Exhibit 10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into
as of January 20, 2004, between Aladdin Systems Holdings, Inc., a Nevada
corporation (the "SELLER") and International Microcomputer Software, Inc., a
California corporation (the "PURCHASER").
RECITALS
WHEREAS, the Seller owns 100% of the outstanding shares of capital stock
(the "STOCK") of Aladdin Systems, Inc., a Delaware corporation (the "COMPANY");
WHEREAS, the Purchaser desires to purchase the Stock from the Seller, and
the Seller desires to sell the Stock to the Purchaser, in each case upon the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 Definitions.
In addition to the terms defined elsewhere herein, the terms defined in
the introductory paragraph and the Recitals to this Agreement shall have the
respective meanings specified therein, and the following terms shall have the
meanings specified below when used herein with initial capital letters:
"ACCOUNTS RECEIVABLE" has the meaning set forth in Section 3.9.
"AFFILIATE" means "affiliate" as defined in Rule 405 promulgated under the
Securities Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"AGREEMENT" has the meaning set forth in the preamble, and shall include
all Schedules and Exhibits hereto.
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"AKS LITIGATION" shall mean the Trademark Opposition and the Federal
District Court for the Northern District of Illinois, civ. No. 03 C 8330.
"ARBITER" has the meaning set forth in Section 2.3(h)(ii).
"ALADDIN REVENUE" has the meaning set forth in Section 2.3(b).
"ACQUIRED PRODUCTS" has the meaning set forth in Section 2.3(b).
"BALANCE SHEET" has the meaning set forth in Section 3.6.
"BALANCE SHEET DATE" means December 31, 2003.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that could reasonably be expected to result in
any specified consequence.
"BUSINESS" means the business and operations of the Company and its
Subsidiaries as conducted on the Closing Date, including but not limited to the
development, sale and distribution (electronically or otherwise) of utility and
spam management software for the Windows, Macintosh, Palm operating environments
and other computer systems, including, but not limited to the StuffIt line of
products, Spring Cleaning, Internet Cleanup, SpamCatcher and other software
products.
"BUSINESS COMBINATION" has the meaning set forth in Section 11.2(b).
"BUSINESS DAY" means a day, other than a Saturday or a Sunday, on which
commercial banks are not required or authorized to close.
"CASH CONSIDERATION" has the meaning set forth in Section 2.2(a).
"CASH ESCROW AMOUNT" has the meaning set forth in Section 9.3(a).
"CLOSING" has the meaning set forth in Section 9.1.
"CLOSING DATE" has the meaning set forth in Section 9.1.
"CLOSING DATE CASH PAYMENT" has the meaning set forth in Section 9.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the Recitals hereto and, except
where the context otherwise requires includes the Company and the Company's
Subsidiaries.
"COMPETITIVE BUSINESS ACTIVITIES" means developing, selling or
distributing utility software and/or spam management programs for Windows,
MacOS, Palm and other computer environments as well as the resale of similar
products developed by third parties and bundled or sold separately through a
distribution network.
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"CONTRACTS" as of any date means, collectively, all contracts, agreements,
commitments, instruments and guaranties to which the Company is a party as of
such date, including those listed or required to be listed on Schedule 3.15, all
unfilled orders outstanding as of such date for the purchase of raw materials,
goods or services by the Company, and all unfilled orders outstanding as of such
date for the sale of goods or services by the Company.
"COSTS OF REMEDIATION" means all losses, amounts paid in settlement,
investigation, removal, remediation, monitoring and reporting costs and
expenses, Taxes, claims, Damages, Liabilities, obligations, judgments,
settlements and out-of-pocket costs (including, without limitation, costs of
investigation or enforcement), expenses and attorneys' fees including, without
limitation, fees for services of attorneys, consultants, contractors, experts,
engineers and laboratories, and all other out-of-pocket costs, incurred in
connection with investigation, characterization, remediation, monitoring,
reporting or mitigation, arising out of or related to the presence or Release of
any Hazardous Materials existing as of or prior to the Closing Date at, on, or
emanating from any of the Leased Property or any real property at or to which
the Company, any Subsidiary or predecessor of any of the foregoing disposed,
Released, transported, stored, emitted, treated, or arranged to dispose of
Hazardous Materials prior to the Closing Date including, without limitation,
off-site liability under any Environmental Law arising from or in connection
with transportation, treatment, storage, disposal, Release, or arranging for
disposal of Hazardous Materials.
"DAMAGES" means any losses, amounts paid in settlement, claims, damages,
Liabilities, obligations, judgments, settlements and reasonable out-of-pocket
costs (including, without limitation, costs of investigation or enforcement),
expenses and attorneys' fees, including, without limitation, (i) any
consequential damages or (ii) any special or punitive damages which are assessed
against an Indemnified Party as a result of a third party action.
"EARN-OUT CALCULATION" has the meaning set forth in Section 2.3(h).
"EARN-OUT OBJECTION NOTICE" has the meaning set forth in Section 2.3(h).
"EARN-OUT PAYMENT" has the meaning set forth in Section 2.3(a).
"EARN-OUT PERIOD" means any one of the First Earn-Out Period, the Second
Earn-Out Period or the Third Earn-Out Period, as defined in Section 2.3(a).
"EMPLOYEE BENEFIT PLAN" means an Employee Pension Benefit Plan or an
Employee Welfare Benefit Plan, where no distinction is required by the context
in which the term is used.
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"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section 3(2)
of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section 3(1)
of ERISA.
"EMPLOYEES" means each individual who, on the applicable date, performs
services as an employee primarily for the Company or any of its Subsidiaries
(including such persons who are on an approved leave of absence, vacation,
short-term disability or otherwise treated as an active employee of the Company
or its Subsidiaries).
