EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
INFO SYSTEMS, INC.
XXXX XXXXXXXX
XXXXXX X. XXXXXXXX, XX.
XXX FOGGY
XXXXXXX XXXX
XXXXXXXX XXXXXXXX
AND
MTM TECHNOLOGIES, INC.
DATED AS OF JANUARY 27, 2005
TABLE OF CONTENTS
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PAGE
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ARTICLE I. PURCHASE OF STOCK...................................................1
1.1 Purchase and Sale of Stock..........................................1
1.2 Delivery of Stock...................................................1
1.3 Further Acts and Assurances.........................................1
ARTICLE II. SHAREHOLDER REPRESENTATIVE.........................................2
2.1 Shareholder Representative..........................................2
2.2 No Liability for Shareholder Representative.........................3
2.3 Purchaser Representative............................................3
ARTICLE III. PURCHASE PRICE....................................................3
3.1 Purchase Price......................................................3
3.2 Earnout Consideration...............................................6
3.3 Additional Cash Consideration.......................................7
3.4 Limitations on the Issuance of Purchaser Common Stock...............7
ARTICLE IV. THE CLOSING........................................................8
4.1 Date of Closing.....................................................8
ARTICLE V. REPRESENTATIONS AND WARRANTIES......................................8
5.1 Operating Representations and Warranties............................8
5.1.1 Organization................................................8
5.1.2 Good Standing...............................................8
5.1.3 Authorization and Effect of Agreement.......................8
5.1.4 No Restrictions Against the Assets and Properties of
the Company; Required Consents..............................9
5.1.5 No Third Party Options......................................9
5.1.6 Financial Statements........................................9
5.1.7 Accounts Receivable........................................10
5.1.8 Inventory..................................................10
5.1.9 Absence of Undisclosed Liabilities; No Other Business......10
5.1.10 Books of Account...........................................11
5.1.11 Contracts and Commitments..................................11
5.1.12 Title to Assets............................................13
5.1.13 Intellectual Property......................................13
5.1.14 Capitalization.............................................14
5.1.15 Real Property..............................................14
5.1.16 Insurance..................................................15
5.1.17 Conduct Since the Interim Balance Sheet Date...............15
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5.1.18 Customers and Suppliers....................................17
5.1.19 Labor Matters..............................................17
5.1.20 Employee Benefit Plans.....................................18
5.1.21 Litigation; Decrees........................................20
5.1.22 Compliance With Law; Permits...............................21
5.1.23 Environmental Matters......................................21
5.1.24 Taxes......................................................22
5.1.25 Certain Business Practices and Regulations;
Potential Conflicts of Interest............................25
5.1.26 Warranties and Returns.....................................25
5.1.27 Disclosure.................................................25
5.1.28 Credit Cards and Bank Accounts.............................26
5.1.29 Commission and Finder Fees.................................26
5.1.30 Compliance With Xxxxxxxx-Xxxxx.............................26
5.1.31 Existing Lease.............................................26
5.2 Representations and Warranties of the Shareholders.................26
5.2.1 Acquisition of Shares......................................26
5.2.2 Effect of Agreement........................................27
5.2.3 Shareholder; Stock Ownership...............................27
5.3 Representations and Warranties of Purchaser........................27
5.3.1 Corporate Organization.....................................27
5.3.2 Authorization and Effect of Agreement......................28
5.3.3 No Restrictions............................................28
5.3.4 Authorization of Shares....................................28
5.3.5 Compliance With Law; Permits...............................28
5.3.6 Litigation; Decrees........................................29
5.3.7 Capitalization.............................................29
5.3.8 SEC Reports; Disclosure....................................29
5.3.9 Financial Statements.......................................30
5.3.10 Absence of Changes.........................................30
5.3.11 Commissions and Finders Fees...............................30
ARTICLE VI. PRE-CLOSING COVENANTS.............................................30
6.1 Access to Information..............................................30
6.2 Conduct of Business................................................30
6.3 Notification.......................................................32
6.4 Third Party Consents...............................................32
6.5 Confidentiality....................................................33
6.6 Publicity..........................................................33
6.7 Injunctions........................................................34
6.8 Satisfaction of Conditions.........................................34
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6.9 Tangible Net Worth.................................................34
6.10 Stock Options......................................................34
6.11 Acquisition Proposals..............................................34
6.12 Identified Liabilities.............................................34
6.13 Keys to Properties.................................................34
6.14 Bank Accounts......................................................35
6.15 Cancellation of Credit Cards.......................................35
6.16 Resignation of Officers and Directors..............................35
6.17 Personal Vehicles..................................................35
6.18 Authorized Borrowings..............................................35
6.19 No Amendments to Existing Lease....................................35
6.20 Tail Insurance.....................................................35
ARTICLE VII. CONDITIONS TO CLOSING............................................35
7.1 Conditions Precedent to Obligations of Purchaser...................35
7.1.1 Representations, Warranties and Covenants..................35
7.1.2 Secretary's Certificate....................................36
7.1.3 Closing Documents..........................................36
7.1.4 Governmental Consents or Approvals.........................36
7.1.5 Release of Liens on the Stock..............................36
7.1.6 No Adverse Proceedings.....................................36
7.1.7 Third Party Consents.......................................36
7.1.8 Material Adverse Effect....................................37
7.1.9 Opinion of Counsel to the Company and the Shareholders.....37
7.1.10 Financing..................................................37
7.1.11 Escrow Agreement...........................................37
7.1.12 Financial Statements.......................................37
7.1.13 Due Diligence..............................................37
7.1.14 Termination of Stock Options...............................37
7.1.15 Consent of General Electric Capital Company................38
7.1.16 Payment of Term Note and Consent of Wilmington Trust
Company....................................................38
7.1.17 Identified Liabilities.....................................38
7.2 Conditions Precedent to Obligations of the Shareholders............38
7.2.1 Representations, Warranties and Covenants..................38
7.2.2 Secretary's Certificate....................................38
7.2.3 Closing Documents..........................................39
7.2.4 Governmental Consents or Approvals.........................39
7.2.5 No Adverse Proceedings.....................................39
7.2.6 Opinion of Purchaser's Counsel.............................39
7.2.7 Escrow Agreement...........................................39
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ARTICLE VIII. DOCUMENTS TO BE DELIVERED AT THE CLOSING........................39
8.1 Documents to be Delivered by the Shareholders......................39
8.1.1 Certificates...............................................39
8.1.2 Closing Statement..........................................39
8.1.3 Employment Agreements......................................39
8.1.4 Subordination Agreement....................................39
8.1.5 FIRPTA.....................................................40
8.1.6 Good Standing Certificates.................................40
8.1.7 Lien Searches..............................................40
8.1.8 Landlord Consent...........................................40
8.1.9 Evidence of Resignation of Officers and Directors..........40
8.1.10 Books and Records..........................................40
8.1.11 Other Documents............................................40
8.2 Documents to be Delivered by Purchaser.............................40
8.2.1 Purchase Price.............................................40
8.2.2 Good Standing Certificates.................................40
8.2.3 Employment Agreements......................................40
8.2.4 Piggyback Registration Rights Agreement....................41
8.2.5 Other Documents............................................41
ARTICLE IX. POST-CLOSING COVENANTS............................................41
9.1 Payments Received..................................................41
9.2 Use of Name........................................................41
9.3 Financial Statements...............................................41
9.4 Covenant Not to Compete............................................41
9.5 Post-Closing Confidentiality.......................................42
9.6 Calculation of Earnout Consideration..............................43
9.7 Post-Closing Notifications.........................................43
9.8 Subordination Agreements...........................................43
9.9 SEC Filings........................................................44
ARTICLE X. SURVIVAL AND INDEMNIFICATION.......................................44
10.1 Survival of Representations and Warranties.........................44
10.2 Limitations on Liability...........................................44
10.3 Indemnification....................................................45
10.4 Defense of Claims..................................................46
10.5 Insurance Recovery.................................................47
10.6 Adjustment to Purchase Price.......................................48
10.7 No Indemnity From the Company......................................48
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ARTICLE XI. TAX MATTERS.......................................................48
11.1 Tax Sharing and Similar Arrangements...............................48
11.2 Tax Returns Required to be Filed Prior to Closing..................48
11.3 Tax Periods Ending on or prior to the Closing Date.................48
11.4 Indemnification Obligations........................................49
11.5 Tax Periods Beginning Before and Ending After The Closing Date.....49
11.6 Cooperation on Tax Matters.........................................49
11.7 Transfer Taxes.....................................................50
ARTICLE XII. MISCELLANEOUS PROVISIONS.........................................50
12.1 Break-up Fee.......................................................50
12.2 Notices............................................................50
12.3 Dispute Resolution.................................................51
12.4 Expenses...........................................................51
12.5 Successors and Assigns.............................................51
12.6 Waiver.............................................................52
12.7 Entire Agreement...................................................52
12.8 Amendments and Supplements.........................................52
12.9 Rights of the Parties..............................................52
12.10 Brokers............................................................52
12.11 Further Assurances.................................................53
12.12 Governing Law......................................................53
12.13 Severability.......................................................53
12.14 Counterparts.......................................................53
12.15 Titles and Headings................................................53
12.16 Certain Interpretive Matters and Definitions.......................53
12.17 Termination........................................................54
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EXHIBIT AND DISCLOSURE SCHEDULE LIST
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SCHEDULES
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Schedule I Name, Address and Ownership of Shareholders
EXHIBITS
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Exhibit A Form of Escrow Agreement
Exhibit B-1 Form of Xxx Foggy Employment Agreement
Exhibit B-2 Form of Xxxxxxx Xxxx Employment Agreement
Exhibit B-3 Form of Xxxx Xxxxxxxx Employment Agreement
Exhibit C Form of Subordination Agreement
Exhibit D Form of Registration Rights Agreement
DISCLOSURE SCHEDULES
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Schedule 5.1.2 Good Standing
Schedule 5.1.4 Required Consents
Schedule 5.1.6 Non-GAAP Financial Statements
Schedule 5.1.7 Accounts Receivable
Schedule 5.1.8 Inventory
Schedule 5.1.9(a) Absence of Undisclosed Liabilities
Schedule 5.1.9(b) Identified Liabilities
Schedule 5.1.11(a) Contracts and Commitments
Schedule 5.1.11(b) Consents Required for Scheduled Contracts
Schedule 5.1.12 Title to Assets (Liens)
Schedule 5.1.13 Intellectual Property Liens/Actions/Claims
Schedule 5.1.14 Options and Equity Interests
Schedule 5.1.15(b) Real Property Leases
Schedule 5.1.16 Insurance
Schedule 5.1.17(g) Aggregate Salary Increases
Schedule 5.1.18 Customers and Suppliers
Schedule 5.1.19(a) Labor Agreements
Schedule 5.1.19(b) List of Employees and Compensation Agreements
Schedule 5.1.19(d) Labor Matters, Employment Policies
Schedule 5.1.20(a) Employee Benefit Plans
Schedule 5.1.20(d) Employee Benefit Plan Exceptions
Schedule 5.1.21 Litigation
Schedule 5.1.22 Governmental Permits
Schedule 5.1.23 Environmental Matters
Schedule 5.1.24(c) Tax Returns
Schedule 5.1.25(b) Interested Party Transactions
Schedule 5.1.26 Guarantees and Warranties
Schedule 5.1.28(1) Credit Cards
Schedule 5.1.28(2) Bank Accounts
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Schedule 5.2.1 Address of Business and Shareholders
Schedule 5.2.3 Agreements Between Shareholders
Schedule 5.3.3 Purchaser Required Consents
Schedule 5.3.7 Purchaser Capitalization
Schedule 5.3.10 Certain Changes
Schedule 6.10 Option Grants
Schedule 7.1.7 Third Party Consents Required For Closing
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STOCK PURCHASE AGREEMENT
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This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 27th day of January, 2005, by and among Info Systems, Inc., a Delaware
corporation (the "Company"), Xxxx Xxxxxxxx, a natural person, Xxxxxx X.
Xxxxxxxx, Xx., a natural person, (each of Xxxx Xxxxxxxx and Xxxxxx Xxxxxxxx, a
"Majority Shareholder" and collectively, the "Majority Shareholders"), Xxx
Foggy, a natural person, Xxxxxxx Xxxx, a natural person, Xxxxxxxx XxXxxxxx, a
natural person (each of Xxx Foggy, Xxxxxxx Xxxx and Xxxxxxxx XxXxxxxx, an
"Employee Shareholder" and collectively, the "Employee Shareholders" and
together with the Majority Shareholders, each a "Shareholder" and collectively,
the "Shareholders") and MTM Technologies, Inc., a New York corporation
("Purchaser").
WHEREAS, the Shareholders, collectively, own all of the outstanding capital
stock of the Company (the "Stock"), in the amounts set forth in Schedule I
hereto;
WHEREAS, the Company presently conducts an information technology business
and certain management and consulting businesses consisting of providing
connectivity (network infrastructure), server architecture (applications,
directory and computing infrastructure), convergence (legacy and Voice Over
Internet Protocol ("VoIP")), security (assessment, policy design) and storage
(SAN, data migration) solutions, as well as telecommunications and structured
cabling services, outsourced information technology (IT), staff augmentation and
remote network monitoring, management and support services through its Network
Operations Center (collectively, the "Business");
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, the Shareholders desire to sell, transfer, and assign to Purchaser,
and Purchaser desires to purchase from the Shareholders, all of the Stock;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, promises, and covenants herein contained, the
parties hereto agree as follows:
ARTICLE I. PURCHASE OF STOCK
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1.1 Purchase and Sale of Stock. On the terms and subject to the conditions
hereof, at the Closing (as defined in Section 4.1), the Shareholders will sell,
transfer, convey, assign, and deliver all of the Stock to Purchaser, and
Purchaser will purchase and accept, all right, title, and interest of each of
the Shareholders, in and to the Stock.
1.2 Delivery of Stock. At the Closing, the Shareholders shall deliver to
Purchaser certificates evidencing and representing all of the issued and
outstanding capital stock of the Company duly endorsed in blank or accompanied
by stock powers duly executed in blank in proper form for a transfer, which
shall convey to Purchaser all of the Stock free and clear of all liens, pledges
and other encumbrances.
1.3 Further Acts and Assurances. The Shareholders, to the extent possible
in their role as owners of the Stock and officers of the Company, shall, at any
time and from time to time, take any and all steps necessary to place Purchaser
in possession and operating control of the properties and business of the
Company and its subsidiaries and the Shareholders will do, execute, acknowledge
and deliver or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be required to more effectively transfer and
confirm to Purchaser or to its successors or assigns, or to reduce to
possession, any or all of the stock of the Company and to carry out the purposes
and intent of this Agreement.
ARTICLE II. SHAREHOLDER REPRESENTATIVE
--------------------------
2.1 Shareholder Representative. By execution of this Agreement each
Shareholder hereby appoints Xxxx Xxxxxxxx as the "Shareholder Representative"
referred to elsewhere in this Agreement. The Shareholder Representative shall
have the authority, for and on behalf of the Shareholders to take such actions
and exercise such discretion as are required of the Shareholder Representative
pursuant to the terms of this Agreement and any related document or instrument
(and any such actions shall be binding on the Shareholders), including without
limitation the following:
(a) to execute stock powers and to receive and hold and deliver to the
Purchaser or the Escrow Agent (as hereinafter defined) any other documents
relating thereto on behalf of the Shareholders;
(b) to give and receive communications and notices, to execute,
acknowledge, deliver, record and file all ancillary agreements,
certificates and documents which the Shareholder Representative deems
necessary or appropriate in connection with the consummation of the
transactions contemplated by the terms and provisions of this Agreement;
(c) to negotiate, agree to, enter into settlements and compromises of,
and demand participation and arbitration and comply with orders and awards
of courts and arbitrators with respect to claims for damages and otherwise;
(d) to receive payments due under this Agreement and the Escrow
Agreement (as hereinafter defined) and acknowledge receipt for such
payments;
(e) to waive any breach or default under this Agreement, or to waive
any condition precedent to Closing;
(f) amend this Agreement, the Escrow Agreement or any related document
or instrument;
(g) to terminate this Agreement, the Escrow Agreement or any related
document or instrument;
(h) to receive service of process in connection with any claims under
this Agreement, the Escrow Agreement or any related document or instrument;
(i) to perform the obligations and exercise the rights under any
related document or instrument, including the settlement of claims and
disputes with Purchaser and the Shareholders; and
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(j) to take all actions necessary or appropriate in the judgment of
the Shareholder Representative to accomplish the foregoing actions under
this Section 2.1.
2.2 No Liability for Shareholder Representative. The Shareholder
Representative shall not be liable for any act done or omitted hereunder as
Shareholder Representative while acting in good faith and in the exercise of
reasonable judgment. A decision, act, consent or instruction of the Shareholder
Representative shall constitute a decision for all the Shareholders hereunder,
and shall be final, conclusive and binding upon each such Shareholder, and
Purchaser may rely upon any such decision, act, consent or instruction of the
Shareholder Representative as being the decision, act, consent or instruction of
such Shareholder. Purchaser is hereby relieved from any liability to any Person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholder Representative.
2.3 Purchaser Representative. By execution of this Agreement each of
Xxxxxxxx XxXxxxxx hereby appoints Xxxx Xxxxxxxx as such Purchaser's "purchaser
representative" as such term is defined in Section 230.501(d) of the regulations
promulgated under the 1933 Act.. Xxxx Xxxxxxxx hereby agrees to act as such
"purchaser representative" in accordance with and for the purposes contemplated
by such Section 230.501 and by Section 230.506 of such regulations.
ARTICLE III. PURCHASE PRICE
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3.1 Purchase Price.
(a) Subject to the adjustments set forth in Section 3.1(b) hereof,
Purchaser will pay for the Stock an aggregate purchase price consisting of
(i) $8,300,000 in cash (the "Cash Consideration"), (x) $6,800,000 of which
shall be paid on the Closing Date (as defined in Section 4.1) by wire
transfer of immediately available funds to such accounts as shall have been
designated by the Shareholders to Purchaser prior to the Closing; and (y)
$1,500,000 (the "Cash Deposit") of which shall be paid on the Closing Date
to JPMorgan Chase Bank, as escrow agent (the "Escrow Agent"), to be held
and distributed pursuant to the terms of the Escrow Agreement to be
executed by and among the Shareholder Representative, Purchaser, and the
Escrow Agent in the form of Exhibit A attached hereto (the "Escrow
Agreement"), (ii) certificates representing an aggregate number of shares
of the Purchaser's common stock, $.001 par value per share ("Purchaser
Common Stock"), determined by dividing $3,200,000 by the greater of (A) the
average NASDAQ closing price of Purchaser Common Stock for the 10 business
days ending immediately prior to the Closing Date and (B) $2.75, to be
issued and delivered as directed by the Shareholder Representative as soon
as practicable but no later than 20 days after the Closing Date (the "Stock
Consideration"), (iii) subject to the terms and provisions of Section 3.2,
the Earnout Consideration on the dates and in the amounts provided in
Section 3.2, and (iv) subject to the terms and provisions of Section 3.3,
$1,000,000 in cash, all of which shall be paid on the date that is twelve
months following the Closing Date (the "Additional Cash Consideration" and
together with the Cash Consideration, the Stock Consideration and the
Earnout Consideration reduced to the extent provided pursuant to Section
3.1(b), the "Purchase Price"). The Cash Consideration shall be applied
first to the payment of an amount equal to the par value per share of each
share of the Company Preferred Stock (as hereinafter defined) to each
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holder thereof. After such payment to the holders of the Company Preferred
Stock, the balance of the Cash Consideration, the Additional Cash
Consideration, the Stock Consideration and the Earnout Consideration shall
be distributed and issued to each Shareholder in accordance with the
percentages of Common Stock set forth opposite the name of such Shareholder
in Schedule I hereto.
