effect. During the past three years, none of Seller,
Castleworks or E-Focus has received any notice or other communication regarding
any actual or possible (a) cancellation or invalidation of any insurance policy
related to Castleworks' or E-Focus' ownership, use and operation of their
respective business, (b) refusal of any coverage or rejection of any claim under
any insurance policy related to Castleworks' or E-Focus' ownership, use and
operation of their respective businesses, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy related to
Castleworks' or E-Focus' ownership, use and operation of their respective
businesses.
2.21 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.21 of the
Disclosure Schedule, (a) no Related Party has any direct or indirect interest of
any nature in any of the assets of Castleworks or E-Focus; (b) no Related Party
is indebted to Castleworks or E-Focus, and neither Castleworks nor E-Focus is
indebted to any Related Party (c) no Related Party has entered into, or has any
direct or indirect financial interest in, any Castleworks Contract or E-Focus
Contract, or any transaction or business dealing of any nature involving
Castleworks or E-Focus; (d) no Related Party is competing, directly or
indirectly, with Castleworks or E-Focus; and (e) no Related Party has any claim
or right against Castleworks or E-Focus (other than rights to receive
compensation for services performed as an employee of Castleworks or E-Focus).
2.22 PROCEEDINGS; ORDERS. Except as set forth in Part 2.22 of the
Disclosure Schedule, there is no pending Proceeding, and to the Knowledge of
Seller, no Person has threatened to commence any Proceeding (a) that involves
Castleworks or E-Focus or that otherwise relates to or might materially
adversely affect Castleworks' or E-Focus' business or any of the assets owned or
used by Castleworks or E-Focus (whether or not Castleworks or E-Focus is named
as a party thereto) or (b) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions. To the Knowledge of Seller, except as set forth in Part 2.22 of
the Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that might reasonably be expected to give rise
to or serve as a basis for the commencement of any such Proceeding. There is no
Order to which Castleworks or E-Focus, or any of the assets owned or used by
Castleworks or E-Focus, is subject. To the Knowledge of Seller, no employee of
Seller, Castleworks or E-Focus is subject to any Order that prohibits such
employee from engaging in or continuing any conduct, activity or practice
relating to Castleworks' or E-Focus' business.
14.
2.23 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(A) Seller has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under the Transactional
Agreements. The execution, delivery and performance by Seller of the
Transactional Agreements and the Transactions have been duly authorized by all
necessary action on the part of Seller and its members, managers, and officers.
The Transactions have been duly authorized by all necessary action on the part
of Castleworks and E-Focus and their respective members, managers and officers.
Subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies, this Agreement constitutes the
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, and upon the execution of each of the other
Transactional Agreements at the Closing, each of such other Transactional
Agreements to which Seller is a party will constitute the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
(B) Each of Seller's members has the absolute and unrestricted
right, power and capacity to enter into and to perform such member's obligations
under each of the Transactional Agreements to which such member is or may become
a party. The execution, delivery and performance by each of Seller's members of
the Transactional Agreements and the Transactions to which such member is or may
become a party have been duly authorized by all necessary action of the part of
each such member and their respective boards of directors, stockholders,
members, managers and officers. Upon the execution of each of the Transactional
Agreements at the Closing, each of the Transactional Agreements will constitute
the legal, valid and binding obligation of each of Seller's members who is a
party thereto, enforceable against such member in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
2.24 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.24 of the
Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(A) contravene, conflict with or result in a violation of (i) any of
the provisions of Seller's, Castleworks' or E-Focus' articles of organization or
operating agreements, or (ii) any resolution adopted by Seller's, Castleworks'
or E-Focus' managers or members;
(B) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Seller, Castleworks or E-Focus or any of their
respective members, or any of the assets owned or used by Castleworks or
E-Focus, is subject;
(C) cause the Purchaser or any affiliate of the Purchaser to become
subject to, or to become liable for the payment of, any Tax or cause any of the
assets owned or used by
15.
Castleworks or E-Focus to be reassessed or revalued by any taxing authority or
other Governmental Body;
(D) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Castleworks or E-Focus or any of their respective employees or
that otherwise relates to Castleworks' or E-Focus' business or to any of the
assets owned or used by Castleworks or E-Focus;
(E) contravene, conflict with or result in a violation or Breach of,
or result in a default under, any provision of any Castleworks Contract or
E-Focus Contract;
(F) give any Person a reasonable right to (i) declare a default or
exercise any remedy under any Castleworks Contract or E-Focus Contract, (ii)
accelerate the maturity or performance of any Castleworks Contract or E-Focus
Contract, or (iii) cancel, terminate or modify any Castleworks Contract or
E-Focus Contract;
(G) contravene, conflict with or result in a violation or Breach of
or a default under any provision of, or give any Person the right to declare a
default under, any Contract to which Seller or any of Seller's members is a
party or by which Seller or any of its members is bound; or
(H) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by Castleworks or E-Focus, except for
Encumbrances upon the assets of the Purchaser.
Except as set forth in Part 2.12(c) of the Disclosure Schedule, none of Seller,
Castleworks, E-Focus or their respective members was, is or will be required to
make any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactions.
2.25 BROKERS. None of Seller, Castleworks, E-Focus or any of their
respective members has agreed or become obligated to pay, or has taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions.
2.26 FULL DISCLOSURE. None of the Transactional Agreements contains or will
contain any untrue statement of material fact; and none of the Transactional
Agreements omits or will omit to state any material fact necessary to make any
of the representations, warranties or other statements or information contained
therein not misleading. All of the information set forth in the Disclosure
Schedule, and all other information regarding Seller, Castleworks and E-Focus
and their respective business, condition, assets, liabilities, operations,
financial performance and net income that has been furnished to the Purchaser or
any of its Representatives by or on behalf of Seller or any of Seller's
Representatives, is accurate and complete in all material respects. To the
knowledge of Seller there is no fact, condition or circumstance (i) which may
have a Material Adverse Effect or in the future may reasonably be expected to
have a Material Adverse Effect on Castleworks or E-Focus, or (ii) which if known
to the Purchaser might reasonably be expected to
16.
deter the Purchaser from consummating the Transactions. Seller has provided the
Purchaser and the Purchaser's Representatives with full and complete access to
all of Castleworks' and E-Focus' records and other documents and data.
2.27 INVESTMENT REPRESENTATIONS. Seller understands that the Purchase
Shares are being offered and sold pursuant to a private placement exemption from
registration contained in the Securities Act of 1933, as amended (the
"Securities Act") based in part upon Seller's representations contained in this
Agreement and upon the representations of Seller's members contained in the
Registration Rights Agreement.
(a) Seller understands that it must bear the economic risk of the
Purchase Shares indefinitely unless the Purchase Shares are registered pursuant
to the Securities Act, or an exemption from registration is available. Seller
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow Seller and its members to transfer all or any portion of
the Purchase Shares under the circumstances, in the amounts or at the times
Seller and its members might propose. Seller has been advised or is aware of the
provisions of Rule 144, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public information about
the Company, the resale occurring following the required holding period under
Rule 144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(b) Seller is acquiring the Purchase Shares for its own account for
investment only, and not with a view towards their distribution.
(c) Seller by reason of its, or of its management's, business or
financial experience, has the capacity to protect its own interests in
connection with the Transactions.
(d) Seller is an accredited investor within the meaning of
Regulation D under the Securities Act.
2.28 SOLVENCY. Immediately after the consummation of the Transactions, (a)
the fair value of the assets of Seller will exceed its debts and Liabilities,
subordinated, contingent or otherwise, (b) the present fair saleable value of
the property of Seller will be greater than the amount that will be required to
pay the probable obligations of its debts and other Liabilities, subordinated,
contingent or otherwise, as such debts and other Liabilities become absolute and
matured and (c) Seller will be able to pay its debts and Liabilities,
subordinated, contingent or otherwise, as such debts and Liabilities become
absolute and matured.
2.29 PAYMENT OF FEES AND EXPENSES. None of the fees and expenses (including
without limitation legal and accounting fees) which are required pursuant to
Section 7.2 of this agreement to be borne or paid by Seller or its
members have been borne or paid by Castleworks or E-Focus, and no amounts have
been removed from the assets of Castleworks or E-Focus, and no Liabilities of
Castleworks or E-Focus have been accrued, for such purpose.
2.30 PROJECTIONS. Seller's and Purchaser's management jointly prepared
certain revenue, cost of sales and gross profit projections for the business
of Castleworks and E-Focus for the months of August through December 2001,
dated as of August 3, 2001 (the "Projections"). The assumptions underlying
the Projections were reasonable as of the date of the Projections and are
reasonable as of the date of this Agreement. The Projections were prepared in
good faith and represent Seller's best currently available estimates for the
performance of Castleworks and E-Focus. As of the date of this Agreement,
Seller knows of no facts or circumstances which would render the Projections
inaccurate or misleading in light of such facts or circumstances.
17.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants, to and for the benefit of Seller, as
follows:
3.1 DUE ORGANIZATION; GOOD STANDING. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. The Purchaser has the
absolute and unrestricted right, power and authority to enter into and
perform its obligations under the Transactional Agreements to which it is a
party. The Purchaser and its board of directors have taken all necessary
action to duly authorize the execution, delivery and performance of the
Transactional Agreements to which the Purchaser is a party. This Agreement,
and upon the execution and delivery of the additional Transactional
Agreements at the Closing, the Transactional Agreements, constitute legal,
valid and binding obligations of the Purchaser (with respect to the
Transactional Agreements to which the Purchaser is a party), enforceable
against the Purchaser in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
3.3 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of the Purchaser consists of: (a) 50,000,000 shares of common
stock, $.01 par value (the "Purchaser Common Stock"), 4,855,662 of which were
issued and outstanding as of July 15, 2001 and (b) 4,000,000 shares of
preferred stock, $.01 par value, of which 750,000 are designated Series B
Convertible Redeemable Preferred Stock (the "Series B Preferred Stock"),
334,400 of which are issued and outstanding, which are convertible into
63,394 shares of Purchaser Common Stock. Except as contemplated by the
Transactional Agreements, as of the date of this Agreement, there are no
outstanding subscriptions, options, calls, warrants or rights (including
conversion or preemptive rights and rights of first refusal) to acquire
shares of the Purchaser, other than (i) warrants to purchase 659,658 shares
of Purchaser Common Stock and to purchase 181,339 public warrants (ii)
pursuant to 1,981,050 warrants of the Purchaser traded on the American Stock
Exchange, (iii) upon conversion of the Series B Preferred Stock or exercise
of any participation rights granted to holders of such stock, (iv) any rights
of first refusal in favor of the Purchaser or its holders of Series B
Preferred Stock; (v) pursuant to stock option or other equity incentive plans
disclosed in the SEC Documents (as defined below) of the Purchaser. The
Purchaser is not in violation of any outstanding preemptive rights to acquire
shares of the Purchaser. There have been no material changes to the
Purchaser's capitalization from July [ILLEGIBLE]5, 2001 to the date of this
Agreement. The rights, preferences, privileges and restrictions of the
Purchaser Common Stock and the Series B Preferred Stock are as stated in the
Purchaser's Amended and Restated Articles of Incorporation.
3.4 SEC FILINGS. Accurate and complete copies of each report (except for
reports filed under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), registration statement and definitive proxy
statement filed by Purchaser with the United States Securities and Exchange
Commission (the "SEC") through the date of this Agreement (the "SEC Documents")
are publicly available on the XXXXX system of the SEC. As of the time it was
filed with the SEC (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing): (i) each of the SEC
Documents complied in all
18.
material respects with the applicable requirements of the Securities Act or
Exchange Act, as the case may be, and the rules and regulations thereunder; and
(ii) none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The SEC Documents constitute all the
filings required to be made the Purchaser pursuant to the applicable
requirements of the Securities Act and the Exchange Act, except for reports
under Section 16 of the Exchange Act.
3.5 FINANCIAL STATEMENTS. The financial statement contained in the SEC
documents have been prepared in accordance with generally accepted accounting
principles (except as noted in the SEC Documents or permitted by the rules and
regulations of the SEC) and present fairly the financial position of Purchaser
as of the respective dates thereof and the results of operations and cash flows
of Purchaser for the periods covered thereby.
3.6 LIABILITIES. Except as disclosed in the SEC Documents, the Purchaser
has no material pending Liability and, to its knowledge, knows of no material
contingent Liability, except current liabilities incurred subsequent to the date
of the last financial statements in the SEC Documents, which current liabilities
have not been, either individually or in the aggregate, materially adverse to
the assets, financial condition or operations of the Purchaser.
3.7 NO MATERIAL ADVERSE CHANGE. Since the date of the last financial
statements included in the SEC Documents, there has not been any material
adverse change in the business, operations or financial performance of the
Purchaser; provided, however, that the following shall not constitute a material
adverse change under this Section 3.7: (i) a decrease in the Purchaser's stock
price; or (ii) any adverse changed related to general economic conditions or
related to the software or technology industries generally, which do not affect
the Purchaser in a materially disproportionate manner.
3.8 PROCEEDINGS; ORDERS. Except as disclosed in the SEC Documents, there
is no material Proceeding against the Purchaser, and no Person has threatened
in writing to the Purchaser to commence (a) any material Proceeding against
the Purchaser or (b) any Proceeding that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Transactions. To the Purchaser's knowledge, no event has occurred,
and no claim, dispute or other condition or circumstance exists, that might
reasonably be expected to give rise to or serve as a basis for the
commencement of any such Proceeding which would be reasonably likely to have
a material adverse effect on the assets, financial condition or operations of
the Purchaser. There is no Order to which the Purchaser, or any of the assets
owned or used by the Purchaser in its business, is subject.
3.9 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
any of the Transactional Agreements, nor the consummation or performance of
any of the Transactions, will directly or indirectly (with or without notice
or lapse of time) contravene, conflict with or result in a violation of (i)
any of the provisions of the Purchaser's articles of incorporation or bylaws;
(ii) any Order to which the Purchaser, or any of the assets owned or used by
the Purchaser, is subject; or (iii) to the actual knowledge of Xxx Xxxxxx,
Xxxxx Xxxxxxxxx or Xxxx Xxxxxxxxx, any contract, instruments or other
agreements to which the Purchaser is a party. The Purchaser is not required
to obtain the Consent of any Person or Governmental Body in
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connection with the execution,delivery or performance of the Transaction
Agreements by the Purchaser.
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS. To the Knowledge of the
Purchaser, the Purchaser's business has been conducted in compliance with
all, and is not in violation of, any applicable Legal Requirement, except
where the noncompliance or violation would not be reasonably be expected to
have a material adverse effect on the Purchaser's business. The Purchaser has
not received any written notification of any asserted present or past failure
by the Purchaser to comply with any applicable Legal Requirements which would
have a material adverse effect on the Purchaser's business.
3.11 BROKERS. The Purchaser has not agreed or become obligated to pay, and
has not taken any action that might result in any Person claiming to be entitled
to receive, any brokerage commission, finder's fee or similar commission or fee
in connection with any of the Transactions.
3.12 VALID ISSUANCE. The Purchase Shares will, when issued in accordance
with the provisions of this Agreement, be validly issued, fully paid and
nonassessable, free and clear of any Encumbrances. Assuming the accuracy of the
representations of Seller in Section 2.27 of this Agreement and of Seller's
members in the Registration Rights Agreement, the offer, sale and issuance of
the Purchase Shares will be exempt from the registration requirements of the
Securities Act, and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable United States and state securities laws.