"ENVIRONMENTAL LAWS" means any Legal Requirement with respect to the
protection of the public health, safety or the environment, including, without
limitation, with respect to any Hazardous Materials, drinking water,
groundwater, wetlands, landfills, open dumps, storage tanks, solid waste, or
waste water, water, soil, air, pollution, the protection, preservation or
restoration of natural resources, plant and animal life or human health or the
environment, or waste management, regulation or control. Without limiting the
generality of the foregoing, the term shall encompass each of the following
statutes, and the regulations promulgated thereunder, in each case as in effect
as of Closing: (a) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (codified in scattered sections of 26 U.S.C., 33 U.S.C.,
42 U.S.C. and 42 U.S.C.ss.9601 et seq.); (b) the Resource Conservation and
Recovery Act of 1976 (42 U.S.C.ss.6901 et seq.); (c) the Hazardous Materials
Transportation Act (49 U.S.C.ss.1801 et seq.); (d) the Toxic Substances Control
Act (15 U.S.C. ss. 2061 et seq.); (e) the Federal Water Pollution Control Act
(33 U.S.C.ss.1251 et seq.); (f) the Clean Air Act and Amendments (42
U.S.C.ss.7401 et seq.); (g) the Safe Drinking Water Act (21 U.S.C.ss.349; 42
U.S.C.ss.201 andss. 300 et seq.); (h) the Superfund Amendment and
Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C., 29
U.S.C., 33 U.S.C. and 42 U.S.C.); and (i) the Occupational, Health and Safety
Act (29 X.X.X.xx. 651 et seq.).
"ENVIRONMENTAL REFERENCE DATE" has the meaning set forth in Section 3.22 .
"EQUITY DISTRIBUTIONS" as of any date means the following: (i) all
dividends, distributions, forgiveness of debt, transfer of value or similar
transactions with respect to the Stock, and (ii) with respect to each
transaction between the Company on the one hand and the Seller, its Affiliates,
or advisors on the other hand, the amount (measured on a transaction by
transaction basis, which amount shall never be deemed to be less than zero) by
which the cash value of the goods or services received by the Company was less
than the greater of (x) the amount which the Company would have had to pay in a
comparable transaction with an unaffiliated third party entered into on an arm's
length basis, or (y) the cash value of the goods and services paid by the
Company in the transactions.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which has been under common control or treated as a single
employer with the Company under Section 414(b), (c) or (m) of the Code.
"ESCROW AGREEMENT" has the meaning set forth in Section 9.3(a).
"EXCLUDED COSTS" has the meaning set forth in Section 3.6.
"FIRST EARN-OUT PERIOD" has the meaning set forth in Section 2.3(a).
"FIRST EARN-OUT MAXIMUM" means eight million five hundred thousand dollars
($8,500,000).
"FIRST EARN-OUT THRESHOLD" has the meaning set forth in Section 2.3(a).
"FIRST NOTE" has the meaning set forth in Section 2.2(a)(iii).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.6.
"FORMER EMPLOYEE" means each individual other than an Employee on the
Closing Date who at any time prior to the Closing Date performed services as an
employee primarily for the Company or any Subsidiary of the Company.
"GAAP" has the meaning set forth in Section 1.2.
"GOVERNMENTAL AGENCY" means (a) any international, foreign, federal,
state, county, local or municipal government or administrative agency or
political subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or entity
that is vested by a governmental agency with applicable jurisdiction, or (e) any
arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
"HAZARDOUS MATERIALS" means each and every element, compound, chemical
mixture, pollutant, contaminant, material, waste or other substance which is
defined, designated, regulated, determined, classified or identified as of the
Closing Date as hazardous, radioactive, harmful or toxic under any Environmental
Law, or the Release of which is prohibited or regulated under any Environmental
Law, or which to the knowledge of the Seller could reasonably be expected to
cause, whether now or with the passage of time, damage to Persons, property,
flora, fauna or the environment. Without limiting the generality of the
foregoing, the term shall include any "toxic substance," "hazardous substance,"
"hazardous waste," or "hazardous material" as defined in any Environmental Law
as amended to date, and any explosive or radioactive material, asbestos,
asbestos-containing material, waste water, sludge, untreated dye, other
effluent, coal ash, polychlorinated biphenyls, special waste, petroleum or any
derivative or byproduct thereof, and toxic waste.
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"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person, (i) the
principal of and premium, if any, in respect of any indebtedness of such Person
for money borrowed, (ii) the principal, premium, if any, and interest of such
Person with respect to obligations evidenced by bonds, debentures, notes or,
except for accrued liabilities arising in the Ordinary Course of Business, other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses (other than trade payables which
are not overdue or in default), (iii) all obligations of such Person in respect
of letters of credit or other similar instruments (including reimbursement
obligations with respect thereto) but only to the extent of drawings thereunder,
(iv) every obligation of such Person issued or assumed as the deferred purchase
price of property or services (excluding trade accounts payable or accrued
liabilities arising in the Ordinary Course of Business which are not overdue or
in default), (v) every capital lease obligation (determined in accordance with
GAAP) of such Person, (vi) all Indebtedness of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons, (vii) the present
value (discounted using an interest rate of 5% per annum) as of the date of
determination of every obligation to pay rent or other payment amounts of such
Person with respect to any sale-leaseback transaction to which such Person is a
party, payable through the stated maturity of such sale-leaseback transaction,
and (viii) every obligation of the type referred to in clauses (i) through (vii)
of another Person the payment of which, in any case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
"INDEMNIFIED PARTY" has the meaning set forth in Section 10.3(a) and in
the case of Purchaser shall also include the Company and its Subsidiaries.