(b) (i) The Company and the Shareholders shall prepare and deliver to
Purchaser on the Closing Date a statement (the "Closing Statement") setting
forth in reasonable detail (x) a calculation of the estimated Tangible Net
Worth of the Business as of the close of business on the day immediately
preceding the Closing Date and (y) the Identified Liabilities that have not
been paid on or before the Closing Date. The Cash Consideration paid at
Closing shall be reduced by an amount equal to the sum of (A) any
Identified Liabilities that have not been paid by the Company prior to the
Closing Date (and such Identified Liabilities shall be paid by Purchaser)
and (B) the amount by which the Tangible Net Worth as set forth in the
Closing Statement is less than $1,100,000 (the "Closing Date Cash
Reduction"). As used in this Agreement, "Tangible Net Worth" means the sum
of the net book value of the assets of the Company, minus the sum of (i)
the amount of the liabilities of the Company (other than the Identified
Liabilities) and (ii) goodwill. "Net book value" and amounts determined
under clauses (i) and (ii) in the preceding sentence shall be determined in
accordance with GAAP on a basis consistent with the Interim Balance Sheet,
as defined in Section 5.1.6. (Hereinafter, the Tangible Net Worth set forth
on the Closing Statement shall be referred to as the "Closing Statement Net
Worth"). As used in this Agreement, "Identified Liabilities" means all
liabilities or obligations of the Company (whether or not accrued or
reflected on the Interim Balance Sheet or arising between the Interim
Balance Sheet Date and the Closing Date) arising out of or relating to (i)
legal, accounting, investment banking, brokerage, or similar fees or
expenses incurred by the Shareholders or the Company in connection with,
resulting from, or attributable to, the transactions contemplated by this
Agreement, (ii) any amounts due or owed to current or former shareholders
of the Company, (iii) any amounts due or owed under the Company's working
capital term loan with Wilmington Trust Company, or any successor lender,
and (iv) vehicles owned or leased by the Company for the personal use of
any of its executives, all as set forth on Schedule 5.1.9(b).
(ii) Within 45 days after the Closing Date, Purchaser shall prepare
and deliver to the Shareholders a statement (the "Post-Closing Statement")
setting forth in reasonable detail a calculation of the actual Tangible Net
Worth of the Business as of the Closing Date (the "Post-Closing Statement
Net Worth") and Identified Liabilities that were not paid on or before
Closing, if any (the "Unpaid Identified Liabilities"), determined in
accordance with GAAP applied in a manner consistent with the application of
those principles in the Interim Balance Sheet, as defined in Section 5.1.6.
The Post-Closing Statement shall be final and binding on the Shareholders
and the Company unless within 20 business days following the date of
delivery of the Post-Closing Statement, the Shareholder Representative
notifies Purchaser in writing (a "Section 3.1 Objection Notice") that he
does not accept as correct the calculation of the Post-Closing Statement
Net Worth or Unpaid Identified Liabilities. If (x) the Shareholders timely
deliver a Section 3.1 Objection Notice to Purchaser and (y) within five
business days of the receipt of such Section 3.1 Objection Notice, such
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calculation of the Post-Closing Statement Net Worth and Unpaid Identified
Liabilities can not be established by agreement between the Chief Executive
Officer of the Purchaser and the Shareholder Representative, then the
Purchaser shall instruct the Independent Accountant to determine the
calculation of the Post-Closing Net Worth and verify the Unpaid Identified
Liabilities made in the Post-Closing Statement. The determination of the
Post-Closing Net Worth and verification of Unpaid Identified Liabilities by
the Independent Accountant shall be final, conclusive and binding on the
Shareholders, the Company and Purchaser. As finally agreed to by the
parties or their representatives or as determined by the Independent
Accountant, as the case may be, the computations of Post Closing Statement
Net Worth and Unpaid Identified Liabilities shall hereinafter be referred
to as the "Final Net Worth" and the "Final Liabilities," respectively. For
purposes of this Agreement, "Independent Accountant" shall mean Xxxxx
Xxxxxxxx LLP or any other nationally recognized certified public accounting
firm as may be mutually agreed upon by the Shareholder Representative and
the Purchaser.
(iii) Once the Final Net Worth and the Final Liabilities are
determined, then the Purchase Price shall be either adjusted if no previous
adjustment was made based on the Closing Statement, or readjusted if a
previous adjustment was made based on the Closing Statement, so that the
Purchase Price, as determined before any adjustments under Section 3.1(b),
will be reduced by the sum of (x) the amount by which the Final Net Worth
as finally determined under this Section 3.1(b) shall be less than
$1,100,000 and (y) the actual amount of the Final Liabilities, if any.
Final settlement of any adjustment or readjustment with respect to the
Closing Statement Net Worth and with respect to the Identified Liabilities
shall be made in cash within five business days of the Final Net Worth and
Final Liabilities were determined. If the Final Net Worth is less than the
Closing Statement Net Worth, or there are Final Liabilities, then the
Shareholders, jointly and severally, shall pay the Purchaser cash in an
amount equal to the sum of (X) the positive difference, if any, between
either (A) the Closing Statement Net Worth if the Closing Statement Net
Worth is less than $1,100,000 or (B) $1,100,000 if the Closing Statement
Net Worth is greater than $1,100,000, and, in the case of (A) and (B), the
Final Net Worth and (Y) the amount of Final Liabilities, if any. If the
Final Net Worth is more than the Closing Statement Net Worth, then the
Purchaser shall pay the Shareholders, on a pro rata basis, cash in an
amount equal to the sum of the difference, if any, between the Closing
Statement Net Worth and the Final Net Worth but not in excess of the amount
determined in clause (B) of the second sentence of Section 3.1(b)(i).
(iv) The fees of the Independent Accountant in connection with the
determination of Tangible Net Worth and Unpaid Identified Liabilities shall
be paid one-half by the Shareholders and one-half by Purchaser.
(c) All shares of Purchaser Common Stock delivered under this
Agreement shall be unregistered shares pursuant to a private placement of
Purchaser Common Stock and shall contain the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES HAVE BEEN
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ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SHARES TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
THE ISSUER IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE CLASS AND TO ISSUE
SHARES IN MORE THAN ONE SERIES OF AT LEAST ONE CLASS. THE ISSUER WILL FURNISH
WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
3.2 Earnout Consideration.
(a) If the EBITDA attributable to the Business during the period
beginning on the first day of the first calendar month following the
Closing Date and ending on the date six months thereafter (the "Earnout
Period") equals or exceeds $600,000, then Purchaser shall, at the
Purchaser's option, either (i) pay $500,000 in cash to the Shareholders, on
a pro rata basis or (ii) issue to the Shareholders, on a pro rata basis,
certificates representing the number of shares of Purchaser Common Stock
determined by dividing $500,000 by the greater of (A) the average NASDAQ
closing price of Purchaser Common Stock for the 10 business days ending
immediately prior to the end of the Earnout Period and (B) $2.75 (the
amounts payable to the Shareholders pursuant to this Section 3.2(a), the
"Initial Earnout Consideration"). For each $1.00 of the EBITDA attributable
to the Business during the Earnout Period in excess of $600,000, the
Purchaser shall, at the Purchaser's option, either (i) pay to the
Shareholders, on a pro rata basis, cash in an amount equal to 30% of such
excess, or, (ii) issue to the Shareholders, on a pro rata basis,
certificates representing the number of shares of Purchaser Common Stock
determined by dividing 30% of such excess by the greater of (x) the average
NASDAQ closing price of Purchaser Common Stock for the 10 business days
ending immediately prior to the end of the Earnout Period and (y) $2.75,
(the amounts payable to the Shareholders pursuant to this Section 3.2(b),
the "Additional Earnout Consideration" and together with the Initial
Earnout Consideration, the "Earnout Consideration"); provided, however,
that in no event shall the value of the Additional Earnout Consideration
exceed $200,000 (determined in accordance with clause (ii) above). As used
herein the term "EBITDA" means net income as determined in accordance with
GAAP applied in a manner consistent with the application of those
principles in the Interim Balance Sheet (i) less any applicable interest
income and plus any applicable interest expense and (ii) plus the any
income tax expenses and less any income tax credits and (iii) plus any
applicable depreciation and amortization expense.
6
(b) No later than 60 days after the end of the Earnout Period, the
Purchaser shall provide the Shareholders with a written calculation of the
EBITDA attributable to the Business as of such Earnout Period. The
Shareholder Representative may dispute such calculation in writing within
10 calendar days of his receipt thereof. In the event that the calculation
of the EBITDA for the Earnout Period is the subject of such a dispute, the
Chief Executive Officer of the Purchaser and the Shareholder Representative
shall attempt to resolve such dispute within 5 business days. If such
representatives are unable to resolve such dispute within 5 business days,
then the Shareholders and Purchaser shall retain the services of an
Independent Accountant to determine EBITDA for such Earnout Period. The
Independent Accountant shall consider the dispute and make its
determination within 45 days of its retention in connection with such
dispute. A determination made by an Independent Accountant hereunder shall
be final and binding on both the Shareholders and Purchaser. Any and all
expenses incurred in connection with the retention of the Independent
Accountant shall be borne one-half by the Shareholders and one-half by
Purchaser. The Earnout Consideration shall be paid to the Shareholders
within 90 days of the end of the Earnout Period; provided, however, that if
there is a dispute regarding the calculation of the EBITDA, the Earnout
Consideration shall be paid to the Shareholders promptly following the
resolution of such dispute in accordance with this Section 3.2(b).
3.3 Additional Cash Consideration. If each of Xxxx Xxxxxxxx, Xxxxxxx Xxxx
and Xxx Foggy is either (a) employed by the Purchaser, or its affiliates,
throughout the period of 12 months following the Closing Date, or (b) not so
employed if (i) such employment is terminated by the Purchaser other than for
"cause" (as such term is defined in such individual's Employment Agreement) or
(ii) by such individual for "good reason" (as such term is defined in such
individual's Employment Agreement), then, the Purchaser shall pay the Additional
Cash Consideration to the Shareholders in accordance with Section 3.1(a).
3.4 Limitations on the Issuance of Purchaser Common Stock. Notwithstanding
any provision of this Agreement to the contrary, in the event that any issuance
of Purchaser Common Stock to the Shareholders under the terms of this Agreement,
when combined with all prior issuances of Purchaser Common Stock to the
Shareholders under this Agreement (and any other issuances which for purposes of
the NASDAQ Marketplace Rules are required to be included in such calculation)
would result in the aggregate issuance of (i) Purchaser Common Stock with voting
power equal to or in excess of twenty percent (20%) of the voting power of such
shares outstanding as of the date hereof; or (ii) a number of shares of
Purchaser Common Stock equal to or in excess of twenty percent (20%) of the
number of shares of Purchaser Common Stock outstanding as of the date hereof,
then in either case Purchaser shall, at its option, either obtain approval of
its shareholders to the issuance of such Purchaser Common Stock within one
hundred and twenty (120) days of the date that Purchaser determines that an
event described in clauses (i) or (ii) above will occur or make such payment
under this Agreement in cash. Notwithstanding the foregoing, no provision of
this Section 3.4 shall extend or be deemed to extend the time periods or change
the dates for payments of any portion of the Purchase Price as otherwise
provided for this Agreement.
7
ARTICLE IV. THE CLOSING
-----------
4.1 Date of Closing. The consummation of the purchase and sale of the
Stock contemplated hereby (the "Closing") shall take place at the offices of
Xxxxxx Xxxx & Priest LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, not more
than five (5) days following the satisfaction or waiver of the closing
conditions set forth in Article VII, or on such other date and at such time as
the Shareholders and Purchaser may mutually agree upon in writing. The date on
which the Closing is effected is referred to in this Agreement as the "Closing
Date." At the Closing, the parties shall execute and deliver the documents
referred to in Article VIII.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Operating Representations and Warranties. The Majority Shareholders,
jointly and severally, make the following representations and warranties to
Purchaser, each of which is true and correct as of the date hereof and shall be
unaffected by any investigation heretofore or hereafter made by Purchaser.
5.1.1 Organization. The Company is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to own,
lease, or otherwise hold its assets or properties owned, leased, or otherwise
held by it and to carry on the Business as presently conducted by it.
5.1.2 Good Standing. The Company is in good standing and duly
qualified to conduct business as a foreign corporation in every state of the
United States in which its ownership or lease of property or conduct of its
business activities makes such qualification necessary, except where the failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
shall mean any event, circumstance, condition, fact, effect, or other matter
which has had or, as determined on the date of this Agreement and on the Closing
Date, could reasonably be expected to have a material adverse effect (i) on the
assets or properties of the Company or on the financial condition, prospects,
financial projections, or results of operations of the Business taken as a whole
or (ii) on the ability of the Company or any Shareholder to perform on a timely
basis any material obligation under this Agreement or to consummate the
transactions contemplated hereby, except any material adverse effect that
affects the general industry in which the Company conducts the Business.
Furthermore, no action taken by the Company, the Shareholders or Purchaser
pursuant to this Agreement shall be deemed to have a Material Adverse Effect.
The states in which the Company is so qualified are listed on Schedule 5.1.2.
5.1.3 Authorization and Effect of Agreement. The Company has the
requisite corporate power to execute and deliver this Agreement and the other
agreements to be entered into by it pursuant to this Agreement (the "Company
Ancillary Documents") and to perform the transactions contemplated hereby and
thereby to be performed by it. The execution and delivery by the Company of this
Agreement and the Company Ancillary Documents and the performance by it of the
transactions contemplated hereby and thereby to be performed by it have been
duly authorized by all necessary corporate and shareholder action on the part of
the Company. This Agreement and each Company Ancillary Document have been duly
executed and delivered by duly authorized officers of the Company and, assuming
8
the due execution and delivery of this Agreement and, as applicable, any Company
Ancillary Document, by Purchaser, constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.1.4 No Restrictions Against the Assets and Properties of the
Company; Required Consents. The execution and delivery of this Agreement and
each Company Ancillary Document by the Company and each Shareholder does not and
the performance by the Company and each Shareholder of the transactions
contemplated hereby or thereby to be performed by any of them will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation (or other organizational documents or resolution of the Company's
Board of Directors or shareholders) or bylaws of the Company, (b) except as set
forth on Schedule 5.1.4, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, cancellation, or acceleration of any
obligation or to loss of a benefit under, any provision of any regulatory or
governmental license, permit, franchise, authorization, order, registration,
certificate, variance or approval (collectively, "Permits"), to which the
Company or such Shareholder is a party or by which it or any of its properties
are bound, (c) constitute a violation of any law applicable to the Company or
such Shareholder or the assets or properties of the Company, or (d) result in
the creation of any lien (other than any Permitted Lien, as hereinafter defined)
upon any of the assets or properties of the Company, except in the case of
clauses (b) or (c) above, for such conflicts, violations, breaches, defaults,
accelerations, terminations, modifications, or cancellations that would not,
individually or in the aggregate, have a Material Adverse Effect. No consent,
approval, order, or authorization of, or registration, declaration, or filing
with, any Governmental Entity is required to be obtained or made by or with
respect to the Company or such Shareholder in connection with the execution and
delivery of this Agreement or any Company Ancillary Document by the Company or
any Shareholder or the performance by the Company or any Shareholder of the
transactions contemplated hereby to be performed by it, except for such of the
foregoing as are listed or described on Schedule 5.1.4. For purposes of this
Agreement, "Governmental Entity" shall mean any U.S. or foreign federal, state,
or local government, any agency, board, commission or tribunal of the foregoing,
or any official of any of the foregoing.
5.1.5 No Third Party Options. There are no existing agreements with,
options, or rights of, or commitments to any person to acquire any of the assets
and properties of the Company or any interest therein, except for those
contracts entered into in the normal course of business consistent with past
practice with respect to the sale of inventory and the provision of services by
the Company.
5.1.6 Financial Statements. The Company has delivered to Purchaser
true and complete copies of the audited balance sheets of the Company and its
consolidated Subsidiaries at December 31, 2003 and at September 30, 2004, and
the related statements of operations, changes in shareholders' equity and
accumulated deficit and cash flow for the fiscal years or interim periods then
ended, certified by the Company's independent public accounting firm
(collectively, the "Financial Statements"). Except as set forth on Schedule
5.1.6, such Financial Statements have been prepared in accordance with GAAP
9
consistently applied throughout the periods involved and such balance sheets,
including the related notes, fairly present the financial position, assets, and
liabilities (whether accrued, absolute, contingent, or otherwise) of the Company
at the dates indicated and such statements of operations, changes in
shareholders' equity and cash flows fairly present the results of operations,
changes in shareholders' equity and cash flows of the Company for the periods
indicated. References in this Agreement to the "Interim Balance Sheet" shall
mean the balance sheet of the Company as of September 30, 2004 referred to
above, and references in this Agreement to the "Interim Balance Sheet Date"
shall be deemed to refer to September 30, 2004.
5.1.7 Accounts Receivable. Except as set forth in Schedule 5.1.7, the
accounts receivable of the Company as set forth on the Interim Balance Sheet or
arising since the date thereof are valid and genuine; have arisen solely out of
bona fide sales and deliveries of goods, performance of services, and other
business transactions in the ordinary course of business consistent with past
practice; and, to the knowledge of the Company, are not subject to valid
defenses, set-offs, or counterclaims. The allowance for collection losses on the
Interim Balance Sheet has been determined in accordance with GAAP consistent
with past practice. There will be no Company account receivable recorded in the
Company's books as of the Closing Date that, to the Company's and Shareholders'
knowledge, is not or will not be not fully collectible.
5.1.8 Inventory. Except as otherwise indicated in the Financial
Statements of the Company and its consolidated Subsidiaries at and for the
period ended September 30, 2004 or as set forth in Schedule 5.1.8, all inventory
of the Company, including raw materials, work-in process, and finished goods
(collectively, the "Inventory"), reflected on the Interim Balance Sheet or
acquired since the date thereof was acquired and has been maintained in the
ordinary course of the Business; is of good and merchantable quality; consists
substantially of a quality, quantity, and condition usable, leasable, or
saleable in the ordinary course of the Business; is valued at the lower of cost
or market; and is not subject to any write-down or write-off. The Company is not
under any liability or obligation with respect to the return of Inventory in the
possession of wholesalers, retailers, or other customers.