SECTION 4.CLOSING DELIVERABLES
4.1 AGREEMENTS AND DOCUMENTS OF SELLER. At or prior to the Closing, the
Purchaser shall have received the following agreements and documents, each of
which shall be in full force and effect:
(a) all certificates of membership interest, if any, representing
the LLC Shares, together with (i) a membership interest assignment agreement
substantially in the form attached hereto as Exhibit B (the "Membership
Assignment") and (ii) new certificates of membership interest issued in the name
of the Purchaser, representing the LLC Shares;
(b) an escrow agreement in the form of Exhibit C (the "Escrow
Agreement"), executed by Seller, the Shareholders' Representative and the Escrow
Agent;
(c) a noncompetition agreement in the form of Exhibit D (the
"Noncompetition Agreement"), executed by Seller, TDI Castles LLC, T. Xxxx
Xxxxxxxx, Xxxx Xxxxx and Xxxxx Xxxxx;
(d) an offer letter accepting employment with the Purchaser,
including release of all employment agreements with Seller, Castleworks and
E-Focus, as applicable, and waiving any rights to severance thereunder, in the
form of Exhibit E (the "Offer Letter"), executed by Xxxx Xxxxx, Xxxxx Xxxxx and
Xxxx Xxxxxx;
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(e) a consultant agreement with the Purchaser, including release of
all employment agreements with Seller, Castleworks, and E-Focus, as applicable,
and waiving any rights to severance thereunder, in the form of Exhibit F (the
"Consultant Agreement"), executed by T. Xxxx Xxxxxxxx;
(f) a registration rights agreement in the form of Exhibit G (the
"Registration Rights Agreement"), executed by Seller, TDI Castles LLC, Xxxxxxx
Kodak Company, Xxxx Xxxxx and Xxxxx Xxxxx;
(g) written resignations of all managers of Castleworks and E-Focus,
effective as of the Closing;
(h) a certificate executed by the managers of Seller, certifying as
to the true, correct, complete and current (i) Articles of Organization and
Operating Agreement of Seller, (ii) resolutions of the managers of Seller
approving the Transactional Agreements and performance of the Transactions,
(iii) resolutions of the members of Seller approving the Transactional
Agreements and performance of the Transactions (or a certification that such
approval is not required) and (iv) incumbency of the managers or officers of
Seller executing any of the Transactional Agreements or any related
certificates;
(i) a certificate executed by the managers of Castleworks,
certifying as to the true, correct, complete and current (i) Articles of
Organization and Operating Agreement of Castleworks, (ii) resolutions of the
managers of Castleworks approving the Transactional Agreements and performance
of the Transactions and waiving Castleworks' right of first refusal on the
Castleworks Shares, (iii) resolutions of the members of Castleworks approving
the Transactional Agreements and performance of the Transactions and (iv)
incumbency of the managers or officers of Castleworks executing any of the
Transactional Agreements or any related certificates;
(j) a certificate executed by the managers of E-Focus, certifying as
to the true, correct, complete and current (i) Articles of Organization and
Operating Agreement of E-Focus, (ii) resolutions of the managers of E-Focus
approving the Transactional Agreements and performance of the Transactions and
waiving E-Focus' right of first refusal on the E-Focus Shares, (iii) resolutions
of the members of E-Focus approving the Transactional Agreements and performance
of the Transactions and (iv) incumbency of the managers or officers of E-Focus
executing any of the Transactional Agreements or any related certificates; and
(k) each Consent, and a copy of each notice, set forth on Part
2.12(c) of the Disclosure Schedule.
4.2 AGREEMENTS AND DOCUMENTS OF THE PURCHASER. At or prior to the Closing,
Seller shall have received the following payments and agreements and documents,
each of which shall be in full force and effect.
(a) the Cash Consideration;
(b) share certificates representing the Closing Shares issued as set
forth in Section 1.2(a)(ii);
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(c) the Escrow Agreement, executed by the Purchaser;
(d) the Noncompetition Agreement for each of Seller, TDI Castles
LLC, T. Xxxx Xxxxxxxx, Xxxx Xxxxx and Xxxxx Xxxxx, executed by
the Purchaser;
(e) the Offer Letter for each of Xxxx Xxxxx, Xxxxx Xxxxx and Xxxx
Xxxxxx, executed by the Purchaser;
(f) the Consultant Agreement, executed by the Purchaser
(g) the Registration Rights Agreement, executed by the Purchaser;
and
(h) a Certificate executed by the Secretary of the Purchaser,
certifying as to the true, correct, complete and current (i) Articles of
Incorporation and bylaws of the Purchaser, (ii) resolutions of the Board of
Directors of the Purchaser approving the Transactional Agreements and
performance of the Transactions and (iii) incumbency of the officers of the
Purchaser executing any of the Transactional Agreements or any related
certificates.
SECTION 5. POST-CLOSING COVENANTS OF SELLER AND PURCHASER
5.1 FILINGS AND CONSENTS. Purchaser and Seller shall ensure that:
(a) each other filing or notice required to be made or given
(pursuant to any applicable Legal Requirement, Order or Contract, or otherwise)
by Purchaser or Seller in connection with the execution and delivery of any of
the Transactional Agreements or in connection with the consummation or
performance of any of the Transactions (including each of the filings and
notices identified in Part 2.12(c) of the Disclosure Schedule), to the extent
not made or given prior to the Closing, is made or given as soon as possible
after the Closing;
(b) each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by Seller in connection with
the execution and delivery of any of the Transactional Agreements or in
connection with the consummation or performance of any of the Transactions
(including each of the Consents identified in Part 2.12(c) of the Disclosure
Schedule), to the extent not obtained prior to the Closing, is obtained as soon
as possible after the Closing;
(c) Seller promptly delivers to the Purchaser, and Purchaser
promptly delivers to Seller, a copy of each filing made (except such filings
available on the XXXXX system of the SEC), each notice given and each Consent
obtained by Purchaser and Seller in connection with the execution and delivery
of any of the Transactional Agreements or in connection with the consummation or
performance of any of the Transactions; and
(d) Seller shall cooperate with the Purchaser and with the
Purchaser's Representatives, and prepare and make available such documents and
take such other actions as the Purchaser may request in good faith, in
connection with any filing, notice or Consent that the Purchaser is required or
elects to make, give or obtain in connection with the execution and delivery of
any of the Transactional Agreements or in connection with the consummation or
performance of any of the Transactions.
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5.2 DISPOSITION OF CONTINGENT SHARES.
(a) Subject to Section 5.2(b), on the date that is twelve (12)
months from the Closing Date (the "Measurement Date"), the Purchaser and the
Shareholders' Representative shall jointly determine in accordance with Section
1.2(a)(iii) whether the Target Price and Target Duration have been met during
the Measurement Period. Within three business days of the Measurement Date, the
Purchaser and the Shareholders' Representative shall provide to the Escrow Agent
a written notification of such determination signed by both parties, which
notification may be executed in counterparts, each of which shall constitute an
original and all of which, when taken together, shall constitute one instrument.
In the event the joint determination shall be that the Target Price was met or
exceeded for the Target Duration at any time during the Measurement Period, that
shall be deemed a "Positive Determination," and the written notification to the
Escrow Agent shall so state. In the event the joint determination shall be that
the Target Price was not met or exceeded for the Target Duration at any time
during the Measurement Period, that shall be deemed a "Negative Determination,"
and the written notification to the Escrow Agent shall so state. In the event
that a Positive Determination has been made and delivered to the Escrow Agent
prior to the Measurement Date pursuant to Section 5.2(b), no further
determination shall be made on the Measurement Date pursuant to this Section
5.2(a).
(b) At any time prior to the Measurement Date that Purchaser shall
request of the Shareholders' Representative in writing, the Purchaser and the
Shareholders' Representative shall within five business days of such written
request jointly determine whether or not the Target Price was met or exceeded
for the Target Duration at any time during the Measurement Period. In the event
such condition has been satisfied, the Purchaser and the Shareholders'
Representative shall within five business days of the Purchaser's written
request for determination deliver to the Escrow Agent a Positive Determination
signed by both parties; PROVIDED, HOWEVER, that in the event such condition has
not been satisfied, no Negative Determination shall be made or delivered to the
Escrow Agent prior to the Measurement Date.
(c) In the event of a Positive Determination, the Purchaser shall be
entitled to the Contingent Shares as further set forth in the Escrow Agreement.
In the Event of a Negative Determination, the Shareholders under the Escrow
Agreement shall be entitled to the Contingent Shares, and such Contingent Shares
shall be made available to satisfy the indemnification obligations under this
Agreement to the Indemnitees, all as set further set forth in the Escrow
Agreement.
SECTION 6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) The representations and warranties of the Purchaser set forth in
Section 3 of this Agreement shall expire as of the Closing. The representations
and warranties of Seller set forth in this Agreement shall survive the Closing
and shall expire on the date that is thirteen (13) months from the Closing Date
(the "Expiration Date"); PROVIDED, HOWEVER, that if, at any time prior to the
Expiration Date, any Indemnitee acting in good faith delivers to Seller a
written notice alleging the existence of an inaccuracy of a representation or
warranty or the Breach of a
23.
covenant made by Seller and asserting a claim for recovery under Section 6.2 of
this Agreement based upon such inaccuracy or Breach, then the claim asserted in
such notice shall survive the Expiration Date until such time as the claim is
fully and finally resolved. The representations and warranties of Seller set
forth in Sections 2.16 and 2.19 shall survive the Closing and shall expire on
the date that is six months after the applicable statute of limitation with
respect to such representations and warranties.
(b) The representations, warranties, covenants and obligations of
Seller and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives. The representations, warranties,
covenants and obligations of the Purchaser and the rights and remedies that may
be exercised by Seller, shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or
knowledge of, any of Seller or any of its Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty made by Seller in this Agreement.
6.2 INDEMNIFICATION BY SELLER.
(a) Seller shall hold harmless and indemnify each of the Indemnitees
from and against, and shall pay, compensate and reimburse each of the
Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject at any time (regardless of whether or not such Damages
relate to any third-party claim) and which arise directly or indirectly from or
as a direct or indirect result of, or are directly or indirectly connected with:
(i) any Breach of any representation or warranty made by Seller
in this Agreement (without giving effect to any materiality qualification or
similar qualification contained or incorporated directly or indirectly in such
representation or warranty);
(ii) any Breach of any representation, warranty, statement,
information or provision contained in the Disclosure Schedule;
(iii) any Breach of any covenant or obligation of Seller
contained in any of the Transactional Agreements;
(iv) any Proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," or "(iii)" above (including any Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 6).
(b) In the event that Castleworks or E-Focus suffers, incurs or
otherwise becomes subject to any Damages as a result of or in connection with
any inaccuracy in or Breach of any representation, warranty, covenant or
obligation, then (without limiting any of the rights of Castleworks or E-Focus
as an Indemnitee), the Purchaser shall also be deemed, by virtue of its
24.
ownership of the membership interests of Castleworks and E-Focus, to have
incurred Damages as a result of and in connection with such inaccuracy or
Breach; PROVIDED, HOWEVER, that this provision shall be construed to allow the
Purchaser to recover such Damages of Castleworks or E-Focus instead of, and not
in addition to, a recovery of such Damages by Castleworks or E-Focus.
(c) In the event the Purchaser believes that it shall have become
entitled to indemnification pursuant to this Section 6.2, the Purchaser shall
use commercially reasonable efforts to so notify Seller, either orally or in
writing; PROVIDED, HOWEVER, that the Purchaser's failure to so notify Seller or
to use commercially reasonable efforts so notify Seller (i) shall be of no legal
effect whatsoever; (ii) shall not constitute a Breach of this Agreement or any
of the other Transactional Agreements and (iii) shall not in any manner
whatsoever affect the rights of the Purchaser, the other Indemnitees or any
other Person under any of the Transactional Agreements or pursuant to the
Transactions, including, without limitation, the right of any Indemnitee to
indemnification pursuant to this Section 6.2 and the right of any Indemnitee to
seek recovery therefor pursuant to a claim under the Escrow Agreement.
6.3 THRESHOLD; CAP.
(a) Seller shall not be required to make any indemnification payment
pursuant to Section 6.2 for any Breach of any of its representations and
warranties until such time as the total amount of all Damages (including the
Damages arising from such Breach and all other Damages arising from any other
Breaches of any representations or warranties) that have been directly or
indirectly suffered or incurred by any one or more of the Indemnitees, or to
which any one or more of the Indemnitees has or have otherwise become subject,
exceeds $25,000 in the aggregate. At such time as the total amount of such
Damages exceeds $25,000 in the aggregate, the Indemnitees shall be entitled to
be indemnified against such Damages above $25,000, but only to the extent of the
Escrow Shares and, to the extent permitted by the Escrow Agreement, the
Contingent Shares, and only to the extent that such Damages have not already
been actually paid to such Indemnitees from insurance proceeds.
6.4 SECURITY FOR INDEMNIFICATION RIGHTS. The Purchaser Common Stock held in
escrow under the Escrow Agreement shall serve as collateral to secure the
indemnification rights of the Purchaser under this Agreement, and the Purchaser
shall be entitled to offset any Damages suffered or incurred by any Indemnitees
against the Escrow Shares, and to the extent permitted by the Escrow Agreement,
against the Contingent Shares.
6.5 EXCLUSIVITY OF INDEMNIFICATION REMEDIES. The indemnification remedies
and other remedies provided in this Section 6 and Section 7.10 shall be deemed
to be the sole and exclusive right and remedy exercisable by any Indemnitee with
respect to any breach of any representation or warranty of Seller contained in
this Agreement or in any certificate delivered pursuant hereto or noncompliance
by Seller with any covenant contained in this Agreement.
6.6 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER. No Indemnitee
(other than the Purchaser or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless the
25.
Purchaser (or any successor thereto or assign thereof )shall have consented to
the assertion of such indemnification claim or the exercise of such other
remedy.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the Transactions.
7.2 FEES AND EXPENSES. Except as noted below, each party to this Agreement
shall bear and pay all its own expenses and fees (including without limitation
legal and accounting expenses and fees) that have been incurred or will be
incurred by such party in connection with the Transactions. Seller shall bear
and pay all fees, costs and expenses (including all legal fees and expenses
payable to counsel for Seller) that have been incurred or that are in the future
incurred by, on behalf of or for the benefit of Seller in connection with (i)
the negotiation, preparation and review of any term sheet or similar document
relating to any of the Transactions; (ii) the furnishing of information to the
Purchaser and its Representatives in connection with its investigation and
review of Castleworks' and E-Focus' business; (iii) the negotiation, preparation
and review of this Agreement (including the Disclosure Schedule), the other
Transactional Agreements and all certificates, opinions and other instruments
and documents delivered or to be delivered in connection with the Transactions;
(iv) the preparation and submission of any filing or notice required to be made
or given in connection with any of the Transactions, and the obtaining of any
Consent required to be obtained in connection with any of the Transactions; and
(v) the consummation and performance of the Transactions. Neither Castleworks
nor E-Focus shall bear or pay, and Seller shall not permit Castleworks or
E-Focus to bear or pay, any such fees, costs or expenses. The Purchaser shall
pay all fees, costs, and expenses incurred in connection with registering the
Purchase Shares with the SEC and maintaining the effectiveness of the Company's
resale registration statement on which such shares shall be registered (as set
forth in the Registration Rights Agreement), excluding any costs of counsel to
the Seller in connection therewith.
7.3 ATTORNEYS' FEES. If any legal action or other legal proceeding relating
to any of the Transactional Agreements or the enforcement of any provision of
any of the Transactional Agreements is brought against any party hereto, the
prevailing party shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which the prevailing party
may be entitled).
7.4 NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile number set forth beneath the name of such party below (or
to such other address or facsimile number as such party shall have specified in
a written notice given to the other parties hereto):
26.
if to Seller:
Castle Holdings LLC
000 Xxxxx Xxxx. Xxxxx 000
Xxxxx Xxxx, XX 00000
Attention: T. Xxxx Xxxxxxxx
Facsimile: (000) 000-0000
WITH A COPY TO:
--------------
Xxxxxx Xxxxxxxxx XX, Esq.