"INDEMNIFYING PARTY" has the meaning set forth in Section 10.3(a).
"INSURANCE POLICIES" has the meaning set forth in Section 3.20.
"INTELLECTUAL PROPERTY" shall mean all of the following, owned, used or
licensed by the Company as licensee or licensor: (i) the names Aladdin, Aladdin
Systems, Installermaker, StuffIt, StuffIt Deluxe, Spring Cleaning, iClean,
Aladdin Tuner, Gobar, SpamCatcher, Aladdin Expander, all fictional business
names, trademarks and service marks (registered or unregistered), trade dress,
trade names and other names and slogans embodying business or product goodwill
or indications of origin, all applications or registrations in any jurisdiction
pertaining to the foregoing and all goodwill associated therewith (collectively
"MARKS"); (ii) patents, patentable inventions, discoveries, improvements, ideas,
know-how, formula methodology, processes, technology and computer programs,
software and databases (including source code, object code, development
documentation, programming tools, drawings, specifications and data) and all
applications or registrations in any jurisdiction pertaining to the foregoing,
including all reissues, continuations, divisions, continuations-in-part,
renewals or extensions thereof (collectively "PATENTS"); (iii) trade secrets,
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know-how, including confidential and other non-public information, and the right
in any jurisdiction to limit the use or disclosure thereof (collectively, "TRADE
SECRETS"), (iv) copyrights in writings, artwork, clipart, webart, sounds,
graphics, photographs, animations, images, designs, mask works or other works,
and registrations or applications for registration of copyrights in any
jurisdiction; (v) licenses, immunities, covenants not to xxx and the like
relating to any of the foregoing; (vi) Internet Web sites, domain names and
registrations or applications for registration thereof; (vii) books and records
describing or used in connection with any of the foregoing; and (viii) claims or
causes of action arising out of or related to infringement or misappropriation
of any of the foregoing.
"INTELLECTUAL PROPERTY LICENSES" has the meaning set forth in Section
3.16.
"IRS" means the Internal Revenue Service of the U.S. Department of the
Treasury.
"KNOWLEDGE" as applied to the Seller, means the actual knowledge, after
reasonable inquiry, of any person listed on Schedule 1.1 hereto.
"LEASED PROPERTY" has the meaning set forth in Section 3.11(b).
"LEASES" has the meaning set forth in Section 3.11(b).
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative Order, constitution, law,
rule, ordinance, permit, principle of common law, regulation, statute, or
treaty.
"LIABILITY" means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated and whether due or to become
due), including, without limitation, any liability for Taxes.
"LIEN" means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"LISTED INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.16.
"MAJOR SUPPLIERS" has the meaning set forth in Section 3.28.
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"XXXX" has the meaning set forth in this Section 1.1 in the definition of
"Intellectual Property."
"MATERIAL ADVERSE EFFECT" means a material adverse change in or effect
with respect to the business, results of operations, properties, financial
condition or prospects of the Company and its subsidiaries.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3(37) of ERISA.
"ORDER" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Agency or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means an action which is both: (a)
consistent with the past practices of the Company and is taken in the ordinary
course of the normal day-to-day operations of the Company; and (b) similar in
nature and magnitude to actions customarily taken, without any authorization by
the board of directors, in the ordinary course of the normal day-to-day
operations of other Persons that are in a similar line of business as the
Company.
"PATENT" has the meaning set forth in this Section 1.1 in the definition
of "INTELLECTUAL PROPERTY".
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMIT" means any permit, approval, consent, authorization, license,
variance, or permission required by a Governmental Agency under any Legal
Requirement.
"PERMITTED LIENS" means, with respect to any asset, (i) covenants,
conditions, restrictions, encroachments, encumbrances, easements, rights of way,
licenses, grants, building or use restrictions, exceptions, reservations,
limitations or other imperfections of title (other than a Lien securing any
Indebtedness) with respect to such asset which, individually or in the
aggregate, does not materially detract from the value of, or materially
interfere with the present occupancy or use of, such asset and the continuation
of the present occupancy or use of such asset; (ii) the matters set forth on
Schedule 1.2 hereto; (iii) unfiled mechanic's, materialmen's and similar liens
with respect to amounts not yet due and payable or which are being contested in
good faith through appropriate proceedings and, for those existing on the
Balance Sheet, for which adequate reserves in accordance with GAAP are reflected
on the Balance Sheet, as the case may be; (iv) liens for Taxes not yet
delinquent or which are being contested in good faith through appropriate
proceedings and, for those existing on the Balance Sheet, for which adequate
reserves in accordance with GAAP are reflected on the Balance Sheet, as the case
may be; and (v) liens securing rental payments under capital lease arrangements,
which capital lease arrangements existing as of the Closing Date are in
accordance with GAAP reflected as Indebtedness on the Balance Sheet.
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"PERSON" means any individual, partnership, corporation, trust,
association, limited liability company, Governmental Agency or any other entity.
"PLAN" has the meaning set forth in Section 3.19(a).
"PRE-CLOSING TAXES" has the meaning set forth in Section 10.2(b)(ii).
"PRODUCT" has the meaning set forth in Section 3.26.
"PRODUCT CLAIM" has the meaning set forth in Section 3.26.
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"PURCHASER" has the meaning set forth in the preamble hereto.
"PURCHASER SEC DOCUMENTS" has the meaning set forth in Section 4.6.
"RECALLS" has the meaning set forth in Section 3.26(b).
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in Section 7.5.
"RELEASE" means any spilling, leaking, pumping, releasing, depositing,
pouring, emitting, emptying, migrating, discharging, injecting, storing,
escaping, leaching, dumping, burying, abandoning, disposing or moving into the
environment.