5.1.9 Absence of Undisclosed Liabilities; No Other Business. Except
as set forth in Schedule 5.1.9(a), the Company has no liabilities or obligations
except (a) those liabilities or obligations set forth on the Interim Balance
Sheet and not heretofore paid or discharged, (b) liabilities arising in the
ordinary course of business under any agreement, contract, commitment, lease or
plan specifically disclosed on Schedule 5.1.11(a) or not required to be
disclosed because of the term or amount involved, (c) those liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since the Interim Balance Sheet Date and (d) the Identified Liabilities
set forth on Schedule 5.1.9(b). For purposes of this Agreement, the term
"liabilities" shall include, any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation, or
responsibility, whether fixed or contingent, known or unknown, asserted or
unasserted, xxxxxx or inchoate, liquidated or unliquidated, secured or
unsecured. The Company does not now and has never conducted any business or
operations or owned, leased or held any other interest in any property or assets
other than in connection with and necessary for the Business.
10
5.1.10 Books of Account. The books, records, and accounts of the
Company accurately and fairly reflect, in reasonable detail, the transactions
and the assets and liabilities of the Company. The Company has not engaged in
any transaction, maintained any bank account, or used any of the funds of the
Company except for transactions, bank accounts, and funds which have been and
are reflected in the normally maintained books and records of the Company.
5.1.11 Contracts and Commitments.
(a) Except as described on Schedule 5.1.11(a), the Company is not a
party to any written or oral:
(i) employment or consulting Contract with an employee or
former employee, director, agent, consultant, or similar
representative;
(ii) collective bargaining agreement with any labor union;
(iii) Contract for the purchase of, or payment for, supplies
or products, or for the performance of services by a third person
which supplies products or services to the Company, involving net
payments to such person in excess of $450,000 after the date hereof;
(iv) Contract to sell or supply products or to perform
services on an on-going basis which contain commitments for recurring
or re-occurring revenue in excess of $50,000 or, if there is no
specific revenue commitment, from which the Company expects to receive
revenue in excess of $250,000 during the 12 month period following the
Closing Date;
(v) Project-based Contract from which the Company expects to
receive revenues exceeding $100,000;
(vi) Contract for capital expenditures or the acquisition or
construction of fixed assets involving in excess of $50,000 for any
single project or in excess of $150,000, except such as may be
involved in ordinary repair, maintenance, or replacement of the assets
and properties of the Company;
(vii) Contract with the Company's vendors for the purchase of
product which provides an amount in excess of $450,000 in net sales of
products from such vendors after the date hereof;
(viii) Contract relating to cleanup, abatement, remediation, or
other actions in connection with, or which result or may reasonably be
expected to result in the incurrence of, Environmental Costs and
Liabilities (as hereinafter defined);
(ix) Contract granting to any Person a first-refusal,
first-offer, or similar preferential right to purchase or acquire any
of the assets or properties of the Company;
11
(x) any indenture, mortgage, loan, letter of credit, or other
credit Contract under which the Company has borrowed or is entitled to
borrow any money or issued any note, bond, indenture, or other
evidence of indebtedness for borrowed money, or any indemnity,
guarantee, or other contingent liability in respect of any
indebtedness or obligation of any other Person;
(xi) Contract with any manufacturer's representative,
distributor, or other sales agent;
(xii) Contract under which the Company is (A) a lessee of, or
holds or uses, any material machinery, equipment, vehicle, or other
tangible personal property owned by any other Person, (B) a lessor of,
or makes available for use by any other Person, any material tangible
personal property owned by the Company, or (C) a lessee of, or holds
or uses, any Leased Real Property (as hereinafter defined);
(xiii) management service, investment advisory, investment
banking, or other similar Contract;
(xiv) Contract limiting the freedom of the Company to sell any
products or services of any other Person, engage in any line of
business, or to compete with or obtain products from any other Person;
(xv) except for vendor and customer Contracts entered into in
the ordinary course of business, real or personal property leases and
subcontractor agreements, Contract pursuant to which the Company has
agreed to indemnify or hold harmless any Person;
(xvi) Contract with any officer, director, Affiliate, or
stockholder of the Company or with any holder of any securities
convertible into or exchangeable or exercisable for any shares of
capital stock of the Company;
(xvii) Contract for any charitable or political contribution;
(xviii) license, franchise, distributorship, or other Contract
which relates in whole or in part to any software (other than
off-the-shelf software), patent, trademark, trade name, service xxxx,
or copyright or to any ideas, technical assistance, or other know-how
of or used by the Company; or
(xix) material Contract not made in the ordinary course of
business.
(b) Each of the agreements, contracts, and other instruments,
documents, and undertakings listed or required to be listed on Schedule
5.1.11(a) and each other contract, agreement, lease, license, joint
venture, purchase order, commitment, and other agreements and arrangements,
whether oral or written of the Company (collectively, "Contracts"), under
which Purchaser is to acquire rights or obligations hereunder is valid and
enforceable in accordance with its terms; except for notices, consents,
approvals or waivers with respect to the transactions contemplated by this
Agreement or restrictions or limitations on the use of proprietary or
12
confidential information or documents required by third persons pursuant to
any Contracts, the Company is, and to the Company's and each Shareholders'
respective knowledge all other parties thereto are, in compliance with the
provisions thereof; except for consents or notices required under the
Contracts with respect to the transactions contemplated by this Agreement
neither the Company, and to the Company's and each Shareholder's respective
knowledge no other party thereto is, in default in the performance,
observance or fulfillment of any obligation, covenant, or condition
contained therein; and, except for notices, consents, approvals or waivers
with respect to the transactions contemplated by this Agreement or
restrictions or limitations on the use of proprietary or confidential
information or documents required by third persons pursuant to any
Contracts, no event has occurred which with or without the giving of notice
or lapse of time, or both or a grant of access to or use of proprietary or
confidential information or documents by persons or entities other than the
Company, employees of the Company or approved subcontractors of the
Company, would constitute a default thereunder. Furthermore, no such
agreement, contract, instrument, document, or undertaking, in the
reasonable opinion of the Company and each Shareholder, contains any
contractual requirement with which there is a reasonable likelihood the
Company or any other party thereto will be unable to comply. Except as
listed on Schedule 5.1.11(b), no written or oral agreement, contract, or
commitment described or required to be described on Schedule 5.1.11(a)
requires the consent of any party in connection with the transactions
contemplated by this Agreement.
5.1.12 Title to Assets. Except as listed or described on Schedule
5.1.12, the Company has, and following the Closing, will continue to have, good,
valid, and marketable title to the assets and properties of the Company free and
clear of all liens, other than (a) liens for Taxes, assessments, and other
governmental charges which are not due and payable, and (b) mechanics',
carriers', workmen's, repairmen's, and other like liens arising or incurred in
the ordinary course of business consistent with past practice. The items
referred to in the immediately preceding sentence are hereinafter referred to as
"Permitted Liens."
5.1.13 Intellectual Property. The Intellectual Property includes all
of the intellectual property rights necessary for the conduct of the Business.
Except as set forth on Schedule 5.1.13, the Company has good, marketable, and
exclusive title to, or the valid and enforceable power and unqualified right to
use, the Intellectual Property, free and clear of all liens. Except as set forth
in Schedule 5.1.13, there are no pending, or to the knowledge of the Company and
each Shareholder, threatened actions of any nature affecting the Intellectual
Property. Schedule 5.1.13 lists all notices or claims currently pending or
received by the Company which claim infringement of any domestic or foreign
letters patent, patent applications, patent licenses, software licenses,
know-how licenses, trade names, trademark registrations and applications,
service marks, copyrights, copyright registrations or applications, trade
secrets, technical knowledge, know-how, or other confidential proprietary
information. Except as set forth on Schedule 5.1.13, and to the knowledge of the
Company or any Shareholder, no reasonable basis upon which any claim may be
asserted against the Company for infringement or misappropriation of any
domestic or foreign letters patent, patents, patent applications, patent
licenses, software licenses, know-how licenses, trade names, trademark
registrations and applications, trademarks, service marks, copyrights, copyright
registrations or applications, trade secrets, technical knowledge, know-how, or
other confidential proprietary information held or owned by another Person. All
13
letters patent, registrations, and certificates issued by any Governmental
Entity relating to any of the Intellectual Property and all licenses and other
Contracts pursuant to which the Company uses any of the Intellectual Property,
are valid and subsisting, have been properly maintained. Neither the Company nor
to the knowledge of the Company and each Shareholder, any other Person, is in
default or violation thereunder (other than with respect to giving notices and
obtaining consents, approvals and waivers, if any, to the transactions
contemplated by this Agreement). For purposes of this Agreement, "Intellectual
Property" shall mean all of the domestic and foreign letters patent, patents,
patent applications, patent licenses, software licenses, know-how licenses,
trade names, trademarks, registered copyrights, service marks, trademark
registrations and applications, service xxxx registrations and applications, and
copyright registrations and applications, owned or used by the Company in the
operation of the Business, including those listed or described on Schedule
5.1.13, and all trade secrets, technical knowledge, know-how, and other
confidential proprietary information and related ownership, use, and other
rights of the Company.
5.1.14 Capitalization. The Company's authorized capital stock
consists exclusively of (i) 100 shares of common stock, no par value per share,
all of which is voting common stock (the "Company Common Stock"); and (ii) 1500
shares of 6% Preferred Stock, $1,000 par value per share (the "Company Preferred
Stock"). Of such shares, 82.7103 shares of Company Common Stock and 600 of the
shares of Company Preferred Stock are issued and outstanding and 25 shares of
Common Stock are held as treasury stock. All of the outstanding shares of
capital stock of the Company have been duly authorized and are validly issued,
fully paid and non-assessable and have been issued in accordance with all
applicable federal and state securities laws. Except as set forth in Schedule
5.1.14, (x) there are no existing options, warrants, calls, unsatisfied
preemptive rights or commitments of any character whatsoever, or agreements to
grant the same, relating to the Company's capital stock and (y) the Company has
no outstanding securities convertible into or exchangeable or exercisable for
any shares of capital stock or any options, calls or commitments of any
character whatsoever with respect to the issuance of such convertible
securities. Except as set forth on Schedule 5.1.14, the Company owns no equity
interests, convertible securities, marketable securities, notes or other
obligations evidenced by written instruments of any other firm or entity. The
Company has never had any subsidiaries except ISI Connect, LLC, a Delaware
limited liability company and wholly owned subsidiary of the Company ("ISI").
The Company will dissolve ISI prior to the Closing. Prior to being dissolved,
ISI did not (i) own, lease or otherwise hold any assets, (ii) have any
liabilities or obligations to any Person, (iii) have any employees or (iv)
conduct any operations. Except as set forth on Schedule 5.1.14 and other than
the Shareholders, no other person or entity has ever been a shareholder of the
Company.
5.1.15 Real Property.
(a) Owned Real Property. The Company does not own any real property in
fee.
(b) Leased Real Property. With respect to the Leased Real Property:
(i) Schedule 5.1.15(b) describes each Real Property Lease by
listing the name of the landlord or sublandlord, a description of the
leased premises, the commencement and expiration dates of the current
14
term, the security deposited by the Company with the landlord or
sublandlord, if any, the monthly rental (including base and all
additional rents), and whether the consent of the landlord is required
in connection with the transactions contemplated by this Agreement;
and
(ii) each Real Property Lease is, and at Closing shall be, in
full force and effect and, except as contemplated hereby, has not been
assigned, modified, supplemented, or amended, and neither the Company
nor the landlord or sublandlord under any Real Property Lease is in
default under any of the Real Property Leases, and, except as set
forth on Schedule 5.1.15(b), no circumstances or state of facts
presently exists which, with the giving of notice or passage of time,
or both, would permit the landlord or sublandlord under any Real
Property Lease to terminate any Real Property Lease.
(c) No Violations. The Real Property and the present uses thereof
comply in all material respects with all applicable laws, and the Company
has not received any notice, oral or written, from any Governmental Entity,
and neither the Company nor the Shareholders have any reason to believe,
that the Real Property or any improvements erected or situate thereon, or
the uses conducted thereon or therein, violate any applicable laws.
(d) For purposes of this Agreement, "Real Property Leases", shall mean
the real property leases which the Company has rights and incidents of
interests in and to as lessee and "Leased Real Property" shall mean all of
the Company's rights as of the Closing in all of the structures, fixtures,
and improvements located thereon.
5.1.16 Insurance. The Company has insurance policies in full force
and effect for such amounts as are sufficient for material compliance with all
requirements of law and of all contracts to which the Company is a party or by
which it is bound. Set forth in Schedule 5.1.16 is a list of all fire,
liability, and other forms of insurance and all fidelity bonds held by or
applicable to the Company, setting forth, in respect of each such policy, the
policy name, policy number, carrier, term, type of coverage, and annual premium.
Except as set forth in Schedule 5.1.16, no event relating to the Company has
occurred which can reasonably be expected to result in a material retroactive
upward adjustment in premiums under any such insurance policies or which is
likely to result in a material prospective upward adjustment in such premiums.
Excluding insurance policies that have expired and been replaced in the ordinary
course of business, no insurance policy has been cancelled within the last two
years and, to the knowledge of the Company and each Shareholder, no threat has
been made to cancel any insurance policy of the Company during such period. No
event has occurred, including the failure by the Company to give any notice or
information or the Company giving any inaccurate or erroneous notice or
information, which materially limits or impairs the rights of the Company under
any such insurance policies.
5.1.17 Conduct Since the Interim Balance Sheet Date. Except as
contemplated by this Agreement, since the Interim Balance Sheet Date, the
Company has not:
15
(a) except as set forth on Schedule 5.11(a)(vi), incurred any
liabilities, other than liabilities incurred in the ordinary course of
business consistent with past practice, or failed to pay or discharge when
due any liabilities of which the failure to pay or discharge has caused or
will cause any material damage or risk of material loss to it or any of its
assets or properties;
(b) sold, encumbered, assigned, or transferred any assets or
properties, except for the sale of obsolete or worn out equipment and the
sale of Inventory in the ordinary course of business consistent with past
practice;
(c) made or suffered any amendment or termination of any contract
listed on Schedule 5.1.11(a), or Permit, or cancelled, modified, or waived
any substantial debts or claims held by it or waived any rights of
substantial value, whether or not in the ordinary course of business;
(d) suffered any damage, destruction, or loss, whether or not covered
by insurance, of any item or items carried on its books of account
individually or in the aggregate at more than $25,000, or suffered any
repeated, recurring, or prolonged shortage, cessation, or interruption of
supplies or utility or other services required by the Company;
(e) received notice or had knowledge of any actual or threatened labor
trouble, strike, or other material occurrence, event, or condition of any
similar character;
(f) except as set forth on Schedule 5.1.11(a)(vi), made commitments or
contracts for capital expenditures or capital additions or betterments
exceeding $50,000 individually or $150,000 in the aggregate, except such as
may be involved in ordinary repair, maintenance, or replacement of the
assets and properties of the Company;
(g) except as set forth on Schedule 5.1.17(g), increased the salaries
or other compensation of, or made any advance (excluding advances for
ordinary and necessary business expenses) or loan to, any of its employees
or made any increase in, or any addition to, other benefits to which any of
its employees may be entitled;
(h) changed any of the accounting principles followed by it or the
methods of applying such principles;
(i) except as set forth on Schedule 5.1.11(a)(vi), entered into any
transaction other than in the ordinary course of business consistent with
past practice;
(j) suffered any event or circumstance that individually or in the
aggregate has had or, as determined on the date of this Agreement and on
the Closing Date, could reasonably be expected to have a Material Adverse
Effect;
(k) changed its Tax accounting or Tax reporting principles, practices,
methods or policies; or
16
(l) made or revoked any election relating to Taxes, or settled or
compromised any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes.
5.1.18 Customers and Suppliers. Schedule 5.1.18 sets forth (a) a list
of the ten (10) largest customers of the Company based on sales during the
fiscal year ended December 31, 2003 and the nine (9) months ended September 30,
2004, showing the approximate total sales by the Company to each such customer
during such periods, and (b) a list of the ten (10) largest suppliers of the
Company based on the actual cost of purchases from such supplier, during the
fiscal year ended December 31, 2003, and the nine (9) months ended September 30,
2004, showing the approximate total purchases by the Company from each such
supplier during such periods. Except as described on Schedule 5.1.18, there has
not been any material adverse change in the business relationship of the Company
with any customer or supplier named in Schedule 5.1.18, and neither the
Shareholders nor the Company have any reason to believe that there will be any
such material adverse change in the future either as a result of the
consummation of the transactions contemplated by this Agreement or otherwise.
5.1.19 Labor Matters.
(a) Neither the Company, nor any Affiliate of the Company is a party
to or bound by any employment or consulting agreement or any collective
bargaining agreement or other labor agreement, or any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred
compensation, bonus, group insurance, tuition assistance, service award,
section 125 cafeteria, vacation, salary continuation, or other incentive or
welfare contract, plan, or arrangement except as set forth on Schedule
5.1.19(a) or 5.1.20.
(b) Schedule 5.1.19(b) hereto contains a true and complete list of all
Persons employed by the Company, including date of hire, a description of
material compensation arrangements (other than employee benefit plans set
forth in Schedule 5.1.19(a) or 5.1.20(a)), and a list of other terms of any
and all agreements affecting such Persons. To the knowledge of the
Shareholders and Xxx Xxxxx, no employee material to the Company intends to
terminate his or her employment with the Company as a result of the
consummation of the transactions contemplated by this Agreement or
otherwise.
(c) The Company has not agreed to recognize any union or other
collective bargaining unit, nor has any union or other collective
bargaining unit been certified as representing any of the Company's
respective employees. Neither the Shareholders nor the Company have any
knowledge of any organizational effort currently being made or threatened
by or on behalf of any labor union with respect to employees of the
Company. There is no labor strike, slowdown, work stoppage, lockout, or
material labor dispute actually pending or, to the knowledge of the Company
and the Shareholders, threatened against or affecting the Company.
(d) Except as described on Schedule 5.1.19(d), the Company, with
respect to employees, (i) has no written personnel policy applicable to
such employees, (ii) is not or within the past five years has not been in
violation in any material respect of any applicable laws regarding
17
employment and employment practices, including the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and those laws relating
to terms and conditions of employment, wages and hours, occupational safety
and health, and workers' compensation or is engaged in any unfair labor
practices, (iii) has no unfair labor practice charges or complaints pending
or threatened against it before the National Labor Relations Board, (iv)
has no grievances pending or threatened against it, and (v) has no charges
pending before the Equal Employment Opportunity Commission of any state or
local agency responsible for the prevention of unlawful employment
practices.