Xxxxxxxxx Xxxxxxxxx APC
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
if to the Shareholders' Representative:
Xxxx Xxxxx
000 Xxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
WITH A COPY TO:
--------------
Xxxxxx Xxxxxxxxx XX, Esq.
Xxxxxxxxx Xxxxxxxxx APC
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
if to the Purchaser:
ImageWare Systems, Inc.
00000 Xxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxx Xxxxxx, Chief Executive Officer
Facsimile: (000) 000-0000
WITH A COPY TO:
--------------
Xxxx Xxxxxxx, Esq.
Xxxxxx Godward LLP
0000 Xxxxxxxxx Xx., Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
7.5 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
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7.6 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
7.8 GOVERNING LAW; VENUE.
(A) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of
California
(without giving effect to principles of conflicts of laws). Any legal action or
other legal proceeding relating to this Agreement or the enforcement of any
provision of this Agreement shall be brought or otherwise commenced in any state
or federal court located in the County of San Diego,
California. Each party to
this Agreement:
(I) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San Diego,
California (and each appellate court located in the State of
California) in
connection with any such legal proceeding;
(II) agrees that each state and federal court located in the
County of San Diego,
California shall be deemed to be a convenient forum; and
(III) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal court
located in the County of San Diego,
California, any claim that such party is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.
7.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Seller and
its successors and assigns (if any) and the Purchaser and its successors and
assigns (if any). This Agreement shall inure to the benefit of Seller; the
Purchaser; the other Indemnitees (subject to Section 6.6); and the respective
successors and assigns (if any) of the foregoing.
7.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The Purchaser and
Seller agree that (a) in the event of any Breach or threatened Breach by a party
of any covenant, obligation or other provision set forth in this Agreement,
another party or Indemnitee shall be entitled (in addition to any other remedy
that may be available to it) to (i) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (ii) an injunction restraining such Breach or threatened
Breach; and (b) the party or Indemnitee seeking such decree or order shall not
be required to provide any bond or other security in connection with any such
decree, order or injunction or in connection with any related action or
Proceeding.
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7.11 WAIVER.
(A) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(B) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
7.12 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and Seller.
7.13 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
7.14 PARTIES IN INTEREST. Except for the provisions of Section 6 hereof,
none of the provisions of this Agreement is intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns (if any). Without limiting the generality of the
foregoing, (i) no employee of Seller, Castleworks or E-Focus shall have any
rights under this Agreement or under any of the other Transactional Agreements,
except as expressly provided in such agreements, and (ii) no creditor of Seller,
Castleworks or E-Focus shall have any rights under this Agreement or any of the
other Transactional Agreements.
7.15 ENTIRE AGREEMENT. The Transactional Agreements set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
7.16 CONSTRUCTION.
(A) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
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(B) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(C) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
30
The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
"PURCHASER": IMAGEWARE SYSTEMS, INC.,
a
California corporation
By: /s/ S. Xxxxx Xxxxxx, Jr.
----------------------------------------------
S. Xxxxx Xxxxxx, Jr., Chief Executive Officer
"SELLER": CASTLE HOLDINGS LLC,
a Nevada limited liability company
By: /s/ T. Xxxx Xxxxxxxx
----------------------------------------------
Print Name: T. Xxxx Xxxxxxxx
---------------------------------------
Title: Manager
-------------------------------------------
[SIGNATURE PAGE TO
MEMBERSHIP INTEREST PURCHASE AGREEMENT]
i
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the
Membership Interest Purchase
Agreement to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CASTLEWORKS. "Castleworks" shall mean Castleworks LLC, a Nevada
limited liability company.
CASTLEWORKS CONTRACT. "Castleworks Contract" shall mean any Contract:
(A) to which Castleworks is a party;
(B) by which Castleworks or any of its assets is or may become bound
or under which Castleworks has, or may become subject to, any obligation; or
(C) under which Castleworks has or may acquire any right or
interest.
CASTLEWORKS PROPRIETARY ASSET. "Castleworks Proprietary Asset" shall
mean a Proprietary Asset owned by or licensed to Castleworks or otherwise used
by Castleworks, including but not limited to those Proprietary Assets set forth
on Parts 2.11(a)(i), 2.11(a)(ii) and 2.11(a)(iii) of the Disclosure Schedule.
CASTLEWORKS SOURCE CODE. "Castleworks Source Code" shall mean any
source code, or any portion, aspect or segment of any source code, relating to
any Castleworks Proprietary Asset.
CASTLEWORKS UNAUDITED INTERIM BALANCE SHEET. "Castleworks Unaudited
Interim Balance Sheet" shall have the meaning specified in Section 2.4(a) of
the Agreement.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
CLOSING. "Closing" shall have the meaning specified in Section 1.3(a)
of the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.3(a) of the Agreement.
ii
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental
Authorization).
CONTRACT. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to the Purchaser on behalf of
Seller, a copy of which is attached to the Agreement and incorporated in the
Agreement by reference.
E-FOCUS. "E-Focus" shall mean E-Focus West LLC, a Nevada limited
liability company.
E-FOCUS CONTRACT. "E-Focus Contract" shall mean any Contract:
(A) to which E-Focus is a party;
(B) by which E-Focus or any of its assets is or may become bound or
under which E-Focus has, or may become subject to, any obligation; or
(C) under which E-Focus has or may acquire any right or interest.
E-FOCUS PROPRIETARY ASSET. "E-Focus Proprietary Asset" shall mean a
Proprietary Asset owned by or licensed to E-Focus or otherwise used by E-Focus,
including but not limited to those Proprietary Assets set forth on Parts
2.11(a)(i), 2.11(a)(ii) and 2.11(a)(iii) of the Disclosure Schedule.
E-FOCUS SOURCE CODE. "E-Focus Source Code" shall mean any source code,
or any portion, aspect or segment of any source code, relating to any E-Focus
Proprietary Asset.
E-FOCUS UNAUDITED INTERIM BALANCE SHEET. "E-Focus Unaudited Interim
Balance Sheet" shall have the meaning specified in Section 2.4(a) of the
Agreement.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the
meaning specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any
iii
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974.
ESCROW AGENT. "Escrow Agent" shall mean LaSalle Bank National
Association, as escrow agent under the Escrow Agreement.
ESCROW AGREEMENT. "Escrow Agreement" shall have the meaning specified
in Section 4.1.
EXCLUDED CONTRACT. "Excluded Contract" shall mean any Seller Contract
that:
(A) Seller has entered into in the Ordinary Course of Business with
a Person that is not a Related Party;
(B) has a term of less than 90 days or may be terminated by
Seller (without penalty) within 90 days after the delivery of a termination
notice by Seller; and
(C) does not contemplate or involve the payment of cash or other
consideration in an amount or having a value in excess of $10,000.
GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a basis consistent with the basis on which the Seller Financial
Statements were prepared.
GOVERNMENTAL AUTHORIZATION. Governmental Authorization" shall mean any:
(A) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is, has been or may in the future be issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or
(B) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(A) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(B) federal, state, local, municipal, foreign or other government;
iv
(C) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(D) multi-national organization or body; or
(E) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(A) any petroleum, waste oil, crude oil, asbestos, urea formaldehyde
or polychlorinated biphenyl;
(B) any waste, gas or other substance or material that is explosive
or radioactive;
(C) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or "toxic
chemical" as designated, listed or defined (whether expressly or by reference)
in any statute, regulation or other Legal Requirement (including CERCLA, any
other so-called "superfund" or "superlien" law, the Resource Conservation
Recovery Act, the Federal Water Pollution Control Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act and the
respective regulations promulgated thereunder);
(D) any other substance or material (regardless of physical form) or
form of energy that is subject to any Legal Requirement which regulates or
establishes standards of conduct in connection with, or which otherwise relates
to, the protection of human health, plant life, animal life, natural resources,
property or the enjoyment of life or property from the presence in the
environment of any solid, liquid, gas, odor, noise or form of energy; and
(E) any compound, mixture, solution, product or other substance or
material that contains any substance or material referred to in clause "(a)",
"(b)", "(c)" or "(d)" above.
INDEMNITEES. "Indemnitees" shall mean the following Persons:
(A) the Purchaser;
(B) the Purchaser's current and future affiliates and subsidiaries;
(C) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and
(D) the respective successors and assigns of the Persons referred to
in clauses "(a)," "(b)," and "(c)" above;
v
PROVIDED, HOWEVER, that Seller and its members shall not be deemed to be
"Indemnitees."
KNOWLEDGE OF SELLER. "Knowledge of Seller" shall mean matters actually
known to T. Xxxx Xxxxxxxx, Xxxx Xxxxx and Xxxxx Xxxxx, and such matters that
such individuals would reasonably be expected to know in the exercise of their
duties after due and diligent inquiries.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with generally accepted accounting
principles and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
LLC SHARES. "LLC Shares" shall have the meaning specified in Recital
"C" to the Agreement.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall mean a
material adverse effect on the business, condition, assets, liabilities,
operations, financial performance, prospects or net income (or on any aspect or
portion thereof) of Castleworks or E-Focus.
MEMBERSHIP ASSIGNMENT. "Membership Assignment" shall have the meaning
set forth in Section 4.1.
ORDER. "Order" shall mean any:
(A) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award that is, has been or may in the future be issued, made, entered,
rendered or otherwise put into effect by or under the authority of any court,
administrative agency or other Governmental Body or any arbitrator or
arbitration panel; or
(B) Contract with any Governmental Body that is, has been or may in
the future be entered into in connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of an
Entity shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(A) such action is recurring in nature, is consistent with such
Entity's past practices and is taken in the ordinary course of such Entity's
normal day-to-day operations;
vi
(B) such action is taken in accordance with sound and prudent
business practices;
(C) such action is not required to be authorized by such Entity's
stockholders (or, in the case of a limited liability company, members), such
Entity's board of directors or any committee of such Entity's board of directors
(or, in the case of a limited liability company, managers) and does not require
any other separate or special authorization of any nature; and
(D) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Entities that are
engaged in businesses similar to the subject Entity's business.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service xxxx (whether registered or unregistered), service xxxx
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset.
PURCHASE PRICE. "Purchase Price" shall have the meaning specified in
Section 1.2 of the Agreement.
PURCHASER. "Purchaser" shall mean ImageWare Systems, Inc., a
California corporation.
PURCHASER COMMON STOCK. "Purchaser Common Stock" shall have the
meaning specified in Section 3.3 of the
Agreement.
PURCHASE SHARES. "Purchase Shares" shall have the meaning specified in
Section 1.2 of the Agreement.
RELATED PARTY. Each of the following shall be deemed to be a
"Related Party":
(A) Seller, and any entity which directly or indirectly controls
Seller, is controlled by Seller or is under common control with Seller.
(B) each of the members of Seller;
vii
(C) each Person who is, or who has at any time been, a director,
manager, member or officer of Seller, Castleworks, E-Focus or any member of
Seller;
(D) each member of the family of each of the individuals referred to
in clauses "(a)," "(b)" and "(c)" above; and
(E) any Entity (other than Castleworks or E-Focus) in which any one
of the individuals referred to in clauses "(a)", "(b)" "(c)" or "(d)" above
holds (or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives. The
members of Seller and all other Related Parties shall be deemed to be
"Representatives" of Seller.
SELLER. "Seller" shall mean Castle Holdings LLC, a Nevada limited
liability company.
SELLER FINANCIAL STATEMENTS. "Seller Financial Statements" shall
have the meaning specified in Section 2.4(a) of the Agreement.
SHAREHOLDERS' REPRESENTATIVE. "Shareholders' Representative" shall
initially be Xxxx Xxxxx and may be changed pursuant to Section 10 of the Escrow
Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(A) the Agreement;
(B) the Membership Assignment referred to in Section 4.1 of the
Agreement;
(C) the Escrow Agreement referred to in Section 4.1 of the
Agreement; and
viii
(D) the Noncompetition Agreement referred to in Section 4.1 of the
Agreement.
TRANSACTIONS. "Transactions" shall mean (a) the execution and
delivery of the respective Transactional Agreements, and (b) all of the
transactions contemplated by the respective Transactional Agreements, including:
(I) the sale of the LLC Shares by Seller to the Purchaser in
accordance with the Agreement; and
(II) the performance by Seller, its members and the Purchaser
of their respective obligations under the Transactional Agreements and the
exercise by Seller, its members and the Purchaser of their respective rights
under the Transactional Agreements.
ix
EXHIBIT B
FORM OF MEMBERSHIP ASSIGNMENT
MEMBERSHIP INTEREST ASSIGNMENT AGREEMENT
This MEMBERSHIP INTEREST ASSIGNMENT AGREEMENT (the "Agreement") is
entered into as of ___________, 2001 by and between IMAGEWARE SYSTEMS, INC., a
California corporation ("ImageWare"), and CASTLE HOLDINGS LLC, a Nevada limited
liability company ("Castle Holdings").
RECITALS
WHEREAS, Castle Holdings owns ninety thousand (90,000) Common Shares of
Castleworks LLC (the "Castleworks Shares"), a Nevada limited liability company
("Castleworks");
WHEREAS, Castle Holdings owns one hundred thousand (100,000) Common
Shares of E-Focus West LLC (the "E-Focus Shares"), a Nevada limited liability
company ("E-Focus"); and
WHEREAS, ImageWare, Castle Holdings, and certain members of Castle
Holdings have entered into that certain
Membership Interest Purchase Agreement
dated as of ________, 2001 (the "Purchase Agreement") pursuant to which, among
other things, Castle Holdings has agreed to sell, assign, transfer and convey
to, free and clear of all Encumbrances (as defined in the Purchase Agreement),
all of its right, title and interest in and to the Castleworks Shares and the
E-Focus Shares (collectively, the "Membership Interest").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, and intending to be
legally bound, Castle Holdings hereby sells, transfers, assigns and conveys to
ImageWare, free and clear of all Encumbrances, all of its right, title and
interest in and to the Membership Interest, and ImageWare hereby accepts such
sale, assignment, transfer, and conveyance. Castle Holdings, at any time at or
after the date hereof, will execute, acknowledge and deliver any further
assignments, conveyances and other assurances, documents and instruments of
transfer reasonably requested by ImageWare and will take any other action
consistent with the terms of the Purchase Agreement and this Agreement that may
be reasonably requested by ImageWare for the purpose of selling, assigning,
transferring, or conveying to ImageWare, or reducing to ImageWare's possession,
the Membership Interest. Castle Holdings hereby appoints ImageWare as its
attorney-in-fact to act in Castle Holdings' name and on Castle Holdings' behalf
to take any action necessary to sell, transfer, assign and convey to ImageWare,
or reduce to ImageWare's possession, the Membership Interest.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws). Nothing
1
in this Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and assigns. Nothing in this
Agreement is intended to relieve or discharge the obligation or liability of any
third person to any party to this Agreement, nor shall any provision give any
third person any right of subrogation or action over or against any party to
this Agreement. Each party to this Agreement agrees to perform any further acts
and execute and deliver any further documents that may be reasonably necessary
to carry out the provisions and intent of this Agreement. This Agreement is
subject to, and shall be construed in accordance with, the Purchase Agreement,
and in the event of a conflict between the provisions of this Agreement and the
provisions of the Purchase Agreement (insofar as such provisions relate to the
rights and obligations of ImageWare, on the one hand, and Castle Holdings, on
the other hand), the provisions of the Purchase Agreement shall prevail.
[THIS SPACE INTENTIONALLY LEFT BLANK]
2
IN WITNESS WHEREOF, this Membership Interest Assignment Agreement has
been duly executed on behalf of the parties hereto as of the date first written
above.