"SALARIED EMPLOYEE" has the meaning set forth in Section 3.24(h).
"SCHEDULES" means, collectively, the various Schedules referred to in this
Agreement delivered separately to Purchaser on or before the date of this
Agreement.
"SECOND EARN-OUT PERIOD" has the meaning set forth in Section 2.3(a).
"SECOND EARN-OUT MAXIMUM" means nine million five hundred thousand dollars
($9,500,000).
"SECOND EARN-OUT THRESHOLD" has the meaning set forth in Section 2.3(a).
"SECOND NOTE" has the meaning set forth in Section 2.2(a)(iii).
"SECTION 338(H)(10) ELECTION" has the meaning set forth in Section 6.5(f).
"SECTION 338 FORMS" has the meaning set forth in Section 6.5(d).
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SELLER ENTITY" means the Seller and its respective Affiliates (other than
the Company and its Subsidiaries).
"SELLER" has the meaning set forth in the preamble hereto.
"SELLER'S OPINION OF COUNSEL" has the meaning set forth in Section 8.8.
"SINGLE-EMPLOYER PLAN" means an Employee Pension Benefit Plan which is
described in Section 4001(a)(15) of ERISA and which is subject to Title IV of
ERISA.
"SOFTWARE PRODUCTS" has the meaning set forth in Section 3.17.
"STOCK" has the meaning set forth in the Recitals hereto.
"STOCK CONSIDERATION" has the meaning set forth in Section 2.2(a).
"SUBSIDIARY" means "subsidiary" as defined in Rule 405 promulgated under
the Securities Act.
"TAX CLAIM" has the meaning set forth in Section 10.5.
"TAX RETURN" means any report, return, information return, forms,
declarations, claims for refund, statements or other information (including any
amendments thereto and including any schedule or statement thereto) required to
be supplied to a Governmental Agency in connection with Taxes.
"TAXES" means all federal, state, local, foreign and other taxes,
assessments and water and sewer charges and rents, including without limitation,
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, withholding, Social Security,
unemployment, real property, personal property, property gains, registration,
capital stock, value added, single business, occupation, workers' compensation,
alternative or add-on minimum, estimated, or other tax, including without
limitation any interest, penalties or additions thereto.
"THIRD EARN-OUT PERIOD" has the meaning set forth in Section 2.3(a).
"THIRD EARN-OUT MAXIMUM" means eleven million five hundred thousand
dollars ($11,500,000).
"THIRD EARN-OUT THRESHOLD" has the meaning set forth in Section 2.3(a).
"THIRD PARTY" has the meaning set forth in Section 11.2(b).
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"TRADE SECRET" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"TRADEMARK OPPOSITION" means opposition no. 91155736 brought before the
Trademark Trial and Appeal Board in opposition to the Company's efforts to
register the xxxx "Aladdin" pursuant to application no. 76144215.
"TRANSACTION DOCUMENTS" means this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Note, the Pledge Agreement and the Security
Agreement .
Section 1.2 Accounting Terms and Determinations. All references in this
Agreement to "generally accepted accounting principles" or "GAAP" shall mean
generally accepted accounting principles in effect in the United States of
America at the time of application thereof, applied on a consistent basis.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished hereunder shall be prepared, in
accordance with generally accepted accounting principles, applied on a
consistent basis.
ARTICLE II.
SALE AND PURCHASE
SECTION 2.1. AGREEMENT TO SELL AND TO PURCHASE.
On the terms and subject to the conditions set forth in this Agreement, at
the Closing, the Purchaser shall purchase from the Seller, and the Seller shall
sell, transfer, assign, convey and deliver to the Purchaser, the Stock. At the
Closing, the Seller shall deliver to the Purchaser or its designees a
certificate or certificates representing the Stock, duly endorsed in blank for
transfer or accompanied by appropriate powers duly executed in blank. SECTION
2.2. PURCHASE PRICE.
(a) The purchase price (the "Purchase Price") for the Stock shall
consist of the following:
(i) $1,500,000, in immediately available funds (the "Cash
Consideration");
(ii) the number of shares of the restricted common stock, no
par value, of the Purchaser as shall be equal to $3,500,000 divided by the
average of the closing "bid" price of the Purchaser's stock on the twenty (20)
trading days prior to the Closing as reported by the OTCBB, rounded up or down
to the nearest whole share (the "Stock Consideration");
(iii) A convertible three year Promissory Note in the
principal amount of $2,650,000 (the "First Note"), and a non-negotiable
convertible three year Promissory Note in the principal amount of $350,000 (the
"Second Note"), in the forms attached as Exhibits A and B hereto, both secured
by a pledge of the Stock, as provided in the Pledge Agreement attached as
Exhibit C.
(iv) Earn-Out Payments, if any, as set forth in Section 2.3
herein.
SECTION 2.3. EARN-OUT PAYMENTS
(a) The Purchaser shall pay to the Seller the following amounts
(each, an "Earn-Out Payment" and collectively, the "Earn-Out Payments"), subject
to achievement of the minimum revenue amounts set forth below:
(i) In respect of the twelve (12) consecutive months
commencing on the first day of the month in which the Closing occurs, or the
first day of the next succeeding month, whichever date shall be closest to the
Closing Date (the "First Earn-Out Period"), one Dollar ($1.00) for each twelve
Dollars and seventy-five cents ($12.75) of Aladdin Revenue, up to a maximum
payment in respect of such period of six hundred sixty-six thousand six hundred
sixty-six Dollars and sixty-seven cents ($666,666.67). No payment shall be made
during or for the First Earn-Out Period until the Aladdin Revenue equal or
exceeds four million two hundred fifty thousand Dollars ($4,250,000) (the "First
Earn-Out Threshold"), and in the event that the Aladdin Revenue during the First
Earn-Out Period shall not equal or exceed the First Earn-Out Threshold, no
Earn-Out Payment shall be made to Aladdin for the First Earn-Out Period.