5.1.20 Employee Benefit Plans.(a) Set forth on Schedule 5.1.20(a) is
a list of each Employee Benefit Plan, except each such Plan which neither the
Company nor an ERISA Affiliate sponsored, maintained, contributed to or was
required to contribute to at any time during the three year period immediately
preceding the Closing Date. For purposes of this Agreement, the term "Employee
Benefit Plan" shall mean each employee benefit plan (whether or not within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) multiemployer plan (within the meaning of ERISA Section
3(37) or 4001(a)(3)), written employment or consulting agreement, oral
employment or consulting agreement known to the Shareholders, change in control
agreement, severance pay plan or agreement, employee relations policy (or
practice, agreement or arrangement), agreements with respect to leased or
temporary employees, vacation plan or arrangement, sick pay plan, stock purchase
plan, stock option plan, fringe benefit plan, incentive plan, bonus plan,
cafeteria or flexible spending account plan and any deferred compensation
agreement (or plan, program, or arrangement) covering any present employee of
the Company or which is, or at any time during the six year period preceding the
Closing Date was, sponsored or maintained by (or to which contributions are, or
at any time during the six year period preceding the Closing Date were, or were
required to have been, made by) either (i) the Company, or (ii) any other
organization which together with the Company is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as
amended (the "Code") (an "ERISA Affiliate").
(b) The Company has made available to the Purchaser (i) current,
accurate and complete copies of each Employee Benefit Plan that is in
effect as of the date hereof (including any amendments thereto), and all
trust agreements, insurance or annuity contracts, summary plan
descriptions, summaries of material modification, and other material
agreements, documents or instruments relating thereto; (ii) the most recent
audited financial statement with respect to each Employee Benefit Plan
required to have an audited financial statement; (iii) copies of the most
recent determination letters or opinion letters with respect to any
Employee Benefit Plan which is intended to qualify under the Code Section
401(a) (a "Qualified Plan"); and (iv) copies of the three most recent
annual reports (Forms 5500) with respect to each Employee Benefit Plan
required to file an annual report.
(c) No Employee Benefit Plan is or has been subject to Title IV of
ERISA or Code Section 412.
(d) Except as set forth on Schedule 5.1.20(d), with respect to each
Employee Benefit Plan:
18
(i) the Company and each ERISA Affiliate has complied in all
material respects with all provisions of such plan, and with ERISA,
the Code and other applicable laws and regulations, and no act or
omission by the Company, each ERISA Affiliate, or any fiduciary of any
such plan has occurred, no event has occurred and no condition exists
that will or could be expected to give rise to material liability for
a breach of fiduciary responsibilities under ERISA, or to material
fines, penalties, excise taxes, corrective payments, fees, sanctions
or other payments under ERISA, the Code or other applicable laws or
regulations;
(ii) each such plan which is a Qualified Plan is operated and
administered under a prototype plan document that the Internal Revenue
Service ("IRS") has approved and for which the IRS has issued an
opinion letter, and no event has occurred that will or could be
expected to give rise to disqualification or loss of tax-exempt status
of any such plan or related trust;
(iii) each such plan which is a pension plan but is not a
Qualified Plan is exempt from Parts 2, 3 and 4 of Title I of ERISA as
an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees, pursuant to ERISA Sections 201(2), 301(a)(3)
and 401(a)(1), and no Company assets are allocated to or held in a
"rabbi trust" or similar funding vehicle for any such plan;
(iv) there are no material reserves, assets, surpluses or
prepaid premiums with respect to any such plan which is a welfare plan
(within the meaning of ERISA Section 3(1));
(v) no such plan provides for any post-employment life,
medical, dental or other welfare benefits (whether or not insured) for
any current or former employee except as required under Code Section
4980B, Part 6 of Subtitle B of Title I of ERISA or applicable state or
local law;
(vi) there have been no claims or notice of claims filed under
any fiduciary liability insurance policy, fiduciary bond or
indemnification agreement covering any such plan, or any fiduciary
with respect to such plan;
(vii) all payments, contributions, insurance and annuity
premiums and salary deferrals elected by an employee or required to
have been made by the Company or any ERISA Affiliate under law or
under the terms of any Employee Benefit Plan for all complete and
partial periods up to and including the date hereof have been made or
will be made to the appropriate plan on or before the due date for
making such payment;
(viii) the transactions contemplated by this Agreement will not
be the direct or indirect cause of any amount paid or payable from
such plan being classified as an excess parachute payment under Code
Section 280G;
(ix) there are no actions, investigations, suits or claims
(other than routine claims or appeals of claims for benefits in the
ordinary course) pending or threatened, and there are no facts which
19
have been alleged by a claimant that could give rise to any such
actions, investigations, suits or claims (other than routine claims or
appeals of claims for benefits in the ordinary course), which could
subject either the Company or any ERISA Affiliate to any material
liability;
(x) during the three year period preceding the Closing Date,
there have been no corrections, including self-corrections not
requiring agency approval, made to such plans pursuant to the
Voluntary Fiduciary Correction Program or the Employee Plans
Compliance Resolution System; and
(xi) none of the Shareholders, the Company, any ERISA Affiliate
or any other person has engaged in a prohibited transaction (within
the meaning of Code Section 4975 or ERISA Section 406) which would
subject either the Company or any ERISA Affiliate to any material
taxes, penalties or other liabilities resulting from prohibited
transactions under Code Section 4975 or under ERISA Sections 409 or
502(i).
(e) Neither the Company nor any ERISA Affiliate is subject to any
legal, contractual, equitable, or other obligation to (i) establish as of
any date any employee benefit plan of any nature, including, without
limitation, any pension, profit sharing, welfare, post-retirement welfare,
stock option, stock or cash award, non-qualified deferred compensation or
executive compensation plan, policy or practice or (ii) continue any
employee benefit plan of any nature, including, without limitation any
Employee Benefit Plan or any other pension, profit sharing, welfare, or
post-retirement welfare plan, or any stock option, stock or cash award,
non-qualified deferred compensation or executive compensation plan, policy
or practice (or to continue their participation in any such benefit plan,
policy or practice) on or after the date hereof.
(f) The Company and each ERISA Affiliate may, in any manner, subject
to the limitations imposed by applicable law and reasonable notice
provisions under the applicable Employee Benefit Plan, and without the
consent of any employee, beneficiary or other person, prospectively
terminate, modify or amend any such Employee Benefit Plan or any other
plan, program or practice (or its participation in such Employee Benefit
Plan or any other plan, program or practice) effective as of any date on or
after the date hereof.
(g) To the knowledge of the Shareholders, no representations or
communications (directly or indirectly, orally, in writing or otherwise)
with respect to participation, eligibility for benefits, vesting, benefit
accrual coverage or other material terms of any Employee Benefit Plan have
been made prior to the Closing Date to any employee, beneficiary or other
person other than those which are in accordance with the terms and
provisions of each such Plan as in effect immediately prior to the Closing
Date.
5.1.21 Litigation; Decrees. There are no judicial or administrative
actions, proceedings, or investigations pending or, to the Shareholders'
knowledge, threatened that question the validity of this Agreement or any action
taken or to be taken by the Company or the Shareholders in connection with this
Agreement. Except as listed or described on Schedule 5.1.21 or 5.1.23, there are
20
no (a) lawsuits, claims, administrative, or other proceedings or investigations
relating to the conduct of the Company pending or, to the Company or the
Shareholders' knowledge, threatened by, against, or affecting the Company, or
(b) judgments, orders, or decrees of any Governmental Entity binding on the
Company.
5.1.22 Compliance With Law; Permits. The Company has complied in all
material respects with each law to which the Company or its business,
operations, assets, or properties is subject and is not currently in violation
in any material respects of any of the foregoing. The Company owns, holds,
possesses, or lawfully uses in the operation of the Business all material
Permits which are necessary for it to operate and conduct its business as now
conducted and in compliance in all material respects with all applicable laws.
All such Permits are listed and described on Schedule 5.1.22. To the
Shareholder's knowledge, the Company is not in default, nor has it received any
notice of any claim of default, and to the Shareholders' knowledge, the Company
is not in default, with respect to any such Permits. All such Permits are
renewable by their terms or in the ordinary course of business without the need
to comply with any special qualification procedures or to pay any amounts other
than routine filing fees. None of such Permits will be materially adversely
affected by consummation of the transactions contemplated hereby. No
shareholder, director, officer, employee, or former employee of the Company, or
any of its respective Affiliates, or any other Person, owns or has any
proprietary, financial, or other interest (direct or indirect) in any Permits
which the Company owns, possesses, or uses in the operation of its business as
now or previously conducted.
5.1.23 Environmental Matters. Except as set forth in Schedule 5.1.23:
(a) the Company is in compliance in all material respects with all
applicable Environmental Laws;
(b) there are no judicial or administrative actions, proceedings, or
investigations pending or, to the Company or the Shareholders' knowledge,
threatened against the Company alleging the violation of, or liability
pursuant to, any Environmental Law or Environmental Permit;
(c) Neither the Company nor any of its Affiliates is subject to
Environmental Costs and Liabilities with respect to Hazardous Materials,
and no facts or circumstances exist which are reasonably likely to result
in the Company incurring Environmental Costs and Liabilities with respect
to compliance with the Environmental Laws applicable to the Hazardous
Materials.
(d) For purposes of this Agreement:
"Environmental Costs and Liabilities" shall mean any and all
losses, liabilities, obligations, damages, fines, penalties,
judgments, actions, claims, costs, and expenses (including fees,
disbursements, and expenses of legal counsel, experts, engineers, and
consultants and the costs of investigation and feasibility studies,
remedial, or removal actions and cleanup activities) arising from or
under any Environmental Law or any order or agreement now in effect
with any Governmental Entity or other Person.
21
"Environmental Laws" means any law (including common law)
relating to the environment, natural resources, or public and employee
health and safety including, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et
seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Clean Air
Act, 33 U.S.C. ss. 2601, et seq., the Toxic Substances Control Act, 15
U.S.C. ss. 2601, et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. ss. 136, et seq., the Oil Pollution Act of
1990, 33 U.S.C. ss. 2701, et seq., the Federal Safe Drinking Water
Act, 42 U.S.C. ss. 300F, et seq., and the Occupational Safety and
Health Act, 29 U.S.C. ss.651, et, seq., as such laws have been amended
or supplemented, and the regulations promulgated pursuant thereto, and
all analogous state or local statutes.
"Environmental Permit" means any permit, approval, authorization,
license, variance, registration, or permission required under any
applicable Environmental Law.
"Hazardous Materials" means any substance, material, or waste
which is regulated by any Governmental Entity, including, any
material, substance, or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous
substance," "restricted hazardous waste," "contaminant," "toxic
waste," or "toxic substance" under any provision of Environmental Law,
including, petroleum, petroleum products (including crude oil and any
fraction thereof), asbestos, asbestos-containing materials, urea
formaldehyde, and polychlorinated biphenyls.
5.1.24 Taxes.
(a) The Company has duly and timely filed all Tax Returns that it was
required to file with the appropriate taxing authorities in all
jurisdictions in which such Tax Returns are required to be filed. Each such
Tax Return was, when filed, true, correct and complete in all respects. All
such Tax Returns have been prepared in a manner consistent with past
practice. All Taxes due and owing by the Company (whether or not shown on
any Tax Return) have been fully paid and all Taxes incurred as of the date
of the Interim Financial Statement but not yet due and owing have been
adequately reserved for on the Interim Financial Statement. The liability
of Company for Taxes with respect to Tax periods (or portions thereof)
ending on or prior to the Closing Date does not exceed the amount reflected
on the Closing Statement. There are no liens for Taxes upon any of the
assets of the Company, except liens for current Taxes not yet due. All
required estimated Tax payments sufficient to avoid any underpayment
penalties have been made by or on behalf of the Company. The Company has
complied with all applicable laws relating to the payment and withholding
of Taxes and has duly and timely withheld and paid over to the appropriate
Tax Authorities all amounts required to be so withheld and paid over for
all periods under all applicable laws.
22
(b) All deficiencies asserted or assessments made as a result of any
examinations by any Tax Authority of the Tax Returns of the Company have
been fully paid, and there are no other audits or other investigations by
any Tax Authority in progress, nor has any Shareholder nor the Company
received any notice from any Tax Authority that it intends to conduct such
an audit or investigation or that any claim for unpaid Taxes has become a
lien of any kind against the property of the Company or is being asserted
against the Company. No issue has been raised by any Tax Authority in any
current or prior examination which, by application of the same or similar
principles, could reasonably be expected to result in a proposed deficiency
for any subsequent taxable period. There are presently no outstanding
waivers or extensions or requests for waiver or extension of the time
within which a tax deficiency may be asserted or assessed.
(c) Schedule 5.1.24(c) lists all federal, state, local and foreign
franchise, sales and Income Tax Returns filed with respect to the Company
for taxable periods ending on or after December 31, 2000, indicates those
franchise, sales and Income Tax Returns that have been audited and
indicates those franchise, sales and Income Tax Returns that currently are
the subject of audit. No claim has been made and remains outstanding by any
Tax Authority in any jurisdiction where the Company does not file Tax
Returns that Company is or may be subject to taxation by that jurisdiction.
The Company has made available to Purchaser complete copies of all
franchise and Income Tax Returns and all audit reports issued within the
last three (3) years with respect to such Tax Returns. Currently, there are
no effective waivers or extensions of any statute of limitations in respect
of Taxes, or requests or agreements for the extension of time with respect
to a Tax assessment or deficiency, by or with respect to the Company.
(d) Neither the Company nor any other Person (including any
Shareholder) on behalf of the Company have on or prior to the Closing Date
(A) filed a consent under Code Section 341(f) concerning collapsible
corporations, (B) agreed to, or is required to make, any adjustments
pursuant to Code Section 481(a) or any similar provision of law nor has any
Tax Authority proposed any such adjustment, or has any application pending
with any Tax Authority requesting permission for any change in accounting
methods that relate to the Company, or (C) executed or entered into a
closing agreement pursuant to Code Section 7121 or any similar provision of
law with respect to the Company. The Company is not a party to or bound by
any Tax allocation, indemnity, sharing or similar arrangement or agreement.
The Company (x) is not and has not been a member of an Affiliated Group and
(y) has no liability for the Taxes of any Person (other than Company) under
Treasury Regulation section 1.1502-6 (or any similar provision of law), as
a transferee or successor, by contract, or otherwise. None of the
Shareholders is a foreign person within the meaning of Code Section 1445.
(e) No property owned by the Company is (i) property required to be
treated as being owned by another Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in
effect immediately prior to the enactment of the Tax Reform Act of 1986;
(ii) "tax-exempt use property" within the meaning of Code Section
168(h)(1); (iii) "tax-exempt bond financed property" within the meaning of
23
Code Section 168(g); (iv) subject to Code Section 168(g)(1)(A); or (v)
"limited use property" within the meaning of Rev. Proc. 2001-28.
(f) The Company is not a party to or bound by (A) any contract, plan
or arrangement covering any Person that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
by Purchaser or its Affiliates, or Company by reason of Code Section 280G,
(B) any private letter ruling of the Internal Revenue Service or comparable
rulings of other taxing authorities or (C) any power of attorney with
respect to any Tax matter that is currently in force.
(g) The Company has not constituted a "controlled corporation" (within
the meaning of Code Section 355(a)(1)(A)) in a distribution of stock
qualifying for tax-free treatment under Code Section 355 (A) in the two (2)
years prior to the date hereof or (B) in a distribution which could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Code Section 355(e)) in conjunction with the
transactions contemplated by this Agreement.
(h) There is no taxable income of the Company that will be required
under applicable Tax law to be recognized by Purchaser or its Affiliates,
including the Company after the Closing Date, for a taxable period ending
after the Closing Date which taxable income was realized and resulted in
economic income (i.e., the receipt of cash or other property arising from
such realization) on or prior to the Closing Date.
(i) For purposes of this Agreement, the terms "Tax" and "Taxes" shall
mean all federal, state, local, or foreign income, payroll, withholding,
unemployment insurance, social security, sales, use, service, service use,
leasing, leasing use, excise, custom duties, franchise, gross receipts,
value added, alternative or add-on minimum, estimated, occupation, real and
personal property, ad valorem stamp, transfer, workers' compensation,
severance, windfall profits, environmental (including taxes under Section
59A of the Code), or other tax of the same or of a similar nature,
including any interest, penalty, fine or addition thereto, whether disputed
or not and shall include any transferee or successor liability in respect
of Taxes, any liability under a tax sharing arrangement or tax indemnity
agreement, or otherwise. The term "Tax Return" means any return,
declaration, report, claim for refund, or separate election information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof. The term "Affiliated Group"
means any affiliated group of corporations within the meaning of Code
Section 1504(a) or a combined, consolidated or unitary group, or any
similar group defined under a similar provision of state, local or foreign
law. The term "Income Tax" means any federal, state, local or foreign tax,
charge, fee, impost, levy or other assessment which is based upon, measured
by, or calculated with respect to (i) net income or profits or (ii)
multiple bases, if one or more of the bases upon which the tax is based, by
which it is measured, or with respect to which it is calculated is
described in clause (i), together with any interest, penalty or addition
thereto, whether disputed or not. The term "Income Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Income Taxes, including any schedule or attachment
thereto and including any amendment thereof. The term "Tax Authority" means
any governmental authority responsible for the determination, assessment or
24
collection of any Taxes or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
(j) ISI has been at all times during its existence properly treated as
a disregarded entity for federal and state Income Tax purposes.
(k) ISI has timely paid all Taxes due and payable by ISI.
5.1.25 Certain Business Practices and Regulations; Potential
Conflicts of Interest.
(a) Neither the Company, its Affiliates, nor any of their respective
directors, officers, agents, or employees of has (i) used any corporate
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or
(iii) made any other unlawful payment.
(b) Except as disclosed on Schedule 5.1.25(b), none of the officers or
directors or Affiliates of the Company, any Shareholder, or any Person
controlled by any of the foregoing (i) owns, directly or indirectly, any
significant interest in, or is a director, officer, employee, consultant,
or agent of, any Person which is a competitor, lessor, lessee, or customer
of, or supplier of goods or services to, the Company, (ii) owns, directly
or indirectly, in whole or in part, any real property, leasehold interests,
or other property the use of which is necessary for the Company or the
operation of its business, or (iii) has any cause of action or other suit,
action, or claim whatsoever against, or owes any amount to the Company
other than claims in the ordinary course of business.
5.1.26 Warranties and Returns. Schedule 5.1.26 sets forth a summary
of present practices and policies followed by the Company with respect to
guarantees, warranties, and servicing of any products manufactured or sold and
services rendered by it, whether such practices and policies are oral or in
writing or are deemed to be legally enforceable. Except as set forth on Schedule
5.1.26, to the knowledge of the Company and the Shareholders, there are no
written statements, citations, or decisions by any Person stating that any
product actually sold by the Company is defective or unsafe or fails to meet any
standards promulgated by any such Person.