IMAGEWARE SYSTEMS, INC.,
a California corporation
By: /s/
-------------------------------------------------
S. Xxxxx Xxxxxx, Jr., Chief Executive Officer
CASTLE HOLDINGS LLC,
a Nevada limited liability company
By: /s/
-------------------------------------------------
Print Name: ------------------------------------------
Title: -----------------------------------------------
[SIGNATURE PAGE TO MEMBERSHIP INTEREST ASSIGNMENT AGREEMENT]
3
EXHIBIT C
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is entered into as of
__________, 2001, by and among IMAGEWARE SYSTEMS, INC., a California
corporation ("Purchaser"); CASTLE HOLDINGS LLC, a Nevada limited liability
company ("Seller"); LASALLE BANK NATIONAL ASSOCIATION (the "Escrow Agent")
and Xxxx Xxxxx (the "Shareholders' Representative"). Capitalized terms used
in this Agreement and not otherwise defined shall have the meanings given to
them in the Purchase Agreement (as defined below).
RECITALS
A. Purchaser and Seller have entered into a
Membership Interest
Purchase Agreement dated as of even date herewith (the "Purchase
Agreement") pursuant to which Purchaser is acquiring all of the outstanding
membership interests of E-Focus West LLC and Castleworks LLC, each a Nevada
limited liability company and a wholly owned subsidiary of Seller.
B. The Purchase Agreement provides that an escrow account will be
established as collateral for certain indemnification obligations owed to
the Indemnitees pursuant to Section 6 of the Purchase Agreement.
C. The parties hereto desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. ESCROW ACCOUNT.
(A) ESCROW OF SHARES. At the time and date as of which the
consummation of the transactions contemplated by the Purchase Agreement is
required to take place (the "Closing Date"), Purchaser shall deliver to the
Escrow Agent a certificate or certificates for 150,000 shares of the common
stock of Purchaser, $.01 par value (the "Purchaser Common Stock"), to be issued
in the name of "LaSalle Bank National Association, as Escrow Agent", 100,000
shares of which shall be "Contingent Shares" and 50,000 of which shall be
"Escrow Shares"; provided, however, that for certain purposes the Contingent
Shares shall also be deemed to be Escrow Shares, as provided in Section 3(b) of
this Agreement. The Escrow Agent agrees to accept delivery of the Escrow Shares
and to hold the Escrow Shares in an escrow account (the "Escrow Account")
subject to the terms and conditions of this Agreement. The Escrow Shares shall
be held as an escrow fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party
hereto. Notwithstanding this Section 1(a), if the Escrow Account shall be
attached, garnished, or levied upon pursuant to judicial process, or the
delivery of funds held in the Escrow Account shall be stayed or enjoined by any
court order, or any court order shall be made or entered into affecting the
Escrow Account, or any part thereof, the Escrow Agent is hereby expressly
authorized to obey and comply with such judicial process or court order. In the
event the Escrow Agent obeys or complies with any judicial
1
process or court order, it shall not be liable to Purchaser, Seller or the
Shareholders' Representative, nor to any other person, firm or corporation by
reason of such compliance, notwithstanding the subsequent reversal,
modification, annulment, or setting aside of such court order.
(B) DIVIDENDS, ETC. Any securities distributable in respect of or
in exchange for any of the Escrow Shares, whether by way of stock dividend,
stock splits or otherwise, shall be delivered by any party in possession of such
securities to the Escrow Agent, who shall hold such securities in the Escrow
Account. Such securities shall be issued in the name of the Escrow Agent or its
nominee and shall be considered Escrow Shares for all purposes hereof. It is
agreed that notwithstanding the fact that the Escrow Shares are registered to
the Escrow Agent, Purchaser shall or shall cause any cash dividend or property
(other than securities) distributable in respect of the Escrow Shares to be paid
or transferred directly to the Shareholders' Representative, on behalf of Seller
who is entitled thereto.
(C) VOTING OF SHARES. On any matter brought before the
shareholders of Purchaser for a vote, the Shareholders' Representative shall
deliver notice to the Escrow Agent ("Voting Notice") setting forth the manner in
which, in accordance with the votes cast by Seller, the Escrow Agent shall vote
the Escrow Shares. Such Voting Notice shall be delivered to the Escrow Agent at
least five days prior to the date of the taking of any vote of the shareholders
of Purchaser (the "Voting Notice Date"). The Escrow Agent shall vote the Escrow
Shares in accordance with such Voting Notice. The Escrow Agent shall have no
obligation to vote any of the Escrow Shares if no Voting Notice is received
prior to the Voting Notice Date or if such notice does not clearly set forth the
manner in which the Escrow Agent shall vote the Escrow Shares.
(D) TRANSFERABILITY. The interests of Seller in the Escrow Shares
shall not be assignable or transferable, other than by operation of law. Notice
of any such assignment or transfer by operation of law shall be given to the
Escrow Agent and Purchaser, and no such assignment or transfer shall be valid
until such notice is given.
(E) ESCROW AGENT'S POWER TO TRANSFER. The Escrow Agent is hereby
granted the power to effect any transfer of the Escrow Shares permitted under
the terms of this Agreement.
2. ADMINISTRATION OF ESCROW ACCOUNT. The Escrow Agent shall
administer the Escrow Account as follows:
(A) DELIVERY OF CLAIM NOTICE. If any Indemnitee has incurred or
suffered any Damages for which it is or may be entitled to indemnification under
the Purchase Agreement, the Purchaser shall, on behalf of such Indemnitee and on
or prior to the Termination Date (as defined below), give written notice of such
claim (a "Claim Notice") to the Shareholders' Representative and the Escrow
Agent. Each Claim Notice shall state the basis for such claim and the amount of
Damages incurred or suffered by such Indemnitee (the "Claimed Amount"). No
Indemnitee shall make any claim for Damages after the date that is thirteen (13)
months from the date of this Agreement (the "Termination Date"). The Escrow
Agent is hereby directed to disregard any claim for damages received after the
Termination Date.
2
(B) RESPONSE NOTICE; UNCONTESTED CLAIMS. Within 30 days of the
date a Claim Notice was received by the Escrow Agent (the "Response Date"), the
Shareholders' Representative shall provide to Purchaser and to the Escrow Agent
a written response (the "Response Notice") in which the Shareholders'
Representative shall: (i) agree that the number of Escrow Shares having a Fair
Market Value (as calculated pursuant to Section 5 hereof) equal to the full
Claimed Amount may be released from the Escrow Account to the Indemnitee, (ii)
agree that the number of Escrow Shares having a Fair Market Value equal to part,
but not all, of the Claimed Amount (the "Agreed Amount") may be released from
the Escrow Account to the Indemnitee or (iii) contest that any of the Escrow
Shares may be released from the Escrow Account to the Indemnitee. The
Shareholders' Representative may contest the release of Escrow Shares having a
Fair Market Value equal to all or a portion of the Claimed Amount only based
upon a good faith belief that all or such portion of the Claimed Amount does not
constitute Damages for which the Indemnitee is entitled to indemnification under
the Purchase Agreement. If no Response Notice is delivered by the Shareholders'
Representative to the Escrow Agent by the Response Date, the Shareholders'
Representative shall be deemed to have agreed that Escrow Shares having a Fair
Market Value equal to the entire Claimed Amount may be released to the
Indemnitee from the Escrow Account.
(C) UNCONTESTED CLAIM. Subject to Sections 3(b) and 3(c), if the
Shareholders' Representative in the Response Notice agrees or is deemed pursuant
to the last sentence of subsection (b) above to have agreed that Escrow Shares
having a Fair Market Value equal to the Claimed Amount may be released from the
Escrow Account to the Indemnitee, the Escrow Agent shall, no later than ten days
after receipt of the Response Notice (or no later than ten days after the
Shareholders' Representative's deemed agreement), transfer, deliver, and assign
to such Indemnitee such number of Escrow Shares having a Fair Market Value equal
to the Claimed Amount (or such lesser number of Escrow Shares as is then held in
the Escrow Account), as such Fair Market Value is calculated on the date of
actual receipt by the Escrow Agent of the Response Notice or, in the case of the
Shareholders' Representative's deemed agreement, on the Response Date. In the
event (i) the provisions of Section 3(b) preclude the Escrow Agent from
delivering any Contingent Shares which would be required to satisfy the Claimed
Amount and (ii) a Negative Determination (as defined in Section 3(b)) has been
delivered to the Escrow Agent, then no later than ten days after the Measurement
Date, the Escrow Agent shall transfer, deliver, and assign to such Indemnitee
such number of Escrow Shares having a Fair Market Value equal to the portion of
the Claimed Amount not previously satisfied pursuant to this subsection (c) (or
such lesser number of Escrow Shares as is then held in the Escrow Account), as
such Fair Market Value is calculated on the Measurement Date.
(D) PARTIALLY CONTESTED CLAIMS. Subject to Sections 3(b) and
3(c), if the Shareholders' Representative in the Response Notice agrees that an
amount of Escrow Shares having a Fair Market Value equal to part, but not all,
of the Claimed Amount may be released from the Escrow Account to such
Indemnitee, the Escrow Agent shall, no later than ten days after receipt of the
Response Notice, transfer, deliver and assign to such Indemnitee such number of
Escrow Shares having a Fair Market Value equal to the Agreed Amount (or such
lesser number of Escrow Shares as is then held in the Escrow Account), as such
Fair Market Value is calculated on the date of actual receipt by the Escrow
Agent of the Response Notice. In the event (i) the provisions of Section 3(b)
preclude the Escrow Agent from delivering any Contingent Shares which would be
required to satisfy the Agreed Amount and (ii) a Negative
3
Determination has been delivered to the Escrow Agent, then no later than ten
days after the Measurement Date, the Escrow Agent shall transfer, deliver, and
assign to such Indemnitee such number of Escrow Shares having a Fair Market
Value equal to the portion of the Agreed Amount not previously satisfied
pursuant to this subsection (d) (or such lesser number of Escrow Shares as is
then held in the Escrow Account), as such Fair Market Value is calculated on the
Measurement Date.
(E) CONTESTED CLAIMS.
(I) If the Shareholders' Representative in the Response
Notice contests the release of all or part of the Escrow Shares having a Fair
Market Value equal to all or part of the Claimed Amount (the "Contested
Amount"), the Shareholders' Representative and Purchaser shall attempt in good
faith for a period of up to 30 days to agree upon the rights of the respective
parties with respect to the claims at issue. If the Shareholders' Representative
and Purchaser should so agree, a memorandum setting forth such agreement shall
be prepared and signed by Purchaser and the Shareholders' Representative and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely upon such memorandum and distribute the Escrow Shares from the Escrow
Account in accordance with the terms of the memorandum.
(II) If no such agreement can be reached after such good
faith negotiation, either Purchaser or the Shareholders' Representative may, by
written notice to the other (with a copy to the Escrow Agent), demand
arbitration of the matter unless the Contested Amount is at issue in pending
litigation or other dispute resolution procedure with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both Purchaser and the Shareholders' Representative agree to early arbitration
of the matter. All arbitration proceedings contemplated by this subsection (e)
shall be held in San Diego, California. All claims shall be settled by one
arbitrator in accordance with the Commercial Arbitration Rules then in effect of
the American Arbitration Association (the "Rules"). The Shareholders'
Representative and Purchaser shall mutually agree upon the designation of the
arbitrator within 15 days of the delivery of the Response Notice contesting the
Claimed Amount; PROVIDED HOWEVER, that in the event the Shareholders'
Representative and Purchaser fail to reach agreement with respect to the
designation of the arbitrator within 15 days of delivery of the Response Notice,
the arbitrator shall be appointed in accordance with the Rules. There shall be
limited discovery prior to the arbitration hearing, subject to the discretion of
the arbitrator, as follows: (a) exchange of witness lists and copies of
documentary evidence and documents related to or arising out of the issues to be
arbitrated, (b) depositions of all party witnesses, and (c) such other
depositions as may be allowed by the arbitrator upon a showing of good cause.
Depositions shall be conducted in accordance with the California Code of Civil
Procedure. The arbitrator shall decide the matter to be arbitrated pursuant
hereto within 60 days after the appointment of the arbitrator. The arbitrator's
decision shall relate solely to (i) whether Purchaser is entitled to receive the
Contested Amount (or a portion thereof) pursuant to the applicable terms of the
Purchase Agreement and this Agreement, and (ii) which party shall be deemed to
be the "prevailing party" in arbitration for the purposes of subparagraph (iii)
below. The final decision of the arbitrator shall be furnished to the
Shareholders' Representative, Purchaser and the Escrow Agent in writing and
shall constitute a conclusive determination of the issue in question, binding
upon the Shareholders' Representative, Seller, Purchaser and the Escrow Agent
and shall not be contested by any of them. Such decision may be used in a court
4
of law only for the purpose of seeking enforcement of the arbitrator's award.
After delivery of a Response Notice that the Claimed Amount is contested by the
Shareholders' Representative, the Escrow Agent shall continue to hold in the
Escrow Account a number of Escrow Shares having a Fair Market Value (calculated
as of the Termination Date) equal to one hundred twenty-five percent (125%) of
the Claimed Amount or Contested Amount (up to the number of Escrow Shares then
available in the Escrow Account), as the case may be, which has not then been
resolved, notwithstanding the occurrence of the Termination Date, until (i)
delivery of a copy of a settlement agreement executed by Purchaser and the
Shareholders' Representative setting forth instructions to the Escrow Agent as
to the release of Escrow Shares from the Escrow Account, if any, that shall be
made with respect to the Contested Amount, or (ii) delivery of a copy of the
final award of the arbitrator setting forth instructions to the Escrow Agent as
to the release of Escrow Shares from the Escrow Account, if any, that shall be
made with respect to the Contested Amount. The Escrow Agent shall thereupon
release in accordance with such settlement agreement or arbitration award Escrow
Shares from the Escrow Account (to the extent Escrow Shares are then held in the
Escrow Account) (A) in the number of Escrow Shares specified in the settlement
agreement or arbitration award, if such specification is made in the settlement
agreement or arbitration award, or (B) if no such specification is made, in the
number of Escrow Shares having a Fair Market Value equal to the settlement or
award amount stated in such settlement agreement or arbitration award,
calculated using the Fair Market Value as of the date of actual receipt by the
Escrow Agent of the written settlement agreement or arbitration award. The
non-prevailing party in any such arbitration proceeding shall pay its own
expenses, the fees of the arbitrator, the administration fee of the American
Arbitration Association, and the expenses, including without limitation, the
reasonable attorneys' fees and costs, incurred by the prevailing party to the
arbitration.
3. DISPOSITION OF CONTINGENT SHARES.
(A) Pursuant to the terms of the Purchase Agreement, Purchaser
and the Shareholders' Representative shall on any date after the date of this
Agreement and not later than three (3) business days after the date that is
twelve (12) months from the Closing Date (the date twelve (12) months from the
Closing Date, the "Measurement Date"), deliver to the Escrow Agent a joint
written notification signed by both parties concerning the contingencies to be
satisfied regarding the Contingent Shares, which notification shall be
designated either a "Positive Determination" or a "Negative Determination."