(ii) In respect of the twelve (12) month period following the
First Earn-Out Period (the "Second Earn-Out Period"), one Dollar ($1.00) for
each fourteen Dollars and twenty-five cents ($14.25) of Aladdin Revenue, up to a
maximum payment in respect of such period of six hundred sixty-six thousand six
hundred sixty-six Dollars and sixty-seven cents ($666,666.67). No payment shall
be made during or for the Second Earn-Out Period until the Aladdin Revenue equal
or exceeds four million seven hundred fifty thousand Dollars ($4,750,000) (the
"Second Earn-Out Threshold"), and in the event that the Aladdin Revenue during
the Second Earn-Out Period shall not equal or exceed the Second Earn-Out
Threshold, no Earn-Out Payment shall be made to Aladdin for the Second Earn-Out
Period.
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(iii) In respect of the twelve (12) month period following the
Second Earn-Out Period (the "Third Earn-Out Period"), One Dollar ($1.00) for
each seventeen Dollars and twenty-five cents ($17.25) of Aladdin Revenue, up to
a maximum payment in respect of such period of six hundred sixty-six thousand
six hundred sixty-six Dollars and sixty-seven cents ($666,666.67). No payment
shall be made during or for the Third Earn-Out Period until the Aladdin Revenue
for the Third Earn-Out Period is below five million seven hundred fifty thousand
Dollars ($5,750,000) (the "Third Earn-Out Threshold"), and in the event that the
Aladdin Revenue during the Third Earn-Out Period shall not equal or exceed the
Third Earn-Out Threshold, no Earn-Out Payment shall be made to Aladdin for the
Third Earn-Out Period.
(iv) Any payments to be made to the Seller pursuant to paragraphs
(a), (b) or (c) above shall be made forty five (45) days following the end of
each Earn-Out Period. Unpaid Earn-Out Payments shall accrue interest at the rate
of six percent (6%) simple interest per year from the 60th day from the end of
each Earn-Out Period until paid. Potential, but unearned, Earn-Out Payments from
an Earn-Out Period may not be carried forward and earned in a subsequent
Earn-Out Period.
(b) Aladdin Revenue.
(i) For the purposes of this Section 2.3, "Aladdin Revenue"
shall mean, for any Earn-Out Period, the revenue of the Business as calculated
by the Purchaser in accordance with GAAP (for purposes hereof, "GAAP" shall mean
the Purchaser's treatment of revenues, except that revenues derived from sales
to Digital River shall be treated using the Seller's historical methods) and
adjusted as necessary for sales returns, allowances and bad debts, for the sales
or licensing (including subscription fees) of: (i) all of the Company's products
existing as of the Closing, including all upgrades and updates thereto made
after the Closing Date; (ii) third party products resold by the Company,
including products owned by Purchaser; (iii) all new products developed by the
Company after the Closing; (iv) all new products which the Company sells
pursuant to publishing or license agreement for which the Company pays a royalty
or licensing fee to the licensee; (v) all existing products owned by Purchaser
and transferred to the Company; provided, however, that prior to the inclusion
of such products, they shall be valued in accordance with a formula to be
provided by Baytree Capital Associates, LLC; and provided further that following
such valuation, no revenue derived from such products shall be included as
Aladdin Revenue until the Purchaser has reported earnings from such products
equal to Xx. Xxxxxxx'x valuation; (vi) all new products ("Acquired Products")
acquired (whether by acquisition of such products individually, in groups or
through the acquisition of whole businesses, and considering as an "acquisition"
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the payment of the purchase price in a single transaction or a group of
transactions effectively constituting a single transaction) or licensed by the
Company or the Purchaser for a fee less than $200,000; and (vii) revenue from
the sales or licensing by the Company of products acquired (as defined above)
for amounts in excess of $200,000 shall be included in the Aladdin Revenue after
the Purchaser has reported earnings from each such product equal to the
aggregate purchase price or license fee paid for it.
(c) In the event that the Purchaser enters into a transaction with a
non-Affiliate of the Purchaser prior to termination of the Third Earn-Out Period
regarding the sale or transfer to such third party of the Company or
substantially all of the assets of the Company (either in a single or a series
of transactions), then upon the closing date of such transaction or transactions
all Earn-Out Payments for Earn-Out Periods not completed as of such closing date
shall be deemed earned, and shall be paid to the Seller as of the applicable
payment dates described in Section 2.3(a)(iv) above; and in the event that any
of the assets of the Company are transferred to an affiliate of the Purchaser
pursuant to a reorganization, Aladdin Revenue will continue to be calculated as
though all products sold by the Company prior to such reorganization continue to
be held by the Company. In the further event that the Purchaser sells or
transfers to a non-Affiliate any product or portion of a product sold by the
Company prior to termination of the Third Earn-Out Period, the Purchaser shall
reduce the Earn-Out Maximum for the Earn-Out Period during which the product or
portion of a product was sold, and each subsequent Earn-Out Period, by the total
amount of revenue reported by the Company during the Earn-Out Period in which
such sale is consummated (and the ratios of Aladdin Revenue to Earn-Out
expressed in paragraphs Section 2.3(a)(i) - (iii) for each affected Earn-Out
Period shall be adjusted accordingly), and the Earn-Out Threshold for each such
Earn-Out Period shall be reduced by one-half of such revenue.