5.1.27 Disclosure. No representation or warranty by the Company or
any Shareholder contained in this Agreement, and no statement contained in any
document (including the financial statements referenced in Section 5.1.6, the
Company Ancillary Documents, the closing documents delivered pursuant to Article
VIII and the Schedules hereto), list, certificate, or other instrument furnished
or to be furnished by or on behalf of the Company or any Shareholder to
Purchaser or any of its representatives in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or, to the actual knowledge of the Shareholders and Xxx Xxxxx omits to
25
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
5.1.28 Credit Cards and Bank Accounts. Set forth on Schedule
5.1.28(1) is a true and complete list of the Company's employees who have been
issued a Company credit card, including the type of card and account number. Set
forth on Schedule 5.1.28(2), is a true and complete list of the Company's bank
accounts and the authorized signatories for said accounts.
5.1.29 Commission and Finder Fees. Neither the Company nor any
Shareholder nor any Person acting on the behalf of the Shareholders has agreed
to pay a commission, finder's fee, or similar payment in connection with this
Agreement or any matter related hereto to any Person.
5.1.30 Compliance With Xxxxxxxx-Xxxxx. Except as disclosed on the
Interim Balance Sheet or the Financial Statements since December 31, 2001, the
Company has not entered into any transaction that would be prohibited by Section
402 of the Xxxxxxxx-Xxxxx Act of 2002 were the Company registered under Section
12 or 15 of the Securities Exchange Act of 1934, as amended.
5.1.31 Existing Lease. The current lease agreement between the
Company, as tenant, and the Majority Shareholders or an Affiliate thereof, as
landlord (the "Existing Lease"), is on an arms length basis and contains market
terms and provisions as if such lease was entered into between the Majority
Shareholders or an Affiliate thereof, as landlord and a third party, as tenant.
5.2 Representations and Warranties of the Shareholders.
Each Shareholder, severally and not jointly, makes the following
representations and warranties to Purchaser, each of which is true and correct
as of the date hereof and shall be unaffected by any investigation heretofore or
hereafter made by Purchaser.
5.2.1 Acquisition of Shares. Such Shareholder is acquiring its
interests in the Purchaser Common Stock acquired or to be acquired under the
terms of this Agreement for investment for its own account and not with a view
to, or for sale in connection with, any distribution thereof. Each Shareholder,
other than Xxxxxxxx XxXxxxxx, is an "accredited investor" as such term is
defined in Regulation D under the 1933 Act. Each Shareholder (either alone or
together with its purchaser representative (as such term is defined in Section
230.501(d) of the regulations promulgated under the 1933 Act)) has sufficient
knowledge and experience in financial and business matters so as to be capable
of evaluating the merits and risks of its investment in the Purchaser Common
Stock and is capable of bearing the economic risks of such investment. Such
Shareholder acknowledges and agrees that (i) prior to the date hereof such
Shareholder has carefully reviewed Purchaser's (a) Annual Report on Form 10-K
for the year ended March 31, 2004 and Quarterly Reports on Form 10-Q for the
quarters ended June 30 and September 30, 2004 and Current Reports on Form 8-K
filed since March 31, 2004 and (b) Purchaser's definitive proxy statements
relating to Purchaser's meeting of shareholders (whether annual or special) held
26
since April 1, 2004 (the items in clauses (a) and (b) collectively, the "SEC
Reports"). Such Shareholder had reasonable time and opportunity to ask questions
and receive answers concerning the terms and conditions of this Agreement and
the transactions contemplated hereby and to obtain any additional information
from the Purchaser. Such Shareholder acknowledges and agrees that the Purchaser
Common Stock acquired or to be acquired under the terms of this Agreement has
not been registered under the 1933 Act or any applicable state securities or
"blue sky" laws and that such shares of Purchaser Common Stock must be held
indefinitely unless subsequently registered under the 1933 Act and all
applicable state securities and "blue sky" laws or unless an exemption from such
registration is available and that the Company's principal place of business and
such Shareholder's principal address is at the addresses identified on Schedule
5.2.1 hereto.
5.2.2 Effect of Agreement. This Agreement, and the other agreements
entered into by such Shareholder pursuant to the terms of this Agreement (the
"Shareholder Ancillary Documents") have been duly authorized, executed and
delivered by such Shareholder and, assuming the due execution and delivery of
this Agreement and, as applicable, any Shareholder Ancillary Document, by
Purchaser, constitutes a valid and binding obligation of such Shareholder
enforceable against such Shareholder in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.2.3 Shareholder; Stock Ownership. Such Shareholder is at least 21
years of age and competent to enter into this Agreement. Such Shareholder is the
sole beneficial and/or record owner of the number of issued and outstanding
shares of capital stock in the Company and other equity interests in the Company
set forth opposite his or her name on Schedule I. The address of such
Shareholder's principal residence is set forth on Schedule I. Such Shareholder
is the beneficial and/or record owner of all of such capital stock and other
equity interests, free and clear of any liens, encumbrances or restrictions on
transfer of any nature whatsoever other than the obligations of the Shareholder
arising under this Agreement. Except for this Agreement and the transactions
contemplated hereby, such Shareholder has no legal obligations, absolute or
contingent, to any person or firm to sell the Company's capital stock or other
equity interests or to enter into any agreement with respect thereto. Except as
set forth in Schedule 5.2.3, no Shareholder is a party to any agreement with any
other person relating to the capital stock or ownership of the Company and each
of the agreements set forth in Schedule 5.2.3 shall be terminated and of no
further force and effect on the Closing Date.
5.3 Representations and Warranties of Purchaser. Purchaser makes the
following representations and warranties to the Company and each Shareholder,
each of which is true and correct as of the date hereof and shall be unaffected
by any investigation heretofore or hereafter made by the Company or the
Shareholders.
5.3.1 Corporate Organization. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
New York and has the requisite corporate power and authority to own, lease, or
otherwise hold its properties and assets and to carry on its business as
presently conducted.
27
5.3.2 Authorization and Effect of Agreement. Purchaser has the
requisite corporate power to execute and deliver this Agreement and the other
agreements to be entered into by it pursuant to the terms of this Agreement (the
"Purchaser Ancillary Documents") and to perform the transactions contemplated
hereby and thereby to be performed by it. The execution and delivery by
Purchaser of this Agreement and the Purchaser Ancillary Documents and the
performance by it of the transactions contemplated hereby and thereby to be
performed by it have been duly authorized by all necessary corporate action on
the part of Purchaser. This Agreement and each Purchaser Ancillary Document have
been duly executed and delivered by duly authorized officers of Purchaser and,
assuming the due execution and delivery of this Agreement and, as applicable,
any Purchaser Ancillary Document, by the Company and the Shareholders,
constitutes a valid and binding obligation of Purchaser enforceable against it
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
5.3.3 No Restrictions. The execution and delivery of this Agreement
and each Purchaser Ancillary Document by Purchaser does not and the performance
by Purchaser of the transactions contemplated hereby or thereby to be performed
by it will not (a) conflict with or violate the certificate or articles of
incorporation (or other organizational documents or resolution of Purchaser's
Board of Directors or shareholders) or bylaws of Purchaser, (b) conflict with,
or result in any violation of, or constitute a default (with or without notice
or lapse of time, or both) under, any provision of any contract or permit to
which Purchaser is a party or by which it is bound, or (c) constitute a
violation of any law, except in the case of clauses (b) or (c) above, for such
conflicts, violations, breaches, or defaults that would not, individually or in
the aggregate, (i) materially impair the ability of Purchaser to perform its
obligations hereunder or (ii) prevent or materially delay the consummation of
the purchase and sale of the Stock contemplated hereby. No consent, approval,
order, or authorization of, or registration, declaration, or filing with, any
Governmental Entity or other person is required to be obtained or made by or
with respect to Purchaser in connection with the execution and delivery of this
Agreement by Purchaser or the performance by Purchaser of the transactions
contemplated hereby to be performed by it, except for such of the foregoing as
are listed or described on Schedule 5.3.3 or 5.3.10.
5.3.4 Authorization of Shares. The issuance, sale and delivery of the
Purchaser Common Stock to the Shareholders has been duly authorized by all
requisite corporate action by Purchaser and the Purchaser Common Stock to be
issued to the Shareholders, when issued and delivered in accordance with the
terms of this Agreement, will be duly authorized and validly issued and
outstanding, fully paid and non-assessable, free and clear of any liens and any
restrictions on transfer other than restrictions under applicable federal and
state securities laws, this Agreement and the Registration Rights Agreement, and
not subject to preemptive or other similar rights of the shareholders of
Purchaser. Purchaser has reserved sufficient unissued common stock for issuance
of all of the Purchaser Common Stock to be issued to the Shareholders pursuant
to this Agreement.
5.3.5 Compliance With Law; Permits. Except as disclosed in the SEC
Reports (as defined herein), Purchaser has complied in all material respects
with each law to which Purchaser or its business, operations, assets, or
properties is subject and is not currently in violation in any material respects
28
of any of the foregoing. Purchaser owns, holds, possesses, or lawfully uses in
the operation of its business all material Permits which are necessary for it to
operate and conduct its business as now conducted and in compliance in all
material respects with all applicable laws. To Purchaser's knowledge, it is not
in default, nor has it received any notice of any claim of default, with respect
to any such Permits.
5.3.6 Litigation; Decrees. There are no judicial or administrative
actions, proceedings, or investigations pending or, to Purchaser's knowledge,
threatened that question the validity of this Agreement or any action taken or
to be taken by Purchaser in connection with this Agreement. Except as disclosed
in the SEC Reports there are no (i) lawsuits, claims, administrative, or other
proceedings or investigations relating to the conduct of Purchaser's business
pending or, to Purchaser's knowledge, threatened by, against, or affecting
Purchaser or (ii) judgments, orders, or decrees of any Governmental Entity
binding on Purchaser that are reasonably likely to result in a Purchaser
Material Adverse Effect. For the purposes of this Agreement, "Purchaser Material
Adverse Effect" shall mean any event, circumstance, condition, fact, effect, or
other matter which has had or, as determined on the date of this Agreement and
on the Closing Date, could reasonably be expected to have a material adverse
effect (i) on Purchaser's financial condition, prospects, financial projections,
or results of operations taken as a whole or (ii) on the ability of Purchaser to
perform on a timely basis any material obligation under this Agreement or to
consummate the transactions contemplated hereby except any material adverse
effect that affects the general industry in which the Purchaser conducts its
operations. Furthermore, no action taken by the Company, the Shareholders or
Purchaser pursuant to this Agreement shall be deemed to have a Purchaser
Material Adverse Effect.
5.3.7 Capitalization. The authorized capital stock of Purchaser
consists of 100,000,000 shares, of which (i) 80,000,000 are designated as
Purchaser Common Stock and (ii) 20,000,000 shares are designated as Preferred
Stock, $0.001 par value per share (the "Preferred Stock"). Fourteen million
(14,000,000) shares of the Preferred Stock are designated as Series A Preferred
Stock, 4,200,000 of which are designated as Series A-1 Preferred Stock,
2,600,000 of which are designated Series A-2 Preferred Stock and 7,200,000 of
which are designated Series A-3 Preferred Stock. As of the date hereof the
issued and outstanding capital stock of Purchaser consists of (i) 6,471,889
shares of Purchaser Common Stock, all of which are validly issued, fully paid
and non-assessable, (ii) 3,255,814 shares of Series A-1 Preferred Stock, all of
which are validly issued, fully paid and non-assessable, (iii) 2,000,000 shares
of Series A-2 Preferred Stock, all of which are validly issued, fully paid and
non-assessable and (iv) 3,846,154 shares of Series A-3 Preferred Stock, all of
which are validly issued, fully paid and non-assessable. Except as set forth on
Schedule 5.3.7, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character obligating Purchaser to issue or
sell any shares of capital stock of Purchaser. There are no outstanding or
authorized stock appreciation rights, phantom stock or stock rights with respect
to Purchaser.
5.3.8 SEC Reports; Disclosure. Purchaser has made available to the
Company a copy of each of the SEC Reports. The SEC Reports, including all
financial statements or schedules included in them, (i) complied in all material
respects with the requirements of the 1933 Act or the 1934 Act, as the case may
be, on the date of filing thereof, and (ii) did not at the time of filing
thereof (or if amended, supplemented or superceded by a later filing, as so
amended, supplemented or superceded on the date of such later filing) contain
any untrue statement of material fact or omit to state a material fact required
29
to be stated therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.3.9 Financial Statements. The financial statements of Purchaser
contained in the SEC Reports (collectively, the "Purchaser Financial
Statements") have been prepared in accordance with GAAP consistently applied
throughout the periods involved and such Purchaser Financial Statements,
including the related notes, fairly present the financial position, assets, and
liabilities (whether accrued, absolute, contingent, or otherwise) of Purchaser
and its consolidated subsidiaries as of the dates and for the periods indicated;
provided, however, that the unaudited interim financial statements included in
the Purchaser Financial Statements do not include notes and are subject to
normal year-end adjustments (all of which are of a recurring nature and none of
which individually or in the aggregate would have a Purchaser Material Adverse
Effect).
5.3.10 Absence of Changes. Except as disclosed in the SEC Reports or
on Schedule 5.3.10, since September 30, 2004 there has not been any change in
the assets, liabilities, financial condition or operating results of Purchaser
from that reflected in the Purchaser Financial Statements, except changes in the
ordinary course of business that have not created and are not reasonably likely
to create, in the aggregate, a Purchaser Material Adverse Effect.
5.3.11 Commissions and Finders Fees. Neither Purchaser, nor any
Person acting on the behalf of Purchaser has agreed to pay a commission,
finder's fee, or similar payment in connection with this Agreement or any matter
related hereto to any Person.
ARTICLE VI. PRE-CLOSING COVENANTS
---------------------
6.1 Access to Information. Prior to the Closing, upon reasonable notice
from Purchaser to the Company, the Shareholders will cause the Company to afford
to the officers, attorneys, accountants, or other authorized representatives
(including, environmental consultants) of Purchaser reasonable access during
normal business hours to the employees, the assets and properties, facilities,
and the books and records of the Company so as to afford Purchaser a full
opportunity to make such review, examination, and investigation of the Business
as Purchaser may desire to make, including an environmental evaluation of the
Company. Purchaser will be permitted to make extracts from or to make copies of
such books and records as may be reasonably necessary in connection therewith.
Prior to the Closing, the Shareholders will cause the Company to promptly
furnish or cause to be furnished to Purchaser such financial and operating data
and other information requested by Purchaser. Solely for avoidance of doubt, and
not to imply a limitation on the scope of Section 6.5 hereof, all access to
information pursuant to this Section 6.1 shall be subject to the provisions of
Section 6.5 hereof.
6.2 Conduct of Business. Except as consented to by Purchaser in writing,
during the period from the date of this Agreement and continuing until the
Closing, the Shareholders will cause the Company to (i) conduct all of the
business operations of the Company, including, without limitation, the Business,
only in the ordinary course of business and consistent with past practices, (ii)
maintain in good repair all of its assets and properties, and (iii) preserve
intact the Company's present business operations, keep available the services of
the Company's officers and employees, and preserve the Company's relationships
30
with suppliers, customers, licensors, and others having business relationships
with the Company. Without limiting the generality of the foregoing, the
Shareholders will cause the Company:
(a) not to amend its Certificate of Incorporation;
(b) not to propose or effect a split or reclassification of its outstanding
share capital or a recapitalization;
(c) not to issue any capital stock of securities convertible into capital
stock or grant any right with respect to the acquisition of any capital stock;
(d) to pay or discharge when due any liabilities of which the failure to
pay or discharge will cause any material damage or risk of material loss to it
or any of its assets and properties;
(e) not to sell, assign, or transfer any of its assets and properties,
except for the replacement or betterment of obsolete or worn out equipment and
sales of Inventory in the ordinary course of business consistent with past
practice, and not permit any of its assets and properties to be subjected to any
lien (other than the Permitted Liens);
(f) except as expressly contemplated by this Agreement, not to make or
suffer any material amendment or termination of any contract listed on Schedule
5.1.11 (a) or Permit, or cancel, modify, or waive any substantial debts or
claims held by it or waive any rights of substantial value, whether or not in
the ordinary course of business;
(g) not to make commitments or contracts for capital expenditures or
capital additions or betterments which exceed $25,000 individually or $100,000
in the aggregate, except such as may be involved in ordinary repair,
maintenance, or replacement of its assets and properties;
(h) not to acquire or agree to acquire any assets except in the ordinary
course of business consistent with past practices;
(i) not to increase the salaries or other compensation of, or make any
advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its employees or make any increase in, or any addition to, other
benefits to which any of its employees may be entitled except in the ordinary
course of business consistent with past practices;
(j) not to change any of the accounting principles followed by it or the
methods of applying such principles;
(k) not to take or omit to take any action as a result of which any
representation or warranty of the Company and the Shareholders in Article V
would be rendered untrue or incorrect if such representation or warranty were
made immediately following the taking or failure to take such action;
31
(l) not to enter into any contract or other transaction with any Affiliate
of the Company or any officer or director of any Affiliate of the Company;
(m) to maintain its books, accounts, and records in the usual, regular, and
ordinary manner or a basis consistent with prior years and where applicable in
accordance with GAAP;
(n) to maintain in full force and effect all insurance described in
Schedule 5.1.16;
(o) not to make or revoke any election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or except as may be
required by applicable law, make any change to any of its methods of accounting
or methods of reporting income or deductions for Tax purposes from those
employed in the preparation of its Tax Return most recently filed prior to the
date of this Agreement, in respect of each of the foregoing, without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
(p) not to fail to duly and timely file or cause to be filed all Tax
Returns required to be filed with any Tax Authority and promptly pay or cause to
be paid when due all Taxes, including interest and penalties levied or assessed;
and
(q) not to agree, in writing or otherwise, to take action or omit to take
action that would violate any of the foregoing.
6.3 Notification.
(a) The Company and the Shareholders shall provide prompt written
notice to Purchaser, and Purchaser shall provide prompt written notice to the
Company and the Shareholders (in each case within five business days), of any
litigation, arbitration, or administrative proceeding pending or, to its
knowledge, threatened against the Company, or any Shareholder, on the one hand,
or Purchaser, on the other hand, which challenges the transactions contemplated
hereby.
(b) The Company and the Shareholders will provide prompt written
notice to Purchaser (in any event within five business days) of any change in
any of the information contained in its representations and warranties made in
Article V or any Exhibits or Schedules referred to herein or attached hereto and
shall promptly furnish any information which Purchaser may reasonably request in
relation to such change; provided, however, that such notice shall not operate
to cure any breach of the representations and warranties made in Article V or
any Exhibits or Schedules referred to herein or attached hereto.