(B) Until such time as a Positive Determination or Negative
Determination shall have been delivered to the Escrow Agent, the Contingent
Shares shall be deemed to be Escrow Shares for all purposes of this Agreement;
PROVIDED, HOWEVER, that the Escrow Agent shall not release any Contingent Shares
to an Indemnitee in satisfaction of any Claimed Amount under Section 2(c) or
Agreed Amount under Section 2(d) of this Agreement unless and until a Negative
Determination has been received by the Escrow Agent. In the event a Negative
Determination duly signed by Purchaser and the Shareholders' Representative is
delivered to the Escrow Agent, then for all purposes of this Escrow Agreement
(including, without limitation, the satisfaction of any Claim Notice under
Section 2 of this Agreement), the Contingent Shares shall be deemed to be
"Escrow Shares." In the event a Positive Determination duly signed by Purchaser
and the Shareholders' Representative is delivered to the Escrow Agent, then the
Contingent Shares shall then cease to be deemed "Escrow Shares" for any purpose
of this
5
Escrow Agreement, and within five (5) business days of receipt of such Positive
Determination, the Escrow Agent shall deliver to Purchaser the certificate or
certificates representing the Contingent Shares, to which Contingent Shares
Purchaser shall be entitled.
(C) In the event that Purchaser and the Shareholders'
Representative fail to deliver a jointly signed Positive Determination or
Negative Determination to the Escrow Agent on or before the date which is three
(3) business days after the Measurement Date, the Escrow Agent shall promptly
send written notice to Purchaser and the Shareholders' Representative requesting
such Positive Determination or Negative Determination. The Escrow Agent shall
not distribute the Contingent Shares either to Purchaser pursuant to Section 2
or to the Shareholders' Representative pursuant to Section 4 until the Escrow
Agent has received such Positive Determination or Negative Determination or has
received a written settlement agreement or final arbitrator's award pursuant to
the provisions of Section 2(e) setting forth instructions regarding disposition
of the Contingent Shares.
4. RELEASE OF ESCROW SHARES.
(A) Subject to Section 3(c), within 10 days after the Termination
Date, (i) the Escrow Agent shall deliver to the Purchaser the certificate or
certificates representing the Escrow Shares, which certificate or certificates
shall be cancelled by Purchaser, (ii) Purchaser shall deposit with the Escrow
Agent a physical certificate or certificates registered in the name of Seller
representing the number of Escrow Shares to which Seller is then entitled and
(iii) the Escrow Agent shall distribute to the Shareholders' Representative, on
behalf of Seller, such certificate(s) representing all of the Escrow Shares then
in the Escrow Account (provided that such certificates(s) have been provided by
Purchaser to the Escrow Agent). The Shareholders' Representative shall hold such
certificate(s) in trust for the benefit of Seller. Notwithstanding the
foregoing, if any Indemnitee shall have asserted a claim for indemnification
prior to the Termination Date and such claim has not yet been resolved, the
Escrow Agent shall retain in the Escrow Account after the Termination Date a
number of Escrow Shares having a Fair Market Value equal to one hundred
twenty-five percent (125%) of the Claimed Amount or Contested Amount (up to the
number of Escrow Shares then available in the Escrow Account), as the case may
be, which has not then been resolved, upon the terms set forth in Section 2.
(B) Distributions to the Shareholders' Representative, on behalf
of Seller, shall be made by mailing stock certificates in the names of such
holders to the address of the Shareholders' Representative provided in Section 9
(or such other address as may be provided in writing to the Escrow Agent and
Purchaser by the Shareholders' Representative). Upon receipt of the stock
certificates, the Shareholders' Representative shall promptly mail such
certificates to Seller at its address provided in Section 9 (or such other
address as may be provided in writing to the Shareholders' Representative).
(C) No fractional shares of any security comprising the Escrow
Shares shall be distributed to Seller pursuant to this Agreement. In lieu of any
fractional shares to which Seller would otherwise be entitled, Seller shall be
paid in cash an amount equal to the dollar amount (rounded to the nearest whole
cent) determined by multiplying the Fair Market Value by the fraction of a share
of Purchaser Common Stock or any such security that would otherwise be
deliverable to Seller hereunder, and within 10 days after the Termination Date,
Purchaser shall
6
deliver to the Shareholders' Representative cash in a sufficient amount to pay
all fractional shares in accordance with this Section 4(c); PROVIDED, HOWEVER,
if such amount is less than twenty five dollars ($25.00) in the aggregate,
Seller shall not be entitled to such amount and Purchaser shall not be required
to pay such amount.
5. VALUATION OF ESCROW SHARES. For purposes of this Agreement, the
"Fair Market Value" of each Escrow Share on any date means the average closing
sales price of one share of Purchaser Common Stock as quoted on the American
Stock Exchange (as reported on the website of the American Stock Exchange at
XXX.XXXX.XXX) (or any other national securities exchange or over-the-counter
market on which the Purchaser Common Stock is then traded or quoted) for the
thirty (30) trading-day period immediately preceding (but not including) such
date; PROVIDED, HOWEVER, that if on such date, Purchaser Common Stock is no
longer quoted on the American Stock Exchange or another national securities
exchange, but instead Purchaser Common Stock is quoted on an over-the-counter
market and has been quoted on such over-the-counter market for less than thirty
(30) trading days, then the "Fair Market Value" shall mean the average closing
sales price of one share of Purchaser Common Stock for the total number of days
that Purchaser Common Stock has been quoted on such over-the-counter market
immediately preceding (but not including) such date. The good faith
determination of the Escrow Agent of Fair Market Value on any specified date
under this Agreement shall be final, conclusive and binding upon all parties.
6. FEES AND EXPENSES.
(A) At the Closing, fees will be payable and due to the Escrow
Agent in accordance with Exhibit A attached hereto. The Escrow Agent will also
be entitled to reimbursement for extraordinary expenses incurred in performance
of its duties hereunder.
(B) Purchaser shall pay the fees and expenses of the Escrow Agent
for the services to be rendered by the Escrow Agent hereunder.
(C) All fees, costs and other expenses (including attorneys'
fees) incurred by the Shareholders' Representative in the performance of his
duties hereunder shall be borne by Seller. Neither Purchaser nor the Escrow
Agent shall have any liability whatsoever for any fees, costs, or other expenses
incurred by the Shareholders' Representative.
7. DUTIES OF ESCROW AGENT.
(A) The Escrow Agent shall be entitled to rely upon any order,
judgment, certificate, demand, notice, instrument or other writing delivered to
it hereunder without being required to investigate the validity, accuracy or
content thereof. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Agreement. In all questions arising under this Agreement,
the Escrow Agent may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Escrow Agent based on such advice, the
Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be
required to take any action hereunder involving any expense unless the payment
of such expense is made or provided for in a manner reasonably satisfactory to
it.
7
(B) In the event conflicting demands are made or conflicting
notices are served upon the Escrow Agent with respect to the Escrow Shares, the
Escrow Agent will have the absolute right, at the Escrow Agent's election, to do
either or both of the following: (i) resign as Escrow Agent so a successor can
be appointed pursuant to clause (e) of this Section 7, or (ii) file a suit in
interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves. In the event such interpleader suit is
brought, the Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under this Agreement, and Purchaser will pay
the Escrow Agent all costs, expenses and reasonable attorneys' fees expended or
incurred by the Escrow Agent pursuant to the exercise of the Escrow Agent's
rights under this Section 7(b) (such costs, fees and expenses will be treated as
extraordinary fees and expenses for the purposes of Section 6 hereof).
(C) The Escrow Agent shall be indemnified, jointly and severally,
and saved harmless by the Purchaser, from and against any and all liability,
including all expenses reasonably incurred in its defense, to which the Escrow
Agent shall be subject by reason of any action taken or omitted or any
investment or disbursement of any part of the Escrow Account made by the Escrow
Agent pursuant to this Escrow Agreement, except as a result of the Escrow
Agent's own gross negligence or willful misconduct. The costs and expenses of
enforcing this right of indemnification shall also be paid by the Purchaser.
This right of indemnification shall survive the termination of this Escrow
Agreement, and the removal or resignation of the Escrow Agent.
(D) The Escrow Agent shall have no interest in the Escrow Shares,
but is serving as escrow holder only and having only possession thereof.
(E) The Escrow Agent may resign as Escrow Agent at any time and
for any reason whatsoever. In the event the Escrow Agent desires to resign as
Escrow Agent under this Agreement, the Escrow Agent shall deliver a notice to
Purchaser and the Shareholders' Representative stating the date upon which such
resignation shall be effective; PROVIDED HOWEVER, that any such resignation
shall not be effective until at least the 30th day after Purchaser and the
Shareholders' Representative receive such notice. Upon the receipt of any such
notice from the Escrow Agent, Purchaser may appoint a successor escrow agent
without the consent of the Shareholders' Representative so long as such
successor is a bank or trust company with assets of at least $50 million or a
bank or trust company with a parent company with assets of at least $50 million,
and may appoint any other successor escrow agent with the consent of the
Shareholders' Representative, which consent shall not be unreasonably withheld.
In the case of the appointment of any successor escrow agent requiring the
consent of the Shareholders' Representative as set forth in the preceding
sentence, Purchaser and the Shareholders' Representative shall deliver a written
notice to the Escrow Agent designating the successor escrow agent. Upon the
effectiveness of the resignation of the Escrow Agent, the Escrow Agent shall
deliver the Escrow Shares to any successor escrow agent properly designated
hereunder, whereupon the Escrow Agent shall be discharged from any and all
further obligations arising hereunder. If upon the effective date of resignation
of the Escrow Agent a successor escrow agent has not been duly designated, the
Escrow Agent's sole responsibility after that time shall be to retain and
safeguard the Escrow Shares until receipt of a designation of successor escrow
agent or a final nonappealable order of a court of competent jurisdiction.
8
(F) In no event shall the Escrow Agent be liable to any party for
any special, indirect or consequential loss or damage of any kind, even if the
Escrow Agent has been previously advised of the possibility of such loss or
damage.
(G) The obligations and duties of the Escrow Agent are confined
to those specifically set forth in this Agreement. In the event that any of the
terms and provisions of any other agreement between any of the parties hereto
conflict or are inconsistent with any of the terms and provisions of this
Agreement, the terms and provisions of this Agreement shall govern and control
in all respects. The Escrow Agent shall not be subject to, nor be under any
obligation to ascertain or construe the terms and conditions of any other
instrument, whether or not now or hereafter deposited with or delivered to the
Escrow Agent or referred to in this Agreement, nor shall the Escrow Agent be
obligated to inquire as to the form, execution, sufficiency, or validity of any
such instrument nor to inquire as to the identity, authority, or rights of the
person or persons executing or delivering same.
8. TERMINATION. This Agreement shall terminate upon the later of the
Termination Date or the release by the Escrow Agent of all of the Escrow Shares
and Contingent Shares in accordance with this Agreement.
9. NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service.
If to Purchaser: ImageWare Systems, Inc.
Attn: S. Xxxxx Xxxxxx, Jr., CEO
00000 Xxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Fax: (000) 000-0000
WITH A COPY TO:
Xxxxxx Godward LLP
Attn: Xxxx X. Xxxxxxx, Esq.
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Fax: (000) 000-0000
If to Seller: Castle Holdings LLC
000 Xxxxx Xxxx., Xxxxx 000
Xxxxx Xxxx, XX 00000
Attention: T. Xxxx Xxxxxxxx
Facsimile: (000) 000-0000
9
WITH A COPY TO:
Xxxxxx Xxxxxxxxx XX, Esq.
Xxxxxxxxx Xxxxxxxxx APC
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
If to the Escrow Agent: LaSalle Bank National Association
Attn: Xxxxx Xxxxxx, Corporate Trust
Department
000 X. XxXxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000
Fax: (000) 000-0000
If to the Shareholders'
Representative: Xxxx Xxxxx
000 Xxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
WITH A COPY TO:
Xxxxxx Xxxxxxxxx XX, Esq.
Xxxxxxxxx Xxxxxxxxx APC
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Facsimile: (000) 000-0000
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, facsimile or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change
the address to which notices, instructions or communications are to be
delivered by giving the other parties to this Agreement notice thereof in
the manner set forth in this Section 9.
10. SHAREHOLDERS' REPRESENTATIVE.
(A) For purposes of this Agreement, Seller hereby consents to the
appointment of Xxxx Xxxxx to act as the Shareholders' Representative and as
agent and attorney-in-fact for and on behalf of Seller, and the taking by the
Shareholders' Representative of any and all actions and the making of any
decisions required or permitted to be taken by Seller under this Agreement,
including without limitation, the exercise of the power to (i) authorize
delivery to any Indemnitee of Escrow Shares in satisfaction of any Damages or
Claimed Amounts, (ii) agree to negotiate, enter into settlements and compromises
with respect to such Damages or Claimed Amounts, (iii) pursuant to the terms of
the Purchase Agreement, make and deliver to the Escrow Agent, together with
Purchaser, a Positive Determination or a Negative Determination, (iv) resolve
any claims or disputes hereunder, and (v) take all actions necessary in the
judgment of the Shareholders' Representative for the accomplishment of the
foregoing and all of the other
10
terms, conditions and limitations contained in this Agreement. As evidenced by
the execution of this Agreement by the Shareholders' Representative, the
Shareholders' Representative hereby accepts such appointment as agent and
attorney-in-fact to act on behalf of Seller with respect to the matters
contemplated by this Agreement. Such agency may be changed by Seller from time
to time upon not less than ten (10) days' prior written notice to Purchaser and
the Escrow Agent. No bond shall be required of the Shareholders' Representative,
and the Shareholders' Representative shall receive no compensation for services.
A decision, act, consent or instruction of the Shareholders'
Representative shall constitute a decision of Seller for whom shares of
Purchaser Common Stock otherwise issuable to Seller are deposited in the Escrow
Account and shall be final, binding and conclusive upon Seller.
11. GENERAL.
(A) GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the laws
of the State of California without regard to principles of conflicts of laws.
(B) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(C) ENTIRE AGREEMENT. Except as set forth in the Purchase
Agreement, this Agreement constitutes the entire understanding and agreement of
the parties with respect to the subject matter of this Agreement and supersedes
all prior agreements or understandings, written or oral, between the parties
with respect to the subject matter hereof.
(D) WAIVERS. No waiver by any party hereto of any condition or of
any breach of any provision of this Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(E) AMENDMENT. This Agreement may be amended only with the
written consent of Purchaser, the Escrow Agent and the Shareholders'
Representative (or their duly designated successors).
(F) SUCCESSORS AND ASSIGNS. This Agreement shall enure to the
benefit of, and be binding upon, the parties hereto and their respective
successors and assigns.
[THIS SPACE INTENTIONALLY LEFT BLANK]
11
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
PURCHASER: IMAGEWARE SYSTEMS, INC.
By:
------------------------------------
Name: S. Xxxxx Xxxxxx, Jr.
Title: Chief Executive Officer
SELLER: CASTLE HOLDINGS LLC
By:
------------------------------------
Name:
------------------------------------
Title:
----------------------------------
SHAREHOLDERS' REPRESENTATIVE:
-----------------------------------------
XXXX XXXXX
ESCROW AGENT: LASALLE BANK NATIONAL ASSOCIATION
By:
-------------------------------------
Name:
------------------------------------
Title:
----------------------------------
[SIGNATURE PAGE TO ESCROW AGREEMENT]
EXHIBIT A
ESCROW AGENT
SCHEDULE OF FEES
Acceptance Fee: $ 500.00
Annual Administration Fee: $2,500.00*
The Acceptance Fee and initial Administration Fee are due upon
execution of the Escrow Agreement.
*Should the Escrow Account remain open for less than a full year after the
initial thirteen month period, the Annual Administration Fee will be
prorated on a six-month basis.
Any investment transaction not in a money market fund or in the LaSalle
Bank National Association Time Deposit, Open Account (TDOA") will incur a
$100.00 per transaction fee. The parties to the agreement understand and
agree that LaSalle may receive certain revenue in the form of 12b-1 or
shareholder servicing fees on certain mutual fund investments. Such fees
are disclosed in the prospectus for any such fund. These fees are paid to
LaSalle directly from the mutual fund provider and are not fees paid by the
parties to the Agreement.