(d) The parties hereto acknowledge that the Earn-Out Payments
payable to the Sellers pursuant to this Section 2.3 have been negotiated by the
parties based on their inability to agree as to the valuation of the Company as
of the Closing Date, and such Earn-Out Payments are intended by the parties to
be treated as part of the consideration for the Stock. The Purchaser and the
Seller agree not to take any position, including, without limitation, for
federal, state, foreign or local tax purposes, that is inconsistent with the
intent expressed in this clause (c).
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(e) The Purchaser agrees to keep true and accurate books and records
containing sufficiently detailed information to enable the Seller to accurately
determine the amount of the Earn-Out Payment due to the Seller for each Earn-Out
Period. The Purchaser further agrees to permit the Seller and/or its designated
agent access to such books and records at a reasonable time at the Purchaser's
principal offices (or at such other location at which such books and records may
be located) upon reasonable request by the Seller commencing as of the Closing
Date and ending on the third anniversary of the Closing Date in order to inspect
and audit such books and records.
(f) Within forty-five (45) days after the end of each quarter during
any Earn-Out Period, the Purchaser shall provide the Seller with a report of the
Aladdin Revenue for such quarter, together with a report of the bookings during
such quarter of all sales that will at any time be included as Aladdin Revenue
(both in the form set forth as Exhibit D hereto), and the amount of Earn-Out
Payment due to Seller, if any, for such quarter.
(g) At any time prior to payment of the Third Earn-Out, if any
Earn-Out Payment shall cause the aggregate amount of cash to be received by the
Seller pursuant to this Agreement to exceed sixty percent (60%) of the total
consideration to be received by the Seller pursuant to this Agreement, then the
portion of such Earn-Out Payment in excess of such 60% threshold shall be paid
to the Seller in shares of the Purchaser's Common Stock. The number of shares to
be issued in such event shall be equal to the portion of the Earn-Out which the
Seller wishes to receive in Common Stock divided by the average of the closing
"bid" price of the Purchaser's stock on the twenty (20) trading days prior to
the end of the applicable Earn-Out Period as reported by the OTCBB, rounded up
or down to the nearest whole share.
(h) Disputes Regarding Earn-Out Payments.
(i) In the event the Seller and the Purchaser shall not reach
agreement on all aspects of an Earn-Out Payment, within forty-five (45) days
following the Seller's receipt of the Earn-Out Payment, the Seller shall deliver
to the Purchaser a written notice of its objections (the "Earn-Out Objection
Notice"): (i) objecting in good faith to amount or basis for calculating the
Earn-Out Payment, (ii) setting forth the items being disputed and the reasons
therefor, and (iii) specifying the Seller's calculation of the disputed item(s)
and the adjustment of the Earn-Out Payment to be made accordingly. In connection
with the preparation of the Earn-Out Objection Notice, the Purchaser shall grant
the Seller's accountants and other representatives reasonable access to all of
the books and records of the Company. If the Seller fails to deliver timely its
Earn-Out Objection Notice, the Earn-Out Payment shall be considered final and
binding upon the Purchaser and the Seller.
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(ii) The matters in dispute shall be determined by a
nationally recognized arbitration firm mutually satisfactory to the Purchaser
and the Seller (the "Arbiter") in accordance with such firm's rules, and the
Purchaser and the Seller shall promptly deliver to the Arbiter Seller's Earn-Out
Objection Notice, together with all materials relating to the Purchaser's
calculation of the Earn-Out Payment (the "Earn-Out Calculation") for the
disputed Earn-Out Period. Promptly, but not later than thirty (30) days after
the acceptance of its appointment, the Arbiter shall determine (based solely on
presentations by the Seller and the Purchaser to the Arbiter and not by
independent review) only those items in dispute and shall render a report as to
its resolution of such items and the resulting calculation of the applicable
Earn-Out Payment. For purposes of the Arbiter's determination, the amounts to be
included shall be the appropriate amounts from the Earn-Out Calculation, as to
items that are not in dispute, and the amounts determined by the Arbiter, as to
items that are submitted for resolution by the Arbiter. In resolving any
disputed item, the Arbiter may not assign a value to such item greater than the
greatest value for such item claimed by either party in the Earn-Out Calculation
or Earn-Out Objection Notice or less than the lowest value for such item claimed
by either party in the Earn-Out Calculation or Earn-Out Objection Notice. The
Purchaser and the Seller shall cooperate with the Arbiter in making its
determination and such determination shall be conclusive and binding upon the
Purchaser and the Seller.
(iii) The Seller shall bear the cost of the Arbiter unless the
Seller's inspection and audit reveals an underpayment of the Earn-Out Payment by
the Purchaser of five percent (5%) or more, in which case the Purchaser shall
bear the reasonable costs of the Arbiter and shall reimburse Seller therefor.
(iv) Within five Business Days after the final determination
of a disputed Earn-Out Payment, if such determination is made in favor of the
Seller, the Purchaser shall pay the Seller by wire transfer of immediately
available funds the amount, if any, by which the Earn-Out Payment is adjusted by
the Arbiter's determination.
(v) Nothing in this Section 2.3 or in the statements, reports
or documents contemplated hereby shall affect the parties' rights and
obligations in respect of a breach or alleged breach of any representation or
warranty herein.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
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The Seller represents and warrants to the Purchaser as set forth in this
Article III:
SECTION 3.1. AUTHORITY OF THE SELLER.
The Seller is a corporation duly organized, validly existing and
before the Closing will be in good standing under the laws of the State of
Nevada. The Seller has full corporate power and authority to execute and deliver
the Transaction Documents, and the execution and delivery by the Seller of the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Seller, including the consent or approval of
the holders of the requisite majority(ies) of the Seller's common stock and each
other class and series of equity securities of the Seller. This Agreement
constitutes, and the other Transaction Documents when executed and delivered by
the parties thereto will constitute, the legal, valid and binding obligations of
the Seller enforceable against the Seller in accordance with their terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, or similar laws from time to time in effect which affect creditors'
rights generally and by legal and equitable limitations on the enforceability of
specific remedies.