6.4 Third Party Consents.
(a) Purchaser, on the one hand, and the Company and the Shareholders,
on the other hand, will cooperate and use their respective commercially
reasonable efforts to, as promptly as practicable, give all notices and obtain
32
all consents, approvals, and waivers required by third persons, including,
without limitation, the notices, consents, approvals and waivers listed on
Schedule 5.1.11(b) and of any Governmental Entity, to transfer the Stock to
Purchaser in a manner that will avoid any default, conflict, or termination of
rights in respect thereof; provided, however, that the parties hereto
acknowledge and agree that all of the notices, consents, approvals and waivers
required under the Contracts listed on Schedule 5.1.11(b) may not be received
prior to Closing and, with respect to such notices, consents, approvals and
waivers, the parties' obligations under this Section 6.4 shall continue after
Closing. Provided that the Shareholders have performed in good faith their
responsibilities under this Section 6.4, the Shareholders shall have no
liability to Purchaser for any default, conflict, or termination with respect to
any Contract that arises as a result of the consummation of the transactions
contemplated by this Agreement unless such Contract was required to be disclosed
on Schedule 5.1.11(a) and was not properly disclosed.
(b) The parties hereto acknowledge and agree that, if any notice or
approval contemplated under Section 6.4 hereof is not given or received, as the
case may be, and, as a consequence thereof, any customer, vendor, licensor
and/or subcontractor or consultant shall attempt to cancel its relationship with
the Company as a result of this transaction, or the failure to give notice or
the failure to seek and receive approval, the Company and/or the Shareholder
Representative shall use commercially reasonable efforts to continue such
relationship on such terms and conditions as are acceptable to Purchaser in its
reasonable discretion.
6.5 Confidentiality. Purchaser, on the one hand, and the Shareholders, on
the other hand, shall cause the Company to keep confidential all information
obtained by it or them with respect to the other in connection with this
Agreement and the negotiations preceding this Agreement, and will use such
information solely in connection with the transactions contemplated by this
Agreement, and if the transactions contemplated hereby are not consummated, each
shall return to the other upon request, without retaining a copy thereof, any
schedules, documents, or other written information obtained from the other in
connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, no party shall be required to keep confidential
or return any information which (a) is required to be disclosed by law, pursuant
to an order or request of a judicial authority or Governmental Entity having
competent jurisdiction, or pursuant to the rules and regulations of any national
stock exchange applicable to the disclosing party and its Affiliates (provided
the party seeking to disclose such information provides the other party with
reasonable prior written notice thereof), or (b) which can be shown to have been
generally available to the public other than as a result of a breach of this
Section 6.5.
6.6 Publicity. Prior to the Closing, no party will issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party, which consent will not be unreasonably withheld;
provided, however, that nothing herein will prohibit any party from issuing or
causing publication of any such press release or public announcement to the
extent that such party determines such action to be required by law or the rules
of any national stock exchange applicable to it or its Affiliates, in which
event the party making such determination will, if practicable in the
circumstances, use its reasonable efforts to allow the other parties reasonable
time to comment on such release or announcement in advance of its issuance.
33
6.7 Injunctions. Without limiting the generality or effect of any
provision of Article VII, if any United States, state, or foreign court having
jurisdiction over any party issues or otherwise promulgates any injunction,
decree, or similar order prior to the Closing which prohibits the consummation
of the transactions contemplated hereby, the parties will use their respective
commercially reasonable efforts to have such injunction dissolved or otherwise
eliminated as promptly as possible and, prior to or after the Closing, to pursue
the underlying litigation diligently and in good faith.
6.8 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article VII, prior to the Closing, each of the parties will
use their respective commercially reasonable efforts with due diligence and in
good faith to satisfy promptly all conditions required hereby to be satisfied by
such party in order to expedite the consummation of the transactions
contemplated hereby.
6.9 Tangible Net Worth. The Shareholders hereby covenant and agree that
the Tangible Net Worth of the Business as of the Closing Date shall not be less
than $1,100,000.
6.10 Stock Options. The Purchaser has reserved up to 250,000 shares of
Purchaser Common Stock for issuance upon exercise of stock options which shall
be granted by the Purchaser to the members of the Shareholders' management team
and in the amounts listed on Schedule 6.10. Such stock options shall be issued
to such individuals pursuant to a stock option agreement to be entered into
between the Purchaser and each such individual. Such options shall be granted on
the date such persons are employed by Purchaser or an Affiliate thereof and
shall have an exercise price equal to the greater of (x) $2.15 or (y) fair
market value of the Purchaser Common Stock on the date of such grant. Such
options shall vest in equal installments over a four year period beginning on
the Closing Date.
6.11 Acquisition Proposals. From and after the date of this Agreement
until the Closing or earlier termination of this Agreement pursuant to Section
12.17, neither the Company nor the Shareholders shall, nor shall they authorize
or permit any officer, director, or employee of, or any investment banker,
attorney, accountant or other representative retained by any of them, to,
solicit, initiate, or encourage submission of any proposal or offer (including
by way of furnishing information) from any Person which constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. As used in this
Agreement, "Acquisition Proposal" shall mean any proposal for a merger or other
business combination involving the Company, any recapitalization of the Company,
or any proposal or offer to acquire in any manner a substantial equity interest
in, or a substantial portion of the assets of the Company.
6.12 Identified Liabilities. The Shareholders hereby covenant and agree
that the Identified Liabilities shall be paid in full on or prior to the Closing
Date or by Purchaser at Closing from the Cash Consideration.
6.13 Keys to Properties. On or prior to the Closing, the Shareholders will
cause the Company to deliver to the Purchaser all of the keys and other forms of
access (electronic or otherwise) to all of the properties owned or leased by the
Company.
34
6.14 Bank Accounts. On or prior to the Closing, the Shareholders will
cause the Company to provide the Purchaser with evidence, reasonably
satisfactory to the Purchaser, of the continuing existence of the bank accounts
owned by the Company, including, without limitation, the bank accounts set forth
in Schedule 5.1.28(2).
6.15 Cancellation of Credit Cards. On or prior to the Closing, the
Shareholders will cause the Company to provide Purchaser with evidence,
reasonably satisfactory to Purchaser, of the cancellation of all of the
Company's credit cards including all of the credit cards issued to the employees
of the Company and the credit cards set forth on Schedule 5.1.28(1).
6.16 Resignation of Officers and Directors. On or prior to the Closing,
the Shareholders will cause the Company to provide evidence, reasonably
satisfactory to the Purchaser of the resignation of all of the officers and
directors of the Company and the Company shall have taken all necessary
corporate action to effectuate such resignations.
6.17 Personal Vehicles. On or prior to the Closing, any and all the
amounts owed by the Company with respect to its obligations in connection with
the vehicles used by the Company's executives for personal use shall have been
paid and the Company shall have been released from such obligations.
6.18 Authorized Borrowings. On the Closing Date, the Shareholders shall
cause the Company not to have outstanding under its current revolving line of
credit an aggregate amount in excess of $100,000. The Company shall first obtain
the prior written approval of Purchaser for any borrowings in excess of
$100,000.
6.19 No Amendments to Existing Lease. For the period commencing on the
date hereof until the Closing Date, the Majority Shareholders shall not and
shall cause any Affiliate thereof and/or the Company not to amend the Existing
Lease.
6.20 Tail Insurance. The Company shall designate Purchaser's insurance
broker as the Company's broker of record under the Company's insurance policies.
Such broker shall use reasonable commercial efforts to negotiate tail insurance
on market terms for the Company's employee professional liability, errors and
omissions and crime insurance coverage. If Purchaser's insurance broker fails to
negotiate such coverage on market terms, Purchaser shall advise the Shareholder
Representative in writing within five business days after Purchaser is notified
of such failure and the Shareholder Representative shall be permitted to attempt
to negotiate such tail insurance on market terms for the specified coverage.
Purchaser will pay the cost of such tail insurance. Purchaser and the
Shareholder Representative shall execute all documents necessary to permit the
actions specified in this Section.
ARTICLE VII. CONDITIONS TO CLOSING
---------------------
7.1 Conditions Precedent to Obligations of Purchaser. The obligations of
Purchaser under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to Closing, of all of
the following conditions, any one or more of which may be waived at the option
of Purchaser:
7.1.1 Representations, Warranties and Covenants.
35
(a) All representations and warranties of the Company and the
Shareholders made in this Agreement or in any Exhibit, Schedule, or
document delivered pursuant hereto (including any Company Ancillary
Document), shall be true and correct in all material respects as of the
date hereof without regard to any schedule updates furnished by the Company
or the Shareholders after the date hereof and at and as of the Closing,
with the same effect as though such representations and warranties were
made at and as of the Closing.
(b) The Company and the Shareholders shall have performed and complied
with, in all material respects, all the covenants and agreements required
by this Agreement to be performed or complied with prior to the Closing.
(c) Purchaser shall have received a certificate, dated as of the
Closing Date, executed on behalf of the Company by authorized officers
thereof, certifying in such detail as Purchaser may reasonably request that
the conditions specified in Sections 7.1.1(a) and (b) hereof have been
fulfilled.
7.1.2 Secretary's Certificate. The Company shall have delivered to
the Purchaser a certificate executed on behalf of the Company by the authorized
Secretary thereof dated the Closing Date certifying with respect to (i) a copy
of the Company's certificate of incorporation and bylaws as in effect on the
Closing Date and that the Company is not in violation of or default under any
provision of its certificate of incorporation or bylaws as of and on such
Closing Date, (ii) board resolutions of the Company authorizing the transactions
contemplated by this Agreement, and (iii) incumbency matters and such other
proceedings relating to the authorization, execution and delivery of this
Agreement as may be reasonably requested by the Purchaser.
7.1.3 Closing Documents. The Company shall have delivered to
Purchaser the documents identified in Section 8.1.
7.1.4 Governmental Consents or Approvals. Each of the approvals,
consents, or waivers of any Governmental Entity listed on Schedule 5.1.4 shall
have been obtained.
7.1.5 Release of Liens on the Stock. All liens, pledges and other
encumbrances on the Stock and any equity of the Company held as treasury stock
shall be satisfied in full and released.
7.1.6 No Adverse Proceedings. No suit, action, claim, or governmental
proceeding shall be pending against, and no order, decree, or judgment of any
court, agency, or Governmental Entity shall have been rendered against, any
party hereto which would render it unlawful, as of the Closing Date, to effect
the transactions contemplated by this Agreement in accordance with its terms.
7.1.7 Third Party Consents. The Company and the Shareholders shall
have obtained and shall have delivered to Purchaser the third-party consents
required with respect to the Contracts listed on Schedule 7.1.7, (which consents
shall be in form and substance reasonably satisfactory to Purchaser and which in
any event shall not, except with the prior written consent of Purchaser, be
36
conditioned upon or subject to the payment of any additional consideration or
the modification of the terms of any such Contract.
7.1.8 Material Adverse Effect. Between the date of this Agreement and
the Closing Date, there shall not have occurred any Material Adverse Effect with
respect to the Stock, the Business, the Company, or any Shareholder.
7.1.9 Opinion of Counsel to the Company and the Shareholders.
Purchaser shall have received the opinion of Potter Xxxxxxxx & Xxxxxxx LLP,
Delaware counsel to the Company and the Shareholders and Xxxxx, Xxxxxxxxxxx &
Xxxxxx LLP, Federal law counsel to the Company and the Shareholders, each in a
form reasonably acceptable to Purchaser, together with reliance letters
addressed to such of Purchaser's financing sources as identified by Purchaser
prior to Closing and entitling such lenders to rely on such opinion to the same
extent as if they were an addressee thereof, if requested by any such lender.
7.1.10 Financing. Purchaser shall have obtained financing sufficient
to consummate the transactions contemplated hereby on terms and conditions
satisfactory to Purchaser in its sole discretion.
7.1.11 Escrow Agreement. The Company and the Shareholder
Representative shall have executed and delivered the Escrow Agreement to
Purchaser.
7.1.12 Financial Statements. At the Closing, the Majority
Shareholders, at their expense, shall provide Purchaser, with such financial
statements of the Company for the Company's fiscal year ended December 31, 2003
and the nine months ended September 30, 2004 as may be required by Rule 3-05 or
Article 11 of Regulation S-X promulgated under the United States Securities Act
of 1933, as amended (the "1933 Act"), and the United States Securities Exchange
Act of 1934, as amended (the "1934 Act"), in connection with the preparation and
filing of any registration statement or periodic report by Purchaser pursuant to
the 1933 Act or the 1934 Act, including unqualified opinions thereon of
independent public accountants and consents thereof as required by the 1933 Act
or the 1934 Act or the rules and regulations thereunder.
7.1.13 Due Diligence. The Purchaser shall have completed its business
and legal due diligence of the Company, including customary reference and
background checks on officers, directors and key management personnel, and be
satisfied, in its reasonable discretion, with the results of such due diligence
review.
7.1.14 Termination of Stock Options. On or prior to the Closing, the
Shareholders shall cause the Company to terminate and cancel (i) all of the
options and warrants to purchase the capital stock of the Company granted to any
holder of such options and warrants, whether or not such options and warrants
are exercisable and whether or not such options have vested under the Company's
stock option plan or otherwise, (ii) the Company's stock option plan and all
option agreements relating thereto, in accordance with applicable law prior to
the Closing and (iii) with the exception of the Stock, any and all of the
Company's other equity rights or interests held by any person.
37
7.1.15 Consent of General Electric Capital Company. The Purchaser
shall have received evidence satisfactory to Purchaser of the consent of General
Electric Commercial Credit Capital Company ("GECC"), if required pursuant to the
Company's contractual arrangements with GECC, in connection with the Purchaser's
assumption of the floor plan financing provided to the Company by GECC.
7.1.16 Payment of Term Note and Consent of Wilmington Trust Company.
The Purchaser shall have received evidence satisfactory to Purchaser of (i) the
full payment and release of Company's obligations under that certain term note,
dated February 13, 2001, between the Company and Wilmington Trust Company in the
aggregate principal amount of $400,000 and (ii) the consent of Wilmington Trust
Company in connection with the Purchaser's assumption of the revolving credit
facility provided to the Company by Wilmington Trust Company.
7.1.17 Identified Liabilities. The Identified Liabilities shall have
been paid in full, either by the Company or the Shareholders at or prior to
Closing or from the Purchase Price otherwise payable to the Shareholders at the
Closing.
7.2 Conditions Precedent to Obligations of the Shareholders. The
obligations of the Shareholders under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to the Closing, of all the following conditions, any one or more of which
may be waived at the option of the Majority Shareholders:
7.2.1 Representations, Warranties and Covenants.
(a) All representations and warranties of Purchaser made in this
Agreement or in any Exhibit, Schedule, or document delivered pursuant
hereto (including any Purchaser Ancillary Document), shall be true and
correct in all material respects as of the date hereof without regard to
any schedule updates furnished by the Company after the date hereof and at
and as of the Closing, with the same effect as though such representations
and warranties were made at and as of the Closing.
(b) Purchaser shall have performed and complied with, in all material
respects, all the covenants and agreements required by this Agreement to be
performed or complied with prior to the Closing.
(c) The Company shall have received a certificate, dated as of the
Closing Date, executed on behalf of Purchaser by an authorized officer
thereof, certifying in such detail as the Company may reasonably request
that the conditions specified in Sections 7.2.1(a) and (b) have been
fulfilled.
7.2.2 Secretary's Certificate. The Purchaser shall have delivered to
the Company a certificate executed by its Secretary dated the Closing Date
certifying with respect to (i) a copy of the Purchaser's certificate of
incorporation and bylaws as in effect on the Closing Date and that the Purchaser
is not in violation of or default under any provision of its certificate of
incorporation or bylaws as of and on such Closing Date, (ii) board resolutions
authorizing the transactions contemplated by this Agreement, (iii) copies of all
minutes of all meetings (or excerpts thereof) and all actions by written consent
of the shareholders of the Purchaser authorizing the transactions contemplated
38
in this Agreement and (iv) incumbency matters and such other proceedings
relating to the authorization, execution and delivery of this Agreement as may
be reasonably requested by the Company.
7.2.3 Closing Documents. Purchaser shall have delivered to the
Company the documents and other items identified in Section 8.2.
7.2.4 Governmental Consents or Approvals. Each of the approvals,
consents, or waivers of any Governmental Entity listed on Schedules 5.1.4 and
5.2.3 shall have been obtained.
7.2.5 No Adverse Proceedings. No suit, action, claim, or governmental
proceeding shall be pending against, and no order, decree, or judgment of any
court, agency, or other Governmental Entity shall have been rendered against,
any party hereto which would render it unlawful, as of the Closing Date, to
effect the transactions contemplated by this Agreement in accordance with its
terms.
7.2.6 Opinion of Purchaser's Counsel. The Company shall have received
the opinion of Xxxxxx Xxxx & Priest LLP, counsel to Purchaser, in a form
reasonably acceptable to the Shareholder Representative.
7.2.7 Escrow Agreement. Purchaser shall have executed and delivered
the Escrow Agreement to the Majority Shareholders.
ARTICLE VIII. DOCUMENTS TO BE DELIVERED AT THE CLOSING
----------------------------------------
8.1 Documents to be Delivered by the Shareholders. At the Closing, the
Shareholders will deliver to Purchaser, the following, at the expense of the
Shareholders and in proper form for recording where appropriate:
8.1.1 Certificates. Certificates evidencing the Stock, free and clear
of all liens and encumbrances of any nature whatsoever, duly endorsed in blank
for transfer or accompanied by stock powers duly executed in blank and with all
requisite documentary or stock transfer tax stamps affixed.
8.1.2 Closing Statement. The Closing Statement required pursuant to
Section 3.1(b)(i).
8.1.3 Employment Agreements. Executed Employment Agreements between
the Purchaser and each of the following individuals: (i) Xxx Foggy, (ii) Xxxxxxx
Xxxx and (iii) Xxxx Xxxxxxxx , in substantially the forms attached hereto as
Exhibit B-1, Exhibit B-2 and Exhibit B-3, respectively.
8.1.4 Subordination Agreement. A Subordination Agreement entered into
by the Company and each Shareholder and Textron Financial Corporation
("Textron") in the form attached hereto as Exhibit C.
39
8.1.5 FIRPTA. An affidavit of each Seller that satisfies the
requirements of Section 1445(b)(2) of the Code, in form and substance reasonably
satisfactory to Purchaser.
8.1.6 Good Standing Certificates. Governmental certificates showing
that the Company is duly incorporated and in good standing in the state or
jurisdiction of their incorporation and in good standing in each state listed on
Schedule 5.1.1, certified as of a date not more than ten days before the Closing
Date.