All out-of-pocket expenses will be billed at our cost. Out-of-pocket
expenses include, but are not limited to, professional services (e.g. legal
or accounting), travel expenses, telephone and facsimile transmission
costs, postage (including express mail and overnight delivery charges), and
copying charges.
EXHIBIT D
FORM OF NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT is being executed and delivered as of
__________, 2001 by __________ (the "Member") in favor of, and for the
benefit of: ImageWare Systems, Inc., a California corporation (the
"Purchaser"); Castleworks LLC, a Nevada limited liability company
("Castleworks"); E-Focus West LLC, a Nevada limited liability company
("E-Focus"); and the other "Indemnitees" (as hereinafter defined). Certain
capitalized terms used in this Noncompetition Agreement are defined in
Section 19.
RECITALS
A. Castle Holdings LLC, a Nevada limited liability company (the
"Company"), is the sole member and sole equity owner of Castleworks and E-Focus.
Castleworks and E-Focus are referred to collectively herein as the "Acquired
Companies."
B. As a member and equity holder of membership interest in the
Company, and as a manager of the Company, and as a manager of Castleworks,
and as manager of E-Focus, the Member has obtained extensive and valuable
knowledge and confidential information concerning the businesses of the
Company and its subsidiaries, including the Acquired Companies.
C. Pursuant to a
Membership Interest Purchase Agreement dated as of
even date herewith by and among the Purchaser and the Company (the "Purchase
Agreement"), the Company is selling all of the outstanding membership interests
of the Acquired Companies to the Purchaser contemporaneously with the execution
and delivery of this Noncompetition Agreement. As a result of the Purchaser's
acquisition of all of the outstanding membership interests of the Acquired
Companies, the Acquired Companies are becoming subsidiaries of the Purchaser.
D. In connection with the acquisition by the Purchaser of all of the
outstanding membership interests of the Acquired Companies pursuant to the
Purchase Agreement (it being understood that the purchase of the goodwill of the
Acquired Companies is a material part of such acquisition), as a condition to
the consummation of such acquisition and to enable the Purchaser to secure more
fully the benefits of such acquisition, the Purchaser has required that the
Member enter into this Noncompetition Agreement; and the Member is entering into
this Noncompetition Agreement in order to induce the Purchaser to consummate the
acquisition contemplated by the Purchase Agreement.
E. As a manager of the Company, the Member has approved the
acquisition by the Purchaser of the Acquired Companies through a unanimous
written consent of the board of managers of the Company, and the Member will
directly benefit from the consummation of such acquisition through the
receipt of shares of Purchaser's Common Stock in payment of the purchase
price for the Acquired Companies.
F. The Purchaser and the Member are executing an offer letter (the
"Employment Agreement") contemporaneously with the execution and delivery of
this Noncompetition Agreement. Pursuant to the Employment Agreement, the Member
is becoming a key employee
2
of the Purchaser and will accordingly obtain extensive and valuable knowledge
and confidential information concerning the businesses of the Purchaser, the
Acquired Companies and the Purchaser's other subsidiaries.
G. The Purchaser, the Acquired Companies and the Purchaser's other
subsidiaries have conducted and are conducting their respective businesses on a
national and international basis.
AGREEMENT
In order to induce the Purchaser to consummate the transactions
contemplated by the Purchase Agreement, and for other good and valuable
consideration, the Member agrees as follows:
1. RESTRICTION ON COMPETING ACTIVITIES. The Member agrees that,
during the Noncompetition Period, the Member shall not, and shall not permit
any of its Affiliates to:
(A) Engage or prepare to engage directly or indirectly in
Competing Activities in any Restricted Territory; or
(B) directly or indirectly be or become an officer, director,
stockholder, member, owner, co-owner, Affiliate, partner, promoter,
employee, agent, representative, designer, consultant, advisor,
manager, licensor, sublicensor, licensee or sublicensee of, for or
to, or otherwise be or become associated with or acquire or hold (of
record, beneficially or otherwise) any direct or indirect interest
in, any Person that engages or is preparing to engage directly or
indirectly in Competing Activities in any Restricted Territory;
(C) PROVIDED, HOWEVER, the Company has disclosed to the
Purchaser the nature and proposed terms of an agreement between its
subsidiary, Castle Operating Enterprises LLC, ("XXX") and Digital
Dynamics LLC ("Digital") pursuant to which Digital will purchase
(the "Transaction") all of XXX'x membership interest in Castle
Entertainment LLC ("Entertainment"). Nothing in this Section 1 shall
be deemed to prohibit the continued negotiation or ultimate
consummation of the Transaction. Further, should the Transaction
ultimately not be consummated, nothing in this Section 1 shall be
deemed to prohibit the Company or XXX from continuing to operate and
manage the beauty software kiosk business of Entertainment in the
manner in which it has been managed and operated to date; PROVIDED,
HOWEVER, that all employees of Purchaser shall devote their entire
productive time, ability and attention to the Purchaser's business.
PROVIDED FURTHER, that the Member may, without violating this Section
1, own, as a passive investment, shares of capital stock of a publicly-held
corporation that engages in Competing Activities if (i) such shares are actively
traded on an established national securities market in the United States, (ii)
the number of shares of such corporation's capital stock that are owned
beneficially (directly or indirectly) by the Member and the number of shares of
such corporation's capital stock that are owned beneficially (directly or
indirectly) by the Member's Affiliates collectively represent less than one
percent of the total number of shares of such
2
corporation's capital stock outstanding, and (iii) neither the Member nor any
Affiliate of the Member is otherwise associated directly or indirectly with
such corporation or with any Affiliate of such corporation.
2. NO HIRING OR SOLICITATION OF EMPLOYEES. The Member agrees that,
during the Noncompetition Period, the Member shall not, and shall not permit
any of the Member's Affiliates to: (a) hire any Specified Employee, or (b)
directly or indirectly, personally or through others, encourage, induce,
attempt to induce, solicit or attempt to solicit (on the Member's own behalf
or on behalf of any other Person) any Specified Employee or any other
employee to leave his or her employment with the Purchaser, any of the
Acquired Companies or any of the Purchaser's other subsidiaries. For purposes
of this Section 2, "Specified Employee" shall mean any individual who (i) is
or was an employee of any of the Acquired Companies on the date of this
Noncompetition Agreement or during the 180-day period preceding the date of
this Noncompetition Agreement, and (ii) remains or becomes an employee of the
Purchaser, any of the Acquired Companies or any of the Purchaser's other
subsidiaries on the date of this Noncompetition Agreement or at any time
during the Noncompetition Period.
3. CONFIDENTIALITY. The Member agrees that the Member shall hold all
Confidential Information in strict confidence and shall not at any time
(whether during or after the Noncompetition Period): (a) reveal, report,
publish, disclose or transfer any Confidential Information to any Person
(other than the Purchaser or the Acquired Companies), except in the
performance of the Member's obligations under the Employment Agreement; (b)
use any Confidential Information for any purpose, except in the performance
of the Member's obligations under the Employment Agreement; or (c) use any
Confidential Information for the benefit of any Person (other than the
Purchaser or the Acquired Companies).
4. REPRESENTATIONS AND WARRANTIES. The Member represents and
warrants, to and for the benefit of the Indemnitees, that: (a) the Member has
full power and capacity to execute and deliver, and to perform all of the
Member's obligations under, this Noncompetition Agreement; and (b) neither
the execution and delivery of this Noncompetition Agreement nor the
performance of this Noncompetition Agreement will result directly or
indirectly in a violation or breach of (i) any agreement or obligation by
which the Member or any of the Member's Affiliates is or may be bound, or
(ii) any law, rule or regulation. The Member's representations and warranties
shall survive the expiration of the Noncompetition Period for an unlimited
period of time.
5. SPECIFIC PERFORMANCE. The Member agrees that, in the event of any
breach or threatened breach by the Member of any covenant or obligation
contained in this Noncompetition Agreement, each of the Purchaser and the
other Indemnitees shall be entitled (in addition to any other remedy that may
be available to it, including monetary damages) to seek and obtain (a) a
decree or order of specific performance to enforce the observance and
performance of such covenant or obligation, and (b) an injunction restraining
such breach or threatened breach. The Member further agrees that no
Indemnitee shall be required to obtain, furnish or post any bond or similar
instrument in connection with or as a condition to obtaining any remedy
referred to in this Section 5, and the Member irrevocably waives any right
the Member may have to require any Indemnitee to obtain, furnish or post any
such bond or similar instrument.
3
6. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any of the Indemnitees, the Member shall
indemnify and hold harmless each Indemnitee against and from any loss,
damage, injury, harm, detriment, lost opportunity, liability, exposure,
claim, demand, settlement, judgment, award, fine, penalty, tax, fee
(including attorneys' fees), charge or expense (whether or not relating to
any third-party claim) that is directly or indirectly suffered or incurred at
any time (whether during or after the Noncompetition Period) by such
Indemnitee, or to which such Indemnitee otherwise becomes subject at any time
(whether during or after the Noncompetition Period), and that arises directly
or indirectly out of or by virtue of, or relates directly or indirectly to,
(a) any inaccuracy in or breach of any representation or warranty contained
in this Noncompetition Agreement, or (b) any failure on the part of the
Member to observe, perform or abide by, or any other breach of, any
restriction, covenant, obligation or other provision contained in this
Noncompetition Agreement.
7. NON-EXCLUSIVITY. The rights and remedies of the Purchaser and the
other Indemnitees under this Noncompetition Agreement are not exclusive of or
limited by any other rights or remedies which they may have, whether at law,
in equity, by contract or otherwise, all of which shall be cumulative (and
not alternative). Without limiting the generality of the foregoing, the
rights and remedies of the Purchaser and the other Indemnitees under this
Noncompetition Agreement, and the obligations and liabilities of the Member
under this Noncompetition Agreement, are in addition to their respective
rights, remedies, obligations and liabilities under the law of unfair
competition, under laws relating to misappropriation of trade secrets, under
other laws and common law requirements and under all applicable rules and
regulations. Nothing in this Noncompetition Agreement shall limit any of the
Member's obligations, or the rights or remedies of the Purchaser or any of
the other Indemnitees, under the Purchase Agreement or the Employment
Agreement; and nothing in the Purchase Agreement or the Employment Agreement
shall limit any of the Member's obligations, or any of the rights or remedies
of the Purchaser or any of the other Indemnitees, under this Noncompetition
Agreement. No breach on the part of the Purchaser, the Company or any other
party of any covenant or obligation contained in the Purchase Agreement, the
Employment Agreement or any other agreement shall limit or otherwise affect
any right or remedy of the Purchaser or any of the other Indemnitees under
this Noncompetition Agreement.
8. SEVERABILITY. If any provision of this Noncompetition Agreement
or any part of any such provision is held under any circumstances to be
invalid or unenforceable in any jurisdiction, then (a) such provision or part
thereof shall, with respect to such circumstances and in such jurisdiction,
be deemed amended to conform to applicable laws so as to be valid and
enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances
and in such jurisdiction shall not affect the validity or enforceability of
such provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
part thereof shall not affect the validity or enforceability of the remainder
of such provision or the validity or enforceability of any other provision of
this Noncompetition Agreement. Each provision of this Noncompetition
Agreement is separable from every other provision of this Noncompetition
Agreement, and each part of each provision of this Noncompetition Agreement
is separable from every other part of such provision.
9. GOVERNING LAW; VENUE.
4
(A) This Noncompetition Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of laws).
(B) Any legal action or other legal proceeding relating to this
Noncompetition Agreement or the enforcement of any provision of this
Noncompetition Agreement may be brought or otherwise commenced in any state
or federal court located in the County of San Diego California. The Member:
(I) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the
County of San Diego, California (and each appellate court
located in the State of California), in connection with any
such legal proceeding;
(II) agrees that service of any process, summons, notice
or document by U.S. mail addressed to the Member at the address
set forth on the signature page of this Noncompetition
Agreement shall constitute effective service of such process,
summons, notice or document for purposes of any such legal
proceeding;
(III) agrees that each state and federal court located in
the County of San Diego, California, shall be deemed to be a
convenient forum; and
(IV) agrees not to assert (by way of motion, as a defense
or otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of San Diego,
California, any claim that the Member is not subject personally
to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of
such proceeding is improper or that this Noncompetition
Agreement or the subject matter of this Noncompetition
Agreement may not be enforced in or by such court.
Nothing contained in this Section 9 shall be deemed to limit or
otherwise affect the right of any Indemnitee to commence any legal proceeding
or otherwise proceed against the Member in any other forum or jurisdiction.
(C) THE MEMBER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS NONCOMPETITION
AGREEMENT OR THE ENFORCEMENT OF ANY PROVISION OF THIS NONCOMPETITION
AGREEMENT.
10. WAIVER. No failure on the part of the Purchaser or any other
Indemnitee to exercise any power, right, privilege or remedy under this
Noncompetition Agreement, and no delay on the part of the Purchaser, or any
other Indemnitee in exercising any power, right, privilege or remedy under
this Noncompetition Agreement, shall operate as a waiver of such power,
right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy. No
Indemnitee shall be deemed to have waived any claim of such Indemnitee
arising out of this Noncompetition Agreement, or any power, right, privilege
or remedy of such Indemnitee under this Noncompetition Agreement, unless the
waiver of such
5
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Indemnitee; and any
such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
11. SUCCESSORS AND ASSIGNS. Each of the Purchaser and the other
Indemnitees may freely assign any or all of its rights under this
Noncompetition Agreement, at any time, in whole or in part, to any Person
without obtaining the consent or approval of the Member or of any other
Person. This Noncompetition Agreement shall be binding upon the Member and
the Member's heirs, executors, estate, personal representatives, successors
and assigns, and shall inure to the benefit of the Purchaser and the other
Indemnitees.
12. FURTHER ASSURANCES. The Member shall (at the Member's sole
expense) execute and/or cause to be delivered to each Indemnitee such
instruments and other documents, and shall (at the Member's sole expense)
take such other actions, as such Indemnitee may reasonably request at any
time (whether during or after the Noncompetition Period) for the purpose of
carrying out or evidencing any of the provisions of this Noncompetition
Agreement.
13. ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Noncompetition Agreement or the enforcement of any provision
of this Noncompetition Agreement is brought against the Member, the
prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
14. CAPTIONS. The captions contained in this Noncompetition
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Noncompetition Agreement and shall not be referred to in
connection with the construction or interpretation of this Noncompetition
Agreement.
15. CONSTRUCTION. Whenever required by the context, the singular
number shall include the plural, and vice versa; the masculine gender shall
include the feminine and neuter genders; and the neuter gender shall include
the masculine and feminine genders. Any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Noncompetition
Agreement. Neither the drafting history nor the negotiating history of this
Noncompetition Agreement shall be used or referred to in connection with the
construction or interpretation of this Noncompetition Agreement. As used in
this Noncompetition Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, and shall
be deemed to be followed by the words "without limitation." Except as
otherwise indicated in this Noncompetition Agreement, all references in this
Noncompetition Agreement to "Sections" are intended to refer to Sections of
this Noncompetition Agreement.
16. SURVIVAL OF OBLIGATIONS. Except as specifically provided herein,
the obligations of the Member under this Noncompetition Agreement (including
the Member's obligations under Sections 3, 6 and 12) shall survive the
expiration of the Noncompetition Period. The expiration of the Noncompetition
Period shall not operate to relieve the Member of any obligation or liability
arising from any prior breach by the Member of any provision of this
Noncompetition Agreement.
6
17. OBLIGATIONS ABSOLUTE. The Member's obligations under this
Noncompetition Agreement are absolute and shall not be terminated or
otherwise limited by virtue of any breach (on the part of the Purchaser, the
Company, any other Indemnitee or any other Person) of any provision of the
Purchase Agreement or any other agreement, or by virtue of any failure to
perform or other breach of any obligation of the Purchaser, the Company, any
other Indemnitee or any other Person.