SECTION 3.2. ORGANIZATION OF THE COMPANY.
As of the date hereof: (i) the Company is a corporation duly
organized, validly existing, and before the Closing will be in good standing
under the laws of the State of Delaware (ii) the Company is duly qualified to do
business and is in good standing in California, such states being each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except where the failure to so qualify,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect and (iii) the Company has the requisite corporate
power and authority to own its properties and to conduct its business as
presently conducted. Schedule 3.2 includes true and correct copies of the
Articles of Incorporation and By-Laws of the Company as in effect on the date
hereof.
SECTION 3.3. CAPITALIZATION OF THE COMPANY.
As of the date hereof, the authorized capital stock of the Company
consists of (i) twenty million (20,000,000) shares of common stock, par value
$0.01 per share, of which one (1) share is outstanding and owned by the Seller
and (ii) no shares of preferred stock. There are or will be at Closing no
outstanding options, warrants, agreements, conversion rights, preemptive rights
or other rights to subscribe for, purchase or otherwise acquire shares of
capital stock of the Company.
SECTION 3.4. NO CONFLICT OR VIOLATION; CONSENTS.
Except as set forth on Schedule 3.4, neither the execution and
delivery of this Agreement or any other Transaction Document nor the
consummation or performance of any of the transactions contemplated hereby or
thereby will, directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Articles of Incorporation or By-Laws of either the Seller or
the Company, or (ii) any resolution adopted by the board of directors or the
stockholders of either the Seller or the Company;
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(b) contravene, conflict with, or result in a violation of, or give
any Governmental Agency or other Person the right to challenge any of the
transactions contemplated hereby or by any other Transaction Document or to
exercise any remedy or obtain any relief under, any Legal Requirement to which
the Company or the Seller, or any of the assets owned or used by the Company,
may be subject;
(c) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Agency the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Permit that is held
by the Company or that otherwise relates to the business of, or any of the
assets owned or used by, the Company;
(d) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Agency;
(e) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Contract, Lease or Permit;
(f) result in the imposition or creation of any Lien upon or with
respect to any of the assets owned or used by the Company; or
(g) except for filings under the Securities Act, and the Securities
Exchange Act, require the consent, approval, or authorization of, or
registration or filing with, any Governmental Agency or any other Person.
SECTION 3.5. SUBSIDIARIES AND INVESTMENTS.
Except as set forth in Schedule 3.5, the Company does not own any
stock of, or any equity participation in, any Person and has no Subsidiaries.
SECTION 3.6. FINANCIAL STATEMENTS.
The unaudited balance sheet of the Company as of the Balance Sheet
Date (the "BALANCE SHEET"), and related statements of income, retained earnings
and cash flow for the periods then ended and the notes thereto (collectively,
the "FINANCIAL STATEMENTS"), (i) are included as Schedule 3.6: (ii) were
prepared in accordance with GAAP, (iii) present fairly the financial condition
and the results of operations of the Company as of the dates and for the periods
indicated thereon, (iv) are complete, correct and in accordance with the books
of account and records of the Company, (v) can be legitimately reconciled with
the financial statements and the financial records maintained and the accounting
methods applied by the Company for federal income tax purposes, and (vi) reflect
accurately all costs and expenses which the Company incurred, but not
necessarily all of the costs, or a pro-rata portion of the costs, incurred by
the Seller which may have been expenses of the Company if the Company were
independent and not affiliated with any other corporation or business ("EXCLUDED
COSTS", all of which are set forth in Schedule 3.6).
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SECTION 3.7. UNDISCLOSED LIABILITIES.
As of the Balance Sheet Date, the Company has and will have no
material Liabilities, except for Liabilities: (a) reflected or reserved for on
the Balance Sheet, as the case may be, (b) relating to performance obligations,
under Leases, Contracts and Permitted Liens in accordance with the terms and
conditions thereof which are not required by GAAP to be reflected on the Balance
Sheet, or (c) as set forth on Schedule 3.7.
SECTION 3.8. MATERIAL ADVERSE EFFECT.
Other than changes resulting from general economic conditions and
except as provided on Schedule 3.8, since the Balance Sheet Date, there has not
been any Material Adverse Effect or Basis therefor, nor have any events occurred
nor do any circumstances exist which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.9. ACCOUNTS RECEIVABLE.
All accounts receivable of the Company that are reflected on the
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "ACCOUNTS RECEIVABLE") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. There is no contest, claim, or right of
set-off, other than returns or other set-offs in the Ordinary Course of
Business, under any Contract with any obligor of an Accounts Receivable relating
to the amount or validity of such Accounts Receivable. Schedule 3.9 contains a
complete and accurate list of all Accounts Receivable as of the Balance Sheet
Date, which list sets forth the aging of such Accounts Receivable.
SECTION 3.10. INVENTORY.
The materials, supplies and work-in-process included in the
inventory of the Company as set forth on the Balance Sheet were (a)
substantially equivalent in quality and quantity, subject to seasonality, to the
materials, supplies and work-in-process, and additions thereto, generally
included in such inventory in the past; (b) reasonably suitable for the
manufacture and distribution of the Company's products in a manner substantially
equivalent in quality to that achieved generally by the Company in the past and
(c) valued in accordance with GAAP, in each case, subject to all reserves
reflected in the Balance Sheet with respect to such inventory existing on the
Balance Sheet Date. Such reserves on the Balance Sheet are adequate under GAAP
and are established in accordance with GAAP.
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SECTION 3.11. REAL PROPERTY.
(a) The Company does not own any real property.