8.1.7 Lien Searches. Lien Searches for federal and state tax liens,
judgment liens, and other liens on standard form of Request for Information
(Uniform Commercial Code Form UCC-11) for entries in the names of the Company
and the Shareholders (including under any assumed names) completed and certified
by the Secretary of State of the applicable state or jurisdiction of its
incorporation and any state in which any of the assets and properties of the
Company are located, dated in January, 2004 and showing the absence of any such
liens on such assets and properties (other than Permitted Liens).
8.1.8 Landlord Consent. Consent executed by each landlord of the
Company required to consent, pursuant to any lease with the Company, to the
transactions contemplated by this Agreement.
8.1.9 Evidence of Resignation of Officers and Directors. Evidence
reasonably satisfactory to the Purchaser of the resignation of all of the
officers and directors of the Company and of all necessary corporate action by
the Company to effectuate such resignations.
8.1.10 Books and Records. Books and records of the Company, including
but not limited to, the seals, minute books, stock ownership books, and such
other corporate records relating to the Company as Purchaser may reasonably
request.
8.1.11 Other Documents. Such additional information and materials as
Purchaser shall reasonably request.
8.2 Documents to be Delivered by Purchaser. At the Closing, Purchaser will
deliver to the Shareholders, at the expense of Purchaser:
8.2.1 Purchase Price. A wire transfer to the Shareholders of
immediately available funds in the aggregate amount of the Cash Consideration as
provided in Section 3.1, to such accounts as the Shareholders specify to
Purchaser at least two days prior to Closing.
8.2.2 Good Standing Certificates. Governmental certificates showing
that Purchaser is duly incorporated and in good standing in the State of New
York, certified as of a date not more than ten days before the Closing Date.
8.2.3 Employment Agreements. Executed Employment Agreements between
the Purchaser and each of the following individuals: (i) Xxx Foggy, (ii) Xxxxxxx
Xxxx and (iii) Xxxx Xxxxxxxx , in substantially the forms attached hereto as
Exhibit B-1, Exhibit B-2 and Exhibit B-3, respectively.
40
8.2.4 Piggyback Registration Rights Agreement. An executed Piggyback
Registration Rights Agreement between the Purchaser and the Shareholders in
substantially the form attached hereto as Exhibit D (the "Registration Rights
Agreement").
8.2.5 Other Documents. Such additional information and materials as
the Shareholders shall reasonably request.
ARTICLE IX. POST-CLOSING COVENANTS
----------------------
9.1 Payments Received. After the Closing, the Company, the Shareholders
and Purchaser will hold and promptly transfer and deliver to the other, from
time to time as and when received by them, any cash, checks with appropriate
endorsements (using their best efforts not to convert such checks into cash), or
other property that they may receive on or after the Closing which properly
belongs to another party, including any insurance proceeds, and will account to
the other for all such receipts.
9.2 Use of Name. For a period of 6 months following the Closing, Purchaser
will use the name "Info Systems, an MTM Company" (or similar formulation) as a
doing-business-as (d/b/a) or trade name in conjunction with the name of
Purchaser.
9.3 Financial Statements. The Majority Shareholders, at the expense of
Purchaser, shall provide Purchaser, within 15 days after Purchaser's written
request therefor, with such financial statements relating to the Company as may
be required by Rule 3-05 or Article 11 of Regulation S-X promulgated under the
1933 Act and the 1934 Act, in connection with the preparation and filing of any
registration statement or periodic report by Purchaser pursuant to the 1933 Act
or the 1934 Act, including unqualified opinions thereon of independent public
accountants and consents thereof as required by the 1933 Act or the 1934 Act or
the rules and regulations thereunder.
9.4 Covenant Not to Compete. Except as an employee of the Purchaser, until
(i) with respect to each Majority Shareholder, the third anniversary of the
Closing Date and (ii) with respect to each Employee Shareholder, the first
anniversary of the Closing Date (such periods being referred to herein as the
"Noncompetition Term"), each of the Shareholders severally agrees to refrain
from, anywhere in the United States, directly or indirectly through any
Affiliate (whether individually or as a principal, officer, director, employee,
shareholder, investor, consultant, advisor, partner, joint venturer, agent,
equity owner, or in any other capacity whatsoever):
(a) engaging or participating in any Business Activities; provided,
however, that the foregoing shall not be construed to preclude any of the
Shareholders, or any of their respective Affiliates from making any
investments in the securities of any Person, whether or not engaged in
competition with the Purchaser or any Subsidiary thereof, to the extent
that such securities are actively traded on a national securities exchange
or in the over-the-counter market in the United States or any foreign
securities exchange and such investment does not exceed one percent (1%) of
the issued and outstanding shares of such Person or give the Shareholders
or any of their respective Affiliates the right or power to control or
participate directly in making the policy decisions of such Person. As used
41
herein, the term "Business Activities" shall mean conduct of business as a
middle market information technology service provider focused on network
management and monitoring, LAN-WAN broadband, security, storage, messaging
and VoIP; or
(b) causing or attempting to cause (A) any customer to whom the
Purchaser or any Subsidiary thereof supplies any of its services and/or
products to terminate any purchase or other similar contract, or
relationship with the Purchaser or any Subsidiary thereof after the Closing
or to replace the Purchaser or any Subsidiary thereof as a supplier of
products or services, in whole or in part, with any other Person, or (B)
any supplier from whom the Purchaser or any Subsidiary thereof purchases
raw materials and other products to terminate any supply or other similar
contract or relationship with the Purchaser or any Subsidiary thereof; or
(c) encouraging, soliciting, or inducing any manager, officer,
supervisor, or other employee of the Purchaser or any Subsidiary thereof to
terminate his or her employment relationship with the Purchaser or any
Subsidiary thereof or to become employed by any Person other than the
Purchaser or any Subsidiary thereof.
Each of the Shareholders severally acknowledges that the geographic boundaries,
scope of prohibited activities, and the Noncompetition Term contained in this
Section 9.4 are reasonable and no broader than necessary to protect the
investment by Purchaser in the Stock being purchased pursuant to this Agreement
and Purchaser's and its Affiliates ongoing interests in the Company and do not
and will not impose any unreasonable burden upon the Shareholders or their
respective Affiliates. Each Shareholder severally agrees that (i) any breach by
him or it of any of the provisions contained in this Section 9.4 would cause
irreparable damage to Purchaser for which monetary damages and other remedies at
law may not be adequate, and (ii) Purchaser will be entitled as a matter of
right to obtain, without posting any bond whatsoever, a restraining order, an
injunction, specific performance, or other form of equitable or extraordinary
relief from any court of competent jurisdiction to restrain any threatened or
further breach of this Section 9.4 or to require the Shareholder to perform
their respective obligations under this Section 9.4, which right to equitable or
extraordinary relief will not be exclusive of but will be in addition to all
other remedies to which Purchaser may be entitled under this Agreement, at law,
or in equity (including, the right to recover monetary damages). If, during any
calendar month during the Noncompetition Term, a Shareholder is not in
compliance with the terms of this Section 9.4, Purchaser will be entitled, in
addition to all other remedies to which it may be entitled, to specifically
enforce such non-complying party's compliance with the terms of this Section 9.4
for an additional number of calendar months (over and above the number of
calendar months included within the Noncompetition Term) equal to the number of
calendar months during which such noncompliance occurred. Each of the
Shareholders hereby agrees to waive proof of actual damages in any proceeding
for equitable or extraordinary relief. Purchaser and the Shareholder
Representative will use reasonable commercial efforts to agree upon a reasonable
allocation of a portion of the Purchase Price in consideration of each such
Shareholder's agreement to the provisions of this Section 9.4.
9.5 Post-Closing Confidentiality. For a period of three years after the
Closing Date, with respect to each Majority Shareholder, and one year after the
Closing Date, with respect to each Employee Shareholder, each Shareholder shall
hold in confidence (and not release or disclose to any Person other than
42
Purchaser and its authorized representatives) and not use for any purpose any
(a) proprietary or other information of the Company or the Purchaser or any of
its Affiliates disclosed to the Shareholders or any of the other foregoing
Persons in connection with the negotiation or preparation of this Agreement or
otherwise in connection with the transactions contemplated hereby or (b)
proprietary or other information relating to the Company or the Purchaser that
remains after the Closing in the possession of the Shareholders or any of the
other foregoing Persons. Notwithstanding the foregoing, the confidentiality
obligations of this Section 9.5 shall not apply to information which (i) is
required to be disclosed pursuant to an order or request of a judicial authority
or Governmental Entity having competent jurisdiction (provided the Shareholders
provide Purchaser with reasonable prior written notice thereof), or (ii) which
can be shown to have been generally available to the public other than as a
result of a breach of this Section 9.5.
9.6 Calculation of Earnout Consideration.. If the Purchaser makes any
changes in the organization of the Company, the tax classification of the
Company for Income Tax purposes, the accounting principles of the Company, or
the methods of applying such principles, prior to the end of the Earnout Period,
which changes would materially affect the computation of the Earnout
Consideration, the parties shall make an equitable adjustment in the calculation
of the Earnout Consideration to take such changes into account, provided that no
such adjustment shall be made with respect to any changes in the accounting
principles of the Company that were used prior the Closing if such accounting
principles were not in compliance with GAAP. In calculating the Earnout
Consideration, (i) no corporate level general and administrative expenses or
similar overhead expenses and (ii) no deductions for any one-time or recurring
charges to income in respect of integration costs will be allocated to the
Business.
9.7 Post-Closing Notifications. Purchaser and the Shareholders will,
comply with any post-Closing notification or other requirements, to the extent
then applicable to such party, of any antitrust, trade competition, investment,
control, export, or other law of any Governmental Entity having jurisdiction
over Purchaser or the Shareholders, as applicable. In addition, Purchaser and
the Shareholders will cooperate and use their respective commercially reasonable
efforts to obtain as promptly as practicable all notices, consents, approvals,
and waivers with respect to the transactions contemplated by this Agreement
required by third persons pursuant to any Contracts. The parties hereto
acknowledge and agree that, if any notice, consent, approval or waiver
contemplated under this Section 9.7 is not given or received, as the case may
be, and, as a consequence thereof, any customer, vendor, licensor and/or
subcontractor or consultant shall cancel or attempt to cancel its relationship
with the Company as a result of such failure to give notice or the failure to
seek and receive such consent, approval or waiver, the Company and/or the
Shareholder Representative shall use commercially reasonable efforts to continue
such relationship on such terms and conditions as are acceptable to Purchaser in
its reasonable discretion. Provided that the Shareholders have performed in good
faith their responsibilities under this Section 9.7, the Shareholders shall have
no liability to Purchaser for any default, conflict, or termination with respect
to any Contract that arises from the failure to give any such notice or seek and
receive any such consent, approval or waiver unless such Contract was required
to be disclosed on Schedule 5.1.11(a) and was not properly disclosed.
9.8 Subordination Agreements. Each of the Shareholders hereby agrees to
enter into any subordination agreement requested by any Person who is the
Purchaser's senior lender, pursuant to which the Shareholders agree to
43
subordinate their respective rights and interests, if any, in and to the
Additional Cash Consideration and the Earnout Consideration to any such Person.
9.9 SEC Filings. Each of the Shareholders shall file, or cause the filing
of, or cooperate with the Purchaser to file, as the case may be, any and all
forms, schedules, certificates and/or other documents required under any federal
or state securities laws, including, but not limited to, Schedule 13D, Schedule
13G, Forms 3 and Forms 4, as the case may be.
ARTICLE X. SURVIVAL AND INDEMNIFICATION
----------------------------
10.1 Survival of Representations and Warranties.
(a) Except as to (i) the representations and warranties contained in
Sections 5.1.1, 5.1.2, 5.1.3, 5.1.30, 5.2.1, 5.2.2, 5.2.3, and 5.3.4 which
shall survive the Closing and remain in effect indefinitely, and (ii) the
representations and warranties contained in Sections 5.1.19, 5.1.20,
5.1.23, and 5.1.24 which shall survive the Closing until six (6) months
after the expiration of the statute of limitations applicable thereto
(giving effect to any waiver, mitigation, or extension thereof), the
representations and warranties of the Shareholders and Purchaser contained
in this Agreement shall survive the Closing until the expiration of three
years from the Closing Date. Any claim for indemnification with respect to
any of such matters which is not asserted by notice given as herein
provided relating thereto within such specified period of survival may not
be pursued and is hereby irrevocably waived after such time. Any claim for
an Indemnifiable Loss (as hereinafter defined) asserted within such period
of survival as herein provided will be timely made for purposes hereof.
10.2 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnity Payment" means any
amount of Indemnifiable Losses required to be paid pursuant to this
Agreement, (ii) "Indemnitee" means any Person entitled to indemnification
under this Agreement, (iii) "Indemnifying Party" means any Person required
to provide indemnification under this Agreement, (iv) "Indemnifiable
Losses" means any and all damages, losses, liabilities, obligations, costs,
and expenses, and any and all claims, demands, or suits (by any Person,
including any Governmental Entity), including the costs and expenses of any
and all actions, suits, proceedings, demands, assessments, judgments,
settlements, and compromises relating thereto and including reasonable
attorneys' fees and expenses in connection therewith, and (v) "Third Party
Claim" means any claim, action, or proceeding made or brought by any Person
who or which is not a party to this Agreement or an Affiliate of a party to
this Agreement.
(b) Notwithstanding any other provision hereof or of any applicable
law, no Indemnitee will be entitled to make a claim against an Indemnifying
Party in respect of any breach of a representation or warranty under
Sections 10.3(a)(i) or 10.3(b)(i), unless and until the aggregate amount of
claims in respect of breaches of representations and warranties asserted
44
for Indemnifiable Losses under 10.3(a)(i) or 10.3(b)(i), as applicable,
exceeds $50,000, in which event the Indemnitee will be entitled to make a
claim against the Indemnifying Party to the extent such aggregate amount of
claims for Indemnifiable Losses has exceeded $50,000. Neither the Majority
Shareholders (taken together) nor the Purchaser shall be liable for
Indemnifiable Losses pursuant hereto to the extent that the aggregate
amount thereof exceeds $4,000,000, provided that the foregoing limitation
shall not apply to or include any recovery pursuant to the withholding and
offset rights of the Purchaser in accordance with Section 10.2(c). No
Employee Shareholder shall be liable for Indemnifiable Losses pursuant
hereto to the extent that the aggregate amount thereof exceeds the portion
of the Purchase Price received by such Employee Shareholder.
(c) The Purchaser shall be entitled to offset the amount of any
Indemnifiable Losses for which it is entitled to indemnification from any
Indemnifying Party pursuant to this Article X against any amounts then
owing by Purchaser to the Shareholders as Additional Cash Consideration or
Earnout Consideration. Without limiting the generality of the foregoing,
Purchaser shall be authorized to withhold payment of any such amounts
otherwise due to the Shareholders to satisfy any Indemnifiable Losses which
are the subject of any claim for indemnification under this Article X (to
the extent of such claim) until the earlier of (a) such time as the
Purchaser and the Shareholders have agreed in writing on the amount of
Indemnifiable Losses to which the Purchaser is entitled in respect of such
claim or (b) until such claim has been resolved by a final judgment of a
court of competent jurisdiction or an administrative agency having the
authority to determine the amount of, and liability with respect to, the
item resulting in such Indemnifiable Loss for which indemnification is
sought and the denial of, or expiration of all rights to, appeal related
thereto.
(d) Any Indemnity Payments to which Purchaser may become entitled
under this Agreement shall be satisfied first by offset against the
Additional Cash Consideration and the Earnout Consideration. To the extent
that the amount of such offset is less than the Indemnity Payments due to
Purchaser, the Indemnity Payments shall be made from the Cash Deposit and
the Shareholders shall, at the Shareholders' option, pay any and all
remaining Indemnity Payments to Purchaser, subject to Section 10.2(b),
either in cash or in shares of Purchaser Common Stock valued at the average
NASDAQ closing price of Purchaser Common Stock for the ten (10) business
days immediately preceding the date of such payment; provided, however,
that the aggregate payment in shares of Purchaser Common Stock shall not
exceed 50% of the aggregate amount of such remaining Indemnity Payments.
10.3 Indemnification. (a) Subject to Sections 10.1 and 10.2, the Majority
Shareholders jointly and severally agree to indemnify, defend, and hold harmless
Purchaser, the Company and their respective Affiliates and directors, officers,
partners, employees, agents, and representatives from and against any and all
Indemnifiable Losses to the extent relating to, resulting from, or arising out
of:
(i) any breach of representation or warranty of the Shareholders
under the terms of this Agreement and any certificate or other
document delivered pursuant hereto; provided, however, that, with
45
respect to the representations and warranties in Section 5.2, each
Majority Shareholder's indemnification extends only to his personal
representations and warranties and not to the representations and
warranties of any other Shareholder and, to that end, the
indemnifications under this Section 10.3 with respect to Section 5.2
are individual and not joint and several; and
(ii) any breach or nonfulfillment of any agreement or covenant of the
Shareholders under the terms of this Agreement.
(b) Subject to Section 10.1 and 10.2, Purchaser agrees to indemnify,
defend, and hold harmless the Shareholders and their respective Affiliates and
directors, officers, partners, employees, agents, and representatives from and
against any and all Indemnifiable Losses to the extent relating to, resulting
from, or arising out of:
(i) any breach of representation or warranty of Purchaser under the
terms of this Agreement and any certificate or other document
delivered pursuant hereto; and
(ii) any breach or nonfulfillment of any agreement or covenant of
Purchaser under the terms of this Agreement.
(c) Subject to Sections 10.1 and 10.2, each Employee Shareholder severally
agrees to indemnify, defend, and hold harmless Purchaser, the Company and their
respective Affiliates and directors, officers, partners, employees, agents, and
representatives from and against any and all Indemnifiable Losses to the extent
relating to, resulting from, or arising out of:
(i) any breach of representation or warranty of such Employee
Shareholder under Section 5.2 and any certificate or other document
delivered by such Employee Shareholder pursuant hereto; and
(ii) any breach or nonfulfillment of any agreement or covenant of such
Employee Shareholder under the terms of this Agreement.
(d) With respect to the Majority Shareholders' indemnification obligations
pursuant to Section 10.3(a) as they concern or relate to an Employee Benefit
Plan, Purchaser agrees to use reasonable commercial efforts, if applicable, to
mitigate related Indemnifiable Losses through correction under the IRS Employee
Plans Compliance Resolution System.
10.4 Defense of Claims.
(a) If any Indemnitee receives notice of assertion or commencement of
any Third Party Claim against such Indemnitee with respect to which an
Indemnifying Party is obligated to provide indemnification under this
Agreement, the Indemnitee will give such Indemnifying Party reasonably
prompt written notice thereof, but in any event not later than 45 calendar
days after receipt of such notice of such Third Party Claim. Such notice
will describe the Third Party Claim in reasonable detail, will include
copies of all material written evidence thereof, and will indicate the
estimated amount, if reasonably practicable, of the Indemnifiable Loss that
46
has been or may be sustained by the Indemnitee. The Indemnifying Party will
have the right to participate in, or, by giving written notice to the
Indemnitee, to assume, the defense of any Third Party Claim at such
Indemnifying Party's own expense and by such Indemnifying Party's own
counsel (reasonably satisfactory to the Indemnitee), and the Indemnitee
will cooperate in good faith in such defense, unless the Indemnifying Party
is also a party to such Third Party Claim and the Indemnitee determines in
good faith that joint representation would be inappropriate.