18. AMENDMENT. This Noncompetition Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of the Member and the Purchaser (or any
successor to the Purchaser).
19. DEFINED TERMS. For purposes of this Noncompetition Agreement:
(A) "AFFILIATE" means, with respect to any specified Person,
any other Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with
such specified Person.
(B) "COMPETING ACTIVITIES" means the business of developing,
selling or servicing software for photography or applications related to
photography and the business of any electronic or digital imaging for any
photographic purposes.
(C) "CONFIDENTIAL INFORMATION" means any non-public information
(whether or not in written form and whether or not expressly designated as
confidential) relating directly or indirectly to the Purchaser, any of the
Acquired Companies or any of the Purchaser's other subsidiaries or relating
directly or indirectly to the business, operations, financial affairs,
performance, assets, technology, processes, products, contracts, customers,
licensees, sublicensees, suppliers, personnel, consultants or plans of the
Purchaser, any of the Acquired Companies or any of the Purchaser's other
subsidiaries (including any such information consisting of or otherwise
relating to trade secrets, know-how, technology, inventions, prototypes,
designs, drawings, sketches, processes, license or sublicense arrangements,
formulae, proposals, research and development activities, customer lists or
preferences, pricing lists, referral sources, marketing or sales techniques
or plans, operations manuals, service manuals, financial information,
projections, lists of consultants, lists of suppliers or lists of
distributors); PROVIDED, HOWEVER, that "Confidential Information" shall not
be deemed to include information of the Company that was already publicly
known and in the public domain prior to the time of its initial disclosure to
the Member.
(D) "INDEMNITEES" shall include: (i) the Purchaser; (ii) the
Purchaser's current and future Affiliates and subsidiaries; and (iii) the
successors and assigns of each of the Persons referred to in clauses "(i)"
and "(ii)" above; PROVIDED, HOWEVER, that the Company, the Member, other
members of the Company and any other Persons executing noncompetition
agreements substantially similar to this Noncompetition Agreement pursuant to
the terms of the Purchase Agreement shall not be deemed to be "Indemnitees."
(E) "NONCOMPETITION PERIOD" shall mean the period commencing on
the date of this Noncompetition Agreement and ending on the later of: (i) the
fifth anniversary of the date of this Noncompetition Agreement or (ii) if the
Member is or becomes an employee or
7
consultant of Purchaser, the Acquired Companies or an Affiliate or subsidiary
of Purchaser, the third anniversary of the date of the termination of the
Member's employment or consulting arrangement with such Person.
(F) "PERSON" means any: (i) individual; (ii) corporation,
general partnership, limited partnership, limited liability partnership,
trust, company (including any limited liability company or joint stock
company) or other organization or entity; or (iii) governmental body or
authority.
(G) "RESTRICTED TERRITORY" means each county or similar
political subdivision of each State of the United States of America
(including each of the counties in the State of California); each State,
territory or possession of the United States of America; and each nation,
principality, state, commonwealth, province, territory, possession, county,
municipality, district or other jurisdiction of any nature in Canada,
Germany, Singapore, France, Japan and Australia.
8
IN WITNESS WHEREOF, the Member has duly executed and delivered this
Noncompetition Agreement as of the date first above written.
MEMBER
Signature:
----------------------------------
Address:
Telephone No.:( ) Facsimile:( )
----------- --------
NONCOMPETITION AGREEMENT SIGNATURE PAGE
EXHIBIT E
FORM OF OFFER LETTER
[IMAGEWARE SYSTEMS, INC. LETTERHEAD]
_______, 2001
Dear _______:
As part of the anticipated acquisition by ImageWare Systems, Inc. ("ImageWare")
of E-Focus West LLC and Castleworks LLC (the "Acquisition"), ImageWare is
pleased to offer you the position of _______ on the following terms, effective
and contingent upon the occurrence of the closing of the Acquisition. In the
event that the Acquisition is not consummated, this offer shall expire and any
agreement made hereunder shall be null and void.
You will work at our facility located at 00000 Xxxxxxxxx Xxxx, Xxx Xxxxx,
Xxxxxxxxxx, and report to Xxxx Xxxxxxxxx. Your employment will commence
immediately upon the closing of the Acquisition. Of course, ImageWare may change
your position, duties, and work location from time to time as it deems
necessary.
If you accept this offer, your salary will be $_______ per annum, less standard
payroll deductions and all required withholdings. You will be eligible for
standard ImageWare benefits as in effect from time to time. ImageWare provided
benefits become effective the first day of the month following your date of
hire. It is currently the policy of ImageWare to provide premium benefit
coverage for the employee, plus one qualifying dependent. It is currently the
policy of ImageWare that should you elect to cover any additional dependents
under the company sponsored plan, you will incur a monthly out-of-pocket expense
of not more than $200. Please feel free to contact Xxxx Xxxxxxxxx, our Human
Resources Manager, should you have specific questions regarding benefits and/or
ImageWare policies.
Normal working hours are from 9:00 a.m. to 5:00 p.m. Monday through Friday.
As an exempt salaried employee, you will be expected to work additional
hours as required by the nature of your work assignments.
As an ImageWare employee, you will be expected to abide by ImageWare rules and
regulations and to sign and comply with the enclosed Employee Nondisclosure and
Invention Assignment Agreement, which prohibits unauthorized use or disclosure
of the proprietary information of ImageWare.
Please understand that all employees at ImageWare are considered to be "at will
employees," which means that no guarantee of long-term employment is made or
implied. You may terminate your employment with ImageWare at any time and for
any reason whatsoever simply by notifying ImageWare. Likewise, ImageWare may
terminate your employment at any time and for any reason whatsoever, with or
without cause or advance notice. This at-will employment relationship cannot be
changed except in a writing signed by an ImageWare officer.
The employment terms in this letter supersede any other agreements or promises
made to you by anyone, whether oral or written. This offer is subject to
satisfactory proof of your right to work in the United States as well as your
fulfillment of all other necessary conditions required by state or federal law.
Effective upon the closing of the Acquisition, you hereby terminate any
employment you may have with Castle Holdings LLC, Castleworks LLC or E-Focus
West LLC and accept this offer of employment with ImageWare. By accepting this
offer of employment, you hereby terminate any employment agreements or
arrangements with Castle Holdings LLC, Castleworks LLC or E-Focus West LLC and
accept this agreement as the sole embodiment of your employment terms with
ImageWare.
Specifically, you are party to an employment agreement with Castleworks LLC,
dated _______ (the "Former Agreement"), which Former Agreement provides that you
may be entitled to certain severance payments under Section _______ thereof. In
consideration of this offer of employment, you hereby (i) terminate your Former
Agreement with Castleworks LLC and forfeit all rights and benefits thereunder
(except for your right to accrued wages), including, but not limited to, any
agreement regarding severance pay and (ii) waive all rights to notice of
termination and all rights to termination payments of any kind whatsoever
(except for your right to accrued wages), whether contractual, statutory or
otherwise, upon termination of your employment with Castleworks LLC, including
without limitation all amounts under the Former Agreement.
This offer of employment is contingent upon the successful completion of the
Acquisition, and both this offer and your acceptance of this offer will become
effective upon the closing of the Acquisition. In the event that the Acquisition
is terminated for any reason and the closing does not occur, this offer shall
expire and any agreement made hereunder shall be null and void.
Please sign and date this letter, and return it to Xxxx Xxxxxxxxx prior to the
closing of the Acquisition, if you wish to accept employment at ImageWare under
the terms described above.
We are looking forward to a mutually rewarding relationship and believe strongly
in your ability to contribute to the future success of ImageWare. If you have
any questions about this offer, please do not hesitate to call Xxxx Xxxxxxxxx or
me.
Sincerely,
-----------------------------
Xxxx X. Xxxxxxxxx
Senior Vice President of Corporate Development
Agreed and Accepted:
----------------------------
Name
------------------------
Date
Encl.: Employee Nondisclosure and Invention Assignment Agreement
EMPLOYEE NONDISCLOSURE
and
INVENTION ASSIGNMENT AGREEMENT
In consideration of my employment by ImageWare Systems, Inc. (the "Company"), I
agree as follows:
I. INVENTIONS
A. DISCLOSURES OF INVENTIONS
I acknowledge and agree that, among my other duties for the
Company, I will be employed by the Company in a position which could provide the
opportunity for conceiving and/or reducing to practice inventions, improvements,
developments, ideas or discoveries, whether patentable or unpatentable
(collectively hereinafter referred to as "Inventions"). Accordingly, while in
the Company's employ and for six (6) months after termination of my employment
with the Company, I agree to promptly disclose to the Company, in writing, all
Inventions conceived or reduced to practice by me, either solely or jointly with
others, and whether or not such Inventions are conceived or reduced to practice
during regular working hours. I further agree to maintain adequate written
records of such Inventions.
B. COMPANY INVENTIONS
The assignment provisions in Paragraph C below shall apply
only to "Company Inventions" as defined herein. Company Inventions shall mean
any Invention that either:
1. relates, at the time of conception or reduction to
practice of the Invention to:
a. the Company's business, projects or
products, or to the manufacture or
utilization thereof; or
b. the actual or demonstrably anticipated
research or development of the Company; or
2. results from any work performed directly or
indirectly by me for the Company; or
3. results, at least in part, from the use of the
Company's time, materials, facilities or trade secret
information.
IF THIS AGREEMENT IS GOVERNED BY THE PROVISIONS OF CALIFORNIA LABOR CODE SECTION
2870, PARAGRAPH C DOES NOT APPLY TO ANY INVENTION THAT I DEVELOPED ENTIRELY ON
MY OWN TIME WITHOUT USING THE COMPANY'S EQUIPMENT, SUPPLIES, FACILITIES OR TRADE
SECRET INFORMATION, EXCEPT FOR THOSE INVENTIONS THAT EITHER RELATE AT THE TIME
OF CONCEPTION OR REDUCTION TO PRACTICE OF THE INVENTION TO THE COMPANY'S
BUSINESS, OR ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE
COMPANY, OR THAT RESULT FROM ANY WORK PERFORMED BY ME FOR THE COMPANY.
C. ASSIGNMENT OF COMPANY INVENTIONS
I hereby assign, and agree to assign, to the Company all my
right, title and interest in and to all Company Inventions. Also, I hereby
assign, and agree to assign to the Company all Inventions conceived or reduced
to practice by me within one year following my termination of employment with
the Company (voluntary or otherwise), if the Invention is a result of the
Company's information which was obtained by me during my employment with the
Company.
D. EXECUTION OF NECESSARY DOCUMENTS
I agree that, upon request and without compensation therefore,
but at no expense to me, and during the term of my employment or thereafter, I
will do all lawful acts, including the execution of papers and lawful oaths
13
and the giving of testimony, that in the opinion of the Company, its successors
and assigns, may be necessary or desirable in obtaining, sustain, reissuing,
extending and enforcing United States and foreign Letters of Patent, including
Design Patents, on all of such Company Inventions, and for perfecting,
affirming, maintaining and recording the Company's complete ownership and title
thereto, and to otherwise cooperate in all proceedings and matters relating
thereto.
E. EXCEPTIONS
I have listed on the reverse side hereof all unpatented but
potentially patentable ideas and inventions conceived prior to this employment
(and which have not been assigned to a former employer) and which are,
therefore, excluded from the scope of this Agreement.
II. TRADE SECRETS AND CONFIDENTIAL INFORMATION
A. CONFIDENTIALITY OF COMPANY INFORMATION
I agree to regard and preserve as confidential all information obtained
by me relating or pertaining to the Company's business, projects, customers,
trade secrets, confidential information (including business and financial
information) or unpublished know-how, whether patented or unpatented, and to all
of my activities for or on behalf of the Company, and not to publish or disclose
any part of such information to others or use the same for my own purpose or the
purposes of others, during the term of this employment or thereafter. Any
information of the Company which is not readily available to the public shall be
considered by me to be confidential information and therefore within the scope
of this Agreement, unless the Company advised me otherwise in writing.
B. CONFIDENTIALITY OF FORMER EMPLOYER INFORMATION
During my employment by the Company I will not improperly use or
disclose any confidential information or trade secrets, if any, of any former
employer or any other person to whom I have an obligation of confidentiality,
and I will not bring onto the premises of the Company any unpublished documents
or any property belonging to any former employer or any other person to whom I
have an obligation of confidentiality unless consented to in writing by that
former employer or person. I will use in the performance of my duties only
information which is generally known and used by persons with training and
experience comparable to my own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company.
C. TERMINATION OF EMPLOYMENT
I agree that, upon termination of my employment with the Company
(voluntary or otherwise), I will return to the Company all things belonging to
the Company, and that all documents, records, notebooks and tangible articles
containing or embodying confidential information, including copies thereof, then
in my possession or control, whether prepared by me or others, will be left with
the Company. I recognize that the unauthorized taking of any of the Company's
trade secrets is a crime under Section 499(c) of the California Penal Code, and
is punishable by imprisonment in the state prison, or in a county jail not
exceeding one year, or by a fine not exceeding five thousand dollars ($5,000),
or by both that fine and imprisonment. I further recognize that such
unauthorized taking of the Company's trade secrets may also result in civil
liability under California Civil Code Section 3426, ET SEQ., and that, if
willful, could result in an award against me for the double the Company's
damages and attorney's fees. I further consent to the notification of my new
employer of my rights and obligations under this Agreement.
D. EXIT INTERVIEW
I agree that, upon termination of my employment with the Company
(voluntary or otherwise), I will attend an exit interview and execute a
Termination Certificate in a form substantially the same as that attached hereto
as "Exhibit A".
14
III. COPYRIGHTS
I agree that all rights, title and interest in any and all copyrights,
copyright registrations and copyrightable subject matter which occur as a result
of my employment with the Company shall be the sole and exclusive property of
the Company, and agree that such works comprise works made for hire. I hereby
assign all right, title and interest in any and all copyrights, copyright
registrations and copyrightable subject matter which occur as a result of my
employment with the Company.
IV. UNFAIR COMPETITION
A. DURING EMPLOYMENT
I agree that during my employment with the Company I will not interfere
with the business of the Company in any manner. Particularly, but without
limitation, I agree to refrain from planning or organizing a competitive
business during my term of employment.
B. FOLLOWING TERMINATION (FOR ONE YEAR)
I agree that, for a period of one (l) year immediately following my
termination of employment with the Company (voluntary or otherwise), I will not
interfere with the business of the Company in any manner. Particularly, but
without limitation, I agree to refrain from the following acts:
1. initiating contact with any employee, consultant or
other independent control of the Company for the purpose of hiring away such
employee, consultant or other independent contractor; and
2. soliciting customers of the Company.
V. GENERAL PROVISIONS
A. If any portion of this Agreement is found to be void or
unenforceable, it shall be severed herefrom, leaving in force the remainder of
this Agreement.
B. This Agreement will be binding upon my heirs, assigns,
executors, administrators or other legal representatives.
C. No waiver or modification of any of the terms or provisions of
this Agreement shall be valid unless contained in writing and signed by both
myself and the Company.
D. In the event that any legal action becomes necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to its court costs, to such reasonable attorney fees and expenses as
shall be fixed by a court of competent jurisdiction.
E. This Agreement, including Exhibit A, contains the entire
understanding between me and the Company with respect to the subject matter
hereof, and there are no representations, warranties promises or undertakings
other than those contained in the provisions above.
F. This Agreement is executed by me at San Diego in the State of
California this ______ day of ___________ 2001, and shall be governed by the
laws of said state.