(b) If, within ten calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 10.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying
Party has elected to assume the defense of such Third Party Claim as
provided in the last sentence of Section 10.4(a), the Indemnifying Party
will not be liable for any legal expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided, however, that
if the Indemnifying Party fails to take reasonable steps necessary to
defend diligently such Third Party Claim within ten calendar days after
receiving written notice from the Indemnitee that the Indemnitee believes
the Indemnifying Party has failed to take such steps or if the Indemnifying
Party has not undertaken fully to indemnify the Indemnitee in respect of
all Indemnifiable Losses relating to the matter, the Indemnitee may assume
its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith.
Without the prior written consent of the Indemnitee, the Indemnifying Party
will not enter into any settlement of any Third Party Claim which would
lead to liability or create any financial or other obligation on the part
of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. A failure to give timely notice or to include
any specified information in any notice as provided in Sections 10.4(a) or
10.4(b) will not affect the rights or obligations of any party hereunder
except and only to the extent that, as a result of such failure, any party
which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was actually
and materially prejudiced in its defense of such claim by the failure to
receive timely notice.
(c) The Indemnifying Party will have 30 calendar days within which to
respond in writing to any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim (a
"Direct Claim"). If the Indemnifying Party does not so respond within such
30 calendar day period, the Indemnifying Party will be deemed to have
rejected such claim, in which event the Indemnitee will be free to pursue
such remedies as may be available to the Indemnitee on the terms and
subject to the provisions of this Article X.
10.5 Insurance Recovery. If the amount of any Indemnifiable Loss, at any
time subsequent to the making of an Indemnity Payment, is reduced by recovery,
settlement, or otherwise under or pursuant to any insurance coverage, the amount
of such reduction, less any costs, expenses, premiums, or taxes incurred in
connection therewith will promptly be repaid by the Indemnitee to the
Indemnifying Party. The Indemnifying Party, in its sole discretion, may elect to
47
subrogate to the rights of the Indemnitee as to any rights to insurance coverage
with respect to such Indemnifiable Loss, including but not limited to, defense
or indemnity coverage. The Indemnitee shall execute all documents necessary for
such subrogation.
10.6 Adjustment to Purchase Price. Any Indemnity Payment hereunder shall
be treated by all parties hereto as an adjustment to the Purchase Price, and the
parties hereto shall, and shall cause their Affiliates to, file all Tax Returns
in a manner consistent with such treatment.
10.7 No Indemnity From the Company. The Majority Shareholders are and have
been fully involved in the management and affairs of the Company. The Majority
Shareholders have made the representations and warranties with respect to the
Company and have agreed to make Indemnity Payments hereunder, on a joint and
several basis, as the Majority Shareholders of the Company. Following the
Closing, any Indemnity Payment required to be paid to Purchaser shall be paid
only by the Shareholders and not by the Company. The Shareholders shall not be
entitled to be reimbursed by the Company for any amounts paid as Indemnity
Payments or otherwise by the Shareholders to Purchaser in accordance with the
terms of this Agreement.
ARTICLE XI. TAX MATTERS
-----------
11.1 Tax Sharing and Similar Arrangements. The Shareholders agree that all
tax sharing agreements or similar arrangements with respect to or involving the
Company shall be terminated on or before the Closing Date; and, after the
Closing Date, the Company shall not be bound thereby or have any liability
thereunder.
11.2 Tax Returns Required to be Filed Prior to Closing. With respect to
Tax Returns required to be filed by or on behalf of the Company during the
period between the execution of this Agreement and the Closing, the Majority
Shareholders shall cause the Company to provide Purchaser with copies of such
completed Tax Returns at least 20 days prior to the due date for filing thereof,
along with supporting workpapers, for Purchaser's review and approval (unless
such 20-day period is not feasible given the date of execution of this Agreement
and the due date of the Tax Return, in which case, the Shareholders shall
provide copies of such Tax Returns to Purchaser as soon as practicable after
execution of this Agreement).
11.3 Tax Periods Ending on or prior to the Closing Date. Purchaser shall
timely prepare or cause to be prepared all Income Tax Returns for the Company
which relate to Tax periods ending on or prior to the Closing Date and which are
required to be filed after the Closing Date and the Company shall pay all Taxes
due; provided that the Majority Shareholders shall promptly reimburse Purchase
and the Company (i) for any Taxes of the Company for such Tax periods and (ii)
cost of preparing and filing such Tax Returns, in the case of (i) and (ii) to
the extent such amounts are not reflected in the calculation of Final Net Worth
(such Taxes and expenses not reflected in the calculation of Final Net Worth are
referred to herein as "Section 11.3 Unexpected Taxes") and provided, further,
that the Majority Shareholders' aggregate liability under this Section 11.3 and
Section 11.5 shall be limited to the amount by which the Final Net Worth, after
reduction by the amount of the Unexpected Taxes (as defined below), would have
been less than $1,100,000. All such Tax Returns shall be prepared in a manner
consistent with prior practice. Purchaser shall permit the Shareholder
Representative to review and comment on each such Tax Return prior to filing. As
48
used herein the term "Unexpected Taxes" shall mean the sum of the Section 11.3
Unexpected Taxes and the Section 11.5 Unexpected Taxes."
11.4 Indemnification Obligations. Neither the filing by Purchaser of Tax
Returns related to Tax periods (or portions thereof) ending on or prior to the
Closing Date or anything else contained in this Agreement shall excuse the
Shareholders from their indemnification obligations pursuant to Section 10.3
with respect to Taxes; provided, however, that the Shareholders' obligation to
indemnify shall not extend to penalties or interest that are directly
attributable to the acts or omissions of Purchaser in respect of such filing or
other acts required to be performed by Purchaser pursuant to this Agreement.
11.5 Tax Periods Beginning Before and Ending After The Closing Date. The
Purchaser shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns of the Company for all Tax periods which begin before the
Closing Date and end after the Closing Date, and the Company shall pay all Taxes
due, provided however that Majority Shareholders shall promptly reimburse
Purchaser and the Company (i) for any Taxes of Company to the extent allocable
to the portion of the taxable period ending on or prior to the Closing Date and
(ii) 50% of the costs of preparing and filing such Tax Returns, in each case, to
the extent that such amounts are not reflected in the calculation of Final Net
Worth, (such Taxes not reflected in said calculation hereinafter being referred
to as "Section 11.5 Unexpected Taxes"); and provided further, that the Majority
Shareholders' aggregate liability under this Section 11.5 and Section 11.3 shall
be limited to the amount by which Final Net Worth, after reduction by the amount
of the Unexpected Taxes, would have been less than $1,100,000. For purposes of
the preceding sentence, in the case of any Taxes that are imposed on a periodic
basis and are payable for a taxable period that includes (but does not end on)
the Closing Date, the portion of such Tax that is allocable to the portion of
such taxable period ending on the Closing Date shall (i) in the case of any
Taxes other than Income Taxes, be deemed to be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the portion of the taxable period ending on the Closing Date
and the denominator of which is the number of days in the entire taxable period,
and (ii) in the case of any Income Tax, be deemed equal to the amount which
would be payable if the relevant taxable period ended on the Closing Date.
11.6 Cooperation on Tax Matters. Purchaser and Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Article XI and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding. Purchaser and Shareholders agree (A) to retain
all books and records with respect to Tax matters pertinent to the Company
relating to any Tax period beginning before the Closing Date until the
expiration of the statute of limitations (giving effect to any waiver, extension
or mitigation thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any Tax Authority, and (B) to give
the other parties reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other parties so request,
Purchaser or Shareholders, as the case may be, shall allow the other party to
take possession of such books and records.
49
11.7 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other similar Taxes (including all applicable real estate
transfer Taxes) and all conveyance fees, recording charges and other fees and
charges (including any penalties, interest and additions to Tax) ("Transfer
Taxes"), if any, arising out of or incurred in connection with this Agreement
shall be paid by Shareholders when due, and Shareholders shall, at their own
expense, timely file all necessary Tax Returns and other documentation with
respect to such Taxes, fees, and charges, and if required by law, Purchaser
shall, and shall cause its Affiliates to, join in the execution of any such Tax
Returns and other documentation. Notwithstanding the foregoing provisions of
this Section 11.7, the Shareholders shall have no obligations or liability with
respect to stock transfer Taxes, or similar Taxes or assessments, relating
directly to the issuance by Purchaser of the Stock Consideration pursuant to
Section 3.1(a).
ARTICLE XII. MISCELLANEOUS PROVISIONS
------------------------
12.1 Break-up Fee. If Purchaser is unable to consummate the transaction
contemplated in Section 1.1 due solely to the failure to satisfy the condition
set forth in Section 7.1.10, Purchaser shall pay to the Company a "break-up" fee
in an amount equal to the fees and expenses reasonably incurred by the Company
and the Shareholders in connection with the transactions contemplated by this
Agreement, but not in excess of $100,000 (the "Break Up Fee"). The Break Up Fee
shall be paid by certified check or wire transfer to such account as the Company
designates. The parties to this Agreement agree that if the Break Up Fee is
payable hereunder, the right of the Company to receive such amount shall
constitute the sole and exclusive remedy of the Company and the Shareholders
for, and such amount shall constitute liquidated damages in respect of, the
failure to consummate such transaction.
12.2 Notices. All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile or one business day after having been
dispatched by a nationally recognized overnight courier service to the
appropriate party at the address or facsimile number specified below:
(a) If to the Company, to:
Info Systems, Inc.
000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx
with a copy to, which copy shall not constitute notice:
Potter Xxxxxxxx & Xxxxxxx LLP
Hercules Plaza
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, Xx., Esq.
50
(b) If to Purchaser, to:
MTM Technologies, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Facsimile No.: 203.975.3776
Attention: Xxxx X. Xxxxxx, Esq.
with a copy to, which copy shall not constitute notice:
Xxxxxx Xxxx & Priest LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 212.603.2001
Attention: E. Xxx Xxxx, Esq.
(c) If to a Shareholder, to the address of such Shareholder as set
forth on Schedule I hereto,
or to such other address or facsimile number as any such party may from time to
time designate as to itself by like notice.
12.3 Dispute Resolution. Any controversy or claim arising out of or
relating to a party's performance or non-performance under this Agreement, or
the interpretations, validity or effectiveness of this Agreement, and any other
provision of this Agreement, in the event the parties fail to agree, shall, upon
the written request of a party, be referred to the Shareholder Representative
and the Chief Executive Officer of the Purchaser for resolution. Such
representatives shall promptly meet and, in good faith, attempt to resolve the
controversy, claim or issues referred to them. Any action in regard to this
Agreement or arising out of the terms and conditions thereto shall be instituted
and litigated in the federal or state courts located in the State of Delaware.
12.4 Expenses. Except as otherwise expressly provided herein, the Company
and the Shareholders will pay any expenses incurred prior to Closing by the
Company or the Shareholders incident to this Agreement and in preparing to
consummate and consummating the transactions provided for herein. Purchaser will
pay any expenses incurred by it incident to this Agreement and in preparing to
consummate and consummating the transactions provided for herein. In any action
to enforce any of the terms of this Agreement, the prevailing party in such
action shall be entitled to recover its attorneys' fees and costs.
12.5 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by any party without
the prior written consent of the other party which shall not be unreasonably
withheld; provided, however, that Purchaser may make a collateral assignment of
its rights under this Agreement to any lender who provides funds to Purchaser
for the acquisition of the Stock. The Shareholders shall execute
acknowledgements of such collateral assignments in such forms as Purchaser or
Purchaser's lender(s) may from time to time reasonably request. In the event of
51
such a proposed assignment by Purchaser, the provisions of this Agreement shall
inure to the benefit of and be binding upon Purchaser's assigns.
12.6 Waiver. Purchaser, on the one hand and the Majority Shareholders, on
the other hand, by written notice to the other may (a) extend the time for
performance of any of the obligations of the other under this Agreement, (b)
waive any inaccuracies in the representations or warranties of the other
contained in this Agreement or in any document delivered in connection herewith,
(c) waive compliance with any of the conditions or covenants of the other
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of the other under this Agreement; provided, however, that no such
party may, without the prior written consent of the other party, make or grant
such extension of time, waiver of inaccuracies, or compliance or waiver or
modification of performance with respect to its (or any of its Affiliates)
representations, warranties, conditions, or covenants hereunder. Except as
provided in the immediately preceding sentence, no action taken pursuant to this
Agreement will be deemed to constitute a waiver of compliance with any
representations, warranties, conditions, or covenants contained in this
Agreement and will not operate or be construed as a waiver of any subsequent
breach, whether of a similar or dissimilar nature.
12.7 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto and any other documents and instruments delivered pursuant
hereto) supersedes any other agreement, whether written or oral, that may have
been made or entered into by any party or any of their respective Affiliates (or
by any director, officer, or representative thereof) relating to the matters
contemplated hereby. This Agreement (together with the Exhibits and Schedules
hereto and any other documents and instruments delivered pursuant hereto)
constitutes the entire agreement by and among the parties hereto and there are
no agreements or commitments by or among such parties or their Affiliates or any
other person with respect to the subject matter of this Agreement except as
expressly set forth herein. Each party hereby acknowledges that no other party
or any other person or entity has made any promises, warranties, understandings
or representations whatsoever, express or implied, not contained in this
Agreement and acknowledges that it has not executed this Agreement in reliance
upon any such promises, representations, understandings or warranties not
contained herein. There are no promises, covenants or undertakings other than
those expressly set forth or provided for in this Agreement.
12.8 Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements signed by the parties
hereto.
12.9 Rights of the Parties. Except as provided in Articles II and X or in
Section 12.5, nothing expressed or implied in this Agreement is intended or will
be construed to confer upon or give any Person other than the parties hereto and
their respective Affiliates any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby.
12.10 Brokers. Purchaser shall indemnify and hold harmless the
Shareholders, and the Majority Shareholders shall jointly and severally
indemnify and hold harmless Purchaser and the Company, from and against any
liability, claim, loss, damage, or expense incurred by Purchaser and the Company
or by the Shareholders, respectively, relating to any fees or commissions owed
to any broker, finder, or financial advisor as a result of actions taken by
52
Purchaser or the Company or by the Shareholders, respectively, in connection
with this Agreement or the transactions contemplated hereby.
12.11 Further Assurances. From time to time, as and when requested by
either party, the other party will execute and deliver, or cause to be executed
and delivered, all such documents and instruments as may be reasonably necessary
to consummate the transactions contemplated by this Agreement.
12.12 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed entirely in the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws.
12.13 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction to the greatest extent
possible to carry out the intentions of the parties hereto.
12.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
12.15 Titles and Headings. Titles and headings to articles and sections
herein are inserted for convenience of reference only, and are not intended to
be a part of or to affect the meaning or interpretation of this Agreement.
12.16 Certain Interpretive Matters and Definitions.
(a) Unless the context otherwise requires, (i) all references to
Sections, Articles, Schedules, or Exhibits are to Sections, Articles,
Schedules, or Exhibits of or to this Agreement, (ii) each term defined in
this Agreement has the meaning assigned to it, (iii) each accounting term
not otherwise defined in this Agreement has the meaning assigned to it in
accordance with generally accepted accounting principles for financial
reporting in the United States, applied on a consistent basis ("GAAP"),
(iv) words in the singular include the plural and vice versa, (v)
"affiliate" or "Affiliate" has the meaning given to such term in Rule 12b-2
of Regulation 12B under the 1934 Act, (vi) words of any gender shall
include each other gender, (vii) "include," "including," and their
derivatives shall mean "including without limitation," (viii) "person" or
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization, or
other form of business or legal entity or Governmental Entity, and (ix)
"Subsidiary" or "Subsidiaries" shall mean any other corporation, limited
liability company, association, joint stock company, joint venture or
business trust of which, as of the date hereof or hereafter, (i) more than
fifty percent (50%) of the outstanding voting stock, share capital or other
equity interests is owned either directly or indirectly by any Person or
53
one or more of its Subsidiaries, or (ii) the management of which is
otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by any Person and/or its Subsidiaries. Unless
otherwise specified to the contrary herein, Subsidiary(ies) shall refer to
the Company's Subsidiary(ies). All references to "$" or dollar amounts will
be to lawful currency of the United States of America.
(b) When used herein, the terms "ordinary cause", "ordinary course of
business", and words like import shall mean actions taken by a Person where
(i) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such
Person and (ii) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority).
(c) No provision of this Agreement will be interpreted in favor of, or
against, either of the parties hereto by reason of the extent to which
either such party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any
prior draft hereof or thereof.
12.17 Termination. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated at any time prior to the Closing
Date as follows: (w) by mutual agreement of Purchaser, the Company and the
Majority Shareholders, (x) by Purchaser or the Majority Shareholders, if the
conditions set forth in Article VII shall not have been complied with in all
material respects and such noncompliance or nonperformance shall not have been
waived by Purchaser or the Majority Shareholders, as the case may be, or cured
or eliminated by Purchaser or the Majority Shareholders, as the case may be, on
or before March 31, 2005, (y) by Purchaser, on the one hand, or the Majority
Shareholders, on the other hand, if there shall have been entered a final,
nonappealable order or injunction of any Governmental Entity restraining or
prohibiting the consummation of the transactions contemplated hereby or any
material part thereof; or (z) by Purchaser, on the one hand, or the Company and
the Majority Shareholders, on the other hand, if, prior to the Closing Date, the
other party is in breach in any material respect of any representation,
warranty, covenant, or agreement herein contained and such breach shall not be
cured within five business days of the date of notice of breach served by the
party claiming such breach. If this Agreement is terminated pursuant to this
Section 12.17, this Agreement shall forthwith become void and there shall be no
liability on the part of any party or its respective officers, directors or
shareholders hereunder, except for obligations under Article X, which shall
survive the termination. Notwithstanding the foregoing, nothing contained herein
shall relieve any party from liability for any breach of any covenant or
agreement in this Agreement.
54
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
INFO SYSTEMS, INC.
By: /s/ Xxxx Xxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxx
Title: President
SHAREHOLDERS:
/s/ Xxxx Xxxxxxxx
------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxxx, Xx.
------------------------------------
Xxxxxx X. Xxxxxxxx, Xx.
/s/ Xxx Foggy
------------------------------------
Xxx Foggy
/s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx
/s/ Xxxxxxxx XxXxxxxx
------------------------------------
Xxxxxxxx XxXxxxxx
PURCHASER:
MTM TECHNOLOGIES, INC.
By:
/s/ Xxxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Executive Officer