WITNESS: EMPLOYEE:
------------------------------ -----------------------------------
(Please print name) (Please print name)
------------------------------- -----------------------------------
(Signature) (Signature)
15
EXHIBIT A
TERMINATION AGREEMENT
This is to confirm that I have reviewed the Employee Nondisclosure and
Invention Assignment Agreement signed by me on ____________________, 2001, and
that I understand the terms of that Agreement and the continuing obligation I
have under that Agreement. During the course of my employment with ImageWare
Systems, Inc. (the "Company"), I have had access to information regarded by the
Company as confidential. Confidential information to which I have had access
includes, but is not limited to, information associated with the following
subject matter:________________________________________________________________.
I certify that I do not have in my possession or control, nor have I
failed to return, any specifications, drawings, blueprints, reproduction,
prototypes, sketches, notes, reports, proposals or copies thereof, or any other
documents or materials, tools, equipment or other property which belongs to the
Company, including any documents, records, notebooks and similar repositories of
confidential information, and all copies thereof, whether prepared by me or
others, except research and development journals prepared by me.
I recognize that the unauthorized taking of any of the Company's
tangible trade secrets is a crime under Section 499(c) of the California Penal
Code, and that any unauthorized taking of the Company's trade secrets may also
result in civil liability under California Civil Code Section 3426, ET SEQ.
I further certify that I have complied with all of the terms of the
Employee Nondisclosure and Invention Assignment Agreement signed by me,
including the reporting of any inventions conceived or reduced to practice by me
and covered by the Agreement, and I further agree that I will preserve as
confidential all proprietary technical and business information pertaining to
the Company. During the course of my employment with the Company, I have become
familiar with its procedures for protecting trade secrets and confidential
information and agree that they are reasonable under the circumstances to
maintain the secrecy of such information.
If requested by the Company, I agree to notify my new employer as to the general
nature or subject matter of the confidential and proprietary information to
which I had access while employed by the Company and as to my obligations with
respect to such information.
Executed by me at San Diego in the State of California, this _____ day of
_______, 2001.
WITNESS: EMPLOYEE:
------------------------------ -----------------------------------
(Please print name) (Please print name)
------------------------------- -----------------------------------
(Signature) (Signature)
16
EXHIBIT F
FORM OF CONSULTANT AGREEMENT
Effective Date: ________, 2001 ("Effective Date")
CONSULTANT AGREEMENT
THIS AGREEMENT is made by and between IMAGEWARE SYSTEMS, INC., and its
successors or assignees ("Client") and the undersigned XXXX XXXXXXXX (the
"Consultant").
RECITALS
A. Pursuant to a
Membership Interest Purchase Agreement dated as of even
date herewith by and between ImageWare Systems, Inc. and Castle
Holdings LLC, Castle Holdings LLC is selling all of the outstanding
membership interests of its subsidiaries Castleworks, LLC and E-Focus
West LLC (collectively, the "Acquired Companies") to ImageWare Systems,
Inc. (the "Transaction").
B. As Consultant is the sole member and equity holder of TDI Castles LLC,
which is a member and equity holder of membership interest in Castle
Holdings LLC, Consultant has a beneficial financial interest in the
closing of the Transaction.
C. In connection with the Transaction, and to enable ImageWare Systems,
Inc. to secure more fully the benefits of such Transaction, ImageWare
Systems, Inc. has required as a condition to the consummation of such
Transaction, that Consultant enter into this Agreement; and Consultant
is entering into this Agreement and terminating his Employment
Agreement with Castleworks, LLC dated January 31, 1999 and waiving all
rights to severance thereunder in order to induce ImageWare Systems,
Inc. to consummate the Transaction.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and to induce ImageWare
Systems, Inc. to consummate the Transaction, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Consultant hereby agrees as follows:
1. ENGAGEMENT OF SERVICES. Consultant shall render such services as Client
may from time to time request in his area of experience and expertise with
the Acquired Companies for up to forty (40) hours per month during the Term
(as defined below) of this Agreement. Consultant shall, to the best of his
ability, render the services requested by the Client in a professional manner
using such skills and resources as Consultant deems appropriate.
2. TERM OF THE AGREEMENT. This Agreement will commence on the Effective
Date and will continue in effect for a period of six (6) months ("Term").
The Term of this Agreement may be extended by mutual consent of the parties in
writing.
3. COMPENSATION. Client will pay Consultant a monthly fee in the amount of
$3,000 for services rendered under this Agreement. Upon termination of this
Agreement for any reason, Consultant will be paid fees and expenses on a
proportional basis for work which is then in
1
progress, to and including the effective date of such termination.
Consultant shall only receive reimbursement for business expenses that are
approved in advance by Client.
4. INDEPENDENT CONSULTANT RELATIONSHIP. Consultant's relationship with
Client will be that of an independent consultant and nothing in this Agreement
should be construed to create a partnership, joint venture, or employer-employee
relationship. Consultant is not the agent of Client and is not authorized to
make any representation, contract, or commitment on behalf of Client. Consultant
will not be entitled to any of the benefits which Client may make available to
its employees, such as group insurance, profit-sharing or retirement benefits.
Consultant will be solely responsible for all tax returns and payments required
to be filed with or made to any federal, state or local tax authority with
respect to Consultant's performance of services and receipt of fees under this
Agreement. Client will regularly report amounts paid to Consultant by
filing Form 1099-MISC with the Internal Revenue Service as required by law.
Because Consultant is an independent consultant, Client will not withhold
or make payments for social security; make unemployment insurance or
disability insurance contributions; or obtain worker's compensation
insurance on Consultant's behalf. Consultant agrees to accept exclusive
liability for complying with all applicable state and federal laws
governing self-employed individuals, including obligations such as payment
of taxes, social security, disability and other contributions based on fees
paid to Consultant. Consultant hereby agrees to indemnify and defend Client
against any and all such taxes or contributions, including penalties and
interest. Consultant is free to enter any contract to provide services to
other business entities, except any contract which would induce Consultant
to violate this Agreement or the noncompetition agreement to which
Consultant is a party in connection with the Transaction.
5. TRADE SECRETS - INTELLECTUAL PROPERTY RIGHTS. Consultant agrees during
the Term of this Agreement and thereafter that he will take all steps
reasonably necessary to hold Client's Proprietary Information (as defined
below) in trust and confidence, will not use such Proprietary Information
in any manner or for any purpose not expressly set forth in this Agreement,
and will not disclose such Proprietary Information to any third party without
first obtaining Client's express written consent on a case-by-case
basis. By way of illustration but not limitation "Proprietary Information"
includes (a) trade secrets, inventions, mask works, ideas, processes,
formulas, source and object codes, data, programs, other works of authorship,
know-how, improvements, discoveries, developments, designs and techniques
(hereinafter collectively referred to as "Inventions"); and (b) information
regarding plans for research, development, new products, marketing and selling,
business plans, budgets and unpublished financial statements, licenses, prices
and costs, suppliers and customers; and (c) information regarding the skills and
compensation of employees of Client. Notwithstanding the other provisions of
this Agreement, nothing received by Consultant will be considered to be Client's
Proprietary Information if (1) it has been published or is otherwise readily
available to the public other than by a breach of this Agreement; (2) it has
been rightfully received by Consultant from a third party without confidential
limitations; or (3) it has been independently developed for Consultant by
personnel or agents having no access to Client's Proprietary Information and has
not been acquired by Client in the Transaction.
6. NO CONFLICT OF INTEREST. Consultant agrees during the term of this
Agreement not to accept work or enter into a contract or accept an obligation,
inconsistent or incompatible with Consultant's obligations under this
Agreement or the scope of services rendered for Client.
2
Consultant warrants that to the best of his knowledge, there is no other
existing contract or duty on Consultant's part inconsistent with this
Agreement. Consultant further agrees not to disclose to Client, or bring onto
Client's premises, or induce Client to use any confidential information that
belongs to anyone other than Client or Consultant.
7. GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of California as applied to transactions
taking place wholly within California between California residents. Consultant
and Client each hereby expressly consent to the personal jurisdiction of the \
state and federal courts located in San Diego County, California for any lawsuit
filed there arising from or related to this Agreement.
8. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. If moreover, any
one or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed by limiting and reducing it, so
as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
9. INJUNCTIVE RELIEF. A breach of any of the promises or agreements
contained in Section 5 of this Agreement may result in irreparable and
continuing damage to Client for which there may be no adequate remedy at
law, and Client is therefore entitled to seek injunctive relief as well as
such other and further relief as may be appropriate.
10. ENTIRE AGREEMENT; WAIVER OF SEVERANCE. This Agreement is the final,
complete and exclusive agreement of the parties with respect to the subject
matter hereof and supersedes and merges all prior discussions between us
including, but not limited to, Consultant's Employment Agreement with
Castleworks, LLC dated January 31, 1999 (the "Former Employment
Agreement"). Consultant hereby terminates any employment Consultant may
have with Castleworks LLC or E-Focus West LLC and accepts this Agreement
with ImageWare. By accepting this Agreement, Consultant hereby terminates
any employment agreements or arrangements with Castleworks LLC or E-Focus
West LLC, including, without limitation, the Former Employment Agreement,
and accepts this Agreement as the sole embodiment of his consulting terms
with ImageWare. In connection with the termination of Consultant's
employment with Castleworks LLC, Consultant hereby expressly waives all
rights to notice of termination or termination payments of any kind
whatsoever (except for Consultant's right to accrued wages), including,
without limitation, all rights to severance payments under Section 6.2 of
the Former Employment Agreement. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, will be
effective unless in writing and signed by the party to be charged. The
terms of this Agreement will govern all services undertaken by Consultant
for Client.
[THIS PORTION OF PAGE INTENTIONALLY LEFT BLANK]
3
IN WITNESS WHEREOF, the parties have caused this Independent Consultant
Services Agreement to be executed by their duly authorized representative.
CLIENT:
IMAGEWARE SYSTEMS, INC.
By:
--------------------------------------------------
Print Name:
-----------------------------------------
Title:
-----------------------------------------------
CONSULTANT:
-----------------------------------------------
XXXX XXXXXXXX
EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of __________, 2001, by and among IMAGEWARE SYSTEMS, INC., a
California corporation (the "Purchaser"), CASTLE HOLDINGS LLC, a Nevada
limited liability company (the "Seller") and the following parties
(collectively, with the Seller, the "Selling Shareholders"): XXXXXXX KODAK
COMPANY, a New Jersey corporation, TDI CASTLES LLC, a California limited
liability company, XXXX XXXXX and XXXXX XXXXX.
WHEREAS, the Purchaser and the Seller have entered into a
Membership
Interest Purchase Agreement dated as of even date herewith (the "Purchase
Agreement") pursuant to which the Purchaser is acquiring all of the
outstandings membership interests of E-Focus West LLC and Castleworks LLC, each
a Nevada limited liability company and a wholly owned subsidiary of the Seller.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and other good and valuable consideration the sufficiency of
which is hereby acknowledged, the parties hereto further agree as follows:
1. DEFINITIONS. Each capitalized term used herein and not otherwise
defined shall have the meaning given to such term in the Purchase Agreement.
2. RESALE REGISTRATION RIGHTS. The Purchaser shall file a pre-effective
amendment to its registration statement on Form SB-2 filed with the SEC on June
29, 2001 (the "Resale Registration Statement") to register the Purchase Shares
thereunder and to include thereunder as selling shareholders the Selling
Shareholders in whose names the Purchase Shares are issued at the Closing
pursuant to Section 1.2(a)(ii) of the Purchase Agreement. With respect to the
Escrow Shares and the Contingent Shares issued in the name of the Escrow Agent
at the Closing, such shares shall be included in the Resale Registration
Statement and shall be reflected as beneficially held by Castle Holdings LLC.
The Purchase Shares shall be treated as Registrable Securities under the
Registration Rights Agreement by and among the Purchaser and certain
shareholders of the Purchaser, dated as of March 30, 2001 (the "Prior
Registration Rights Agreement"), and each Selling Shareholder shall be treated
as a Holder thereunder for so long as such Selling Shareholder holds Registrable
Securities. Each Selling Shareholder shall be entitled to all rights and
privileges of a Holder of Registrable Securities under the Prior Registration
Rights Agreement, and each Selling Shareholder hereby agrees to be bound by all
agreements, obligations and restrictions of a Holder of Registrable Securities
thereunder. The Purchaser shall cause the Resale Registration Statement to
remain effective until the earlier of (i) the second anniversary of the Closing
Date or (ii) the date on which all of the Purchase Shares covered by the Resale
Registration Statement have been sold.
3. PROHIBITION ON MARKET MANIPULATION. During the period commencing on
the date of this Agreement and ending on the one year anniversary of the Closing
Date, each Selling Shareholder shall not engage in, shall cause their
affiliates, family members and each Related Party to refrain from, and shall not
encourage or assist any third party to engage in, the following activities: (a)
with respect to any securities of the Purchaser, make any short sale of, or
enter into any hedging or similar transaction with the same economic effect as a
sale of such securities, (b) disseminate (other than in the ordinary course of
such Selling Shareholder's employment with the Purchaser or other than pursuant
to private communications that would not reasonably be expected to have an
effect on the market price of any of the Purchaser's securities) via the
Internet, chat rooms, email, newspapers, magazines, television or any other
media of any type any opinions or information regarding the Purchaser,
including, without limitation, opinions or information regarding the Purchaser's
management, stock price, customers, competitors, products, business, prospects,
condition, assets, liabilities, operations, financial performance or net income
or (c) with respect to any securities of Purchaser, engage in any manipulative,
deceptive or fraudulent practices within the meaning of Section 9 or Section
15(c) of the Exchange Act.
1
4. INVESTMENT REPRESENTATIONS. Each Selling Shareholder understands
that the Purchase Shares are being offered and sold pursuant to a private
placement exemption from registration contained in the Securities Act of 1933,
as amended (the "Securities Act") based in part upon each such Selling
Shareholder's representations contained in this Agreement.
(A) Each Selling Shareholder understands that it must bear the
economic risk of the Purchase Shares indefinitely unless the Purchase Shares are
registered pursuant to the Securities Act, or an exemption from registration is
available. Each Selling Shareholder understands that there is no assurance that
any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow such Selling Shareholder
to transfer all or any portion of the Purchase Shares under the circumstances,
in the amounts or at the times such Selling Shareholder might propose. Each
Selling Shareholder has been advised or is aware of the provisions of Rule 144,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(B) Each Selling Shareholder is acquiring the Purchase Shares
for its own account for investment only, and not with a view towards their
distribution.
(C) Each Selling Shareholder by reason of its, or of its
management's, business or financial experience, has the capacity to protect its
own interests in connection with the Transactions.
(D) Each Selling Shareholder is an accredited investor within
the meaning of Regulation D under the Securities Act.
5. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
2
6. GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and governed
in all respects by, the internal laws of the State of California, United States
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement shall be brought
or otherwise commenced in any state or federal court located in the County of
San Diego, California. Each party to this Agreement:
(I) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San Diego,
California (and each appellate court located in the State of California) in
connection with any such legal proceeding;
(II) agrees that each state and federal court located in the County
of San Diego, California shall be deemed to be a convenient forum; and
(III) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal court
located in the County of San Diego, California, any claim that such party is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Registration
Rights Agreement as of the day and year first above written.
PURCHASER: IMAGEWARE SYSTEMS, INC.
By:
----------------------------------
Name: S. Xxxxx Xxxxxx, Jr.
Title: Chief Executive Officer
SELLER AND SELLING SHAREHOLDER: CASTLE HOLDINGS LLC
a Nevada limited liability company
By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
SELLING SHAREHOLDERS: XXXXXXX KODAK COMPANY
a New Jersey corporation
By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
TDI CASTLES LLC
a California limited liability company
By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
---------------------------------------
XXXX XXXXX
---------------------------------------
XXXXX XXXXX