(b) Schedule 3.11(b) contains a list of all leases and subleases,
together with any amendments thereto and any subordination, nondisturbance and
attornment agreements (the "LEASES"), with respect to all real property leased
by the Company (the "LEASED PROPERTY"). Each Lease is in full force and effect,
the Company has performed all material obligations required to be performed by
it to date under each of the Leases and neither the Company nor, to the Seller's
Knowledge, any other party thereto is in material default under any of the
Leases (and no event has occurred which, with due notice or lapse of time or
both, would constitute such a lapse or default). No amount due under the Leases
remains unpaid, no material controversy, claim, dispute or disagreement exists
between the parties to any of the Leases. The Seller has delivered to the
Purchaser a copy of each Lease, and all amendments thereto, listed in Schedule
3.11(b), except to the extent otherwise noted therein.
(c) The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or use
restrictions, exceptions, reservations, limitations or other impediments
affecting the Leased Property do not and will not, with respect to each Leased
Property, materially impair the Company's ability to use any such Leased
Property in the operation of the Company's business as presently conducted. To
Seller's Knowledge there are no pending or threatened condemnation or similar
proceedings affecting the Leased Property. The Company has access to public
roads, streets or the like or valid easements over private streets, roads or
other private property for such ingress to and egress from the Leased Property,
except as would not materially impair the Company's ability to use any such
Leased Property in the operation of the Company's business as presently
conducted.
(d) All brokerage commissions and other compensation and fees
payable by reason of the Leases have been paid in full or are reflected in the
Balance Sheet except for such commissions and other compensation related to
options or extensions in the Leases which are not yet exercised.
(e) To the Seller's Knowledge, all improvements on the Leased
Property and the operations therein conducted conform in all material respects
to all applicable Legal Requirements, including without limitation, health,
fire, environmental, safety, zoning and building laws, ordinances and
administrative regulations, except for possible nonconforming uses or violations
which do not and will not expose any person or property to injury or damage,
materially and adversely affect any insurance coverage, give rise to strict
liability, penalties or fines, jeopardize any Permit or materially interfere
with the present use, operation or maintenance thereof by the Company as now
used, operated or maintained, and which do not and will not materially and
adversely affect the value thereof. To the Seller's Knowledge, all buildings,
structures, improvements and fixtures owned, leased or used by the Company in
the conduct of its business at the Leased Property conform in all material
respects to all applicable codes and rules adopted by national and local
associations and boards of insurance underwriters; and all such buildings,
structures, improvements and fixtures are in good operating condition and
repair.
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(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Company a policy covering the Leased
Property, or by any board of fire underwriters or other body exercising similar
functions, requiring or recommending any repairs or work to be done on such
property.
(g) All public utilities required for the operation of the Leased
Property and necessary for the conduct of the business of the Company are
installed and operating, and all installation and connection charges, to the
Seller's Knowledge, are paid in full.
(h) Except as set forth in Schedule 3.11(b), the Leased Property is
not subject to any lease, sublease, license or other agreement granting to any
Person any right to the use, occupancy or enjoyment of such property or any
portion thereof.
(i) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the Company
is responsible under the Leases in the buildings or improvements are in good
working order and condition, and the roof, basement and foundation walls of such
buildings and improvements for which the Company is responsible under said
Leases are in good condition and free of leaks and other material defects. All
such mechanical and structural systems and such roofs, basement and foundation
walls for which others are responsible under said Leases are, to the Seller's
Knowledge, in good working order and condition and free of leaks and other
material defects.
SECTION 3.12. CONDITION AND COMPLIANCE OF PROPERTY.
(a) Schedule 3.12(a) contains a list of owned computers, information
technology, hardware, software, facsimile machines and copier machines with a
value of over $500. As of such date, the Company owned outright and had good and
marketable title to all such personal property subject to no Lien except
Permitted Liens and except as set forth on Schedule 3.12(a).
(b) Schedule 3.12(b) sets forth the name, parties and date of all
personal property leases to which the Company is a party or in respect of the
Business. Except as set forth in Schedule 3.12(b), the Company holds good
leaseholds in all of the personal property shown or required to be shown on
Schedule 3.12(b) as leased by the Company, in each case under valid and
enforceable leases. The Company is not, and to Seller's Knowledge no other party
to any such personal property lease is, in material breach of or default under
any lease of any item of personal property listed on Schedule 3.12(b) (and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a lapse or default).
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(c) The assets of the Company: (i) in the aggregate are adequate to
conduct the operations of the Company in substantially the manner currently
conducted, (ii) are suitable for the purposes for which they are currently used,
(iii) have been maintained in accordance with the Company's historical practices
since January 1, 2001, and (iv) are in good condition, ordinary wear and tear
excepted. Each plant, building, office, shop and other structure and each item
of personal property is in good operating condition and is suitable and
sufficient for the operation of the business of the Company, as currently
conducted and currently proposed to be conducted.
SECTION 3.13. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth on Schedule 3.13(a), the Company has
complied with, has not received any notice of violation of, and has no Knowledge
of any Basis which with or without notice could reasonably be expected to
constitute a violation of, any material Legal Requirements. Since January 1,
2001, except as set forth on Schedule 3.13(a), neither the Seller nor the
Company has received any notice or other communication (whether oral or written)
from any Governmental Agency or any other Person regarding (i) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Seller or the Company to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature, nor is there
any Basis for any such notice or other communication.
(b) Schedule 3.13(b) sets forth a list of each Permit that is
necessary or appropriate for the operations of the Company as currently
conducted or currently proposed to be conducted, including the issuing
Governmental Agency, the expiration date, and the permit number. All Permits
included on Schedule 3.13(b), except as noted therein, are in full force and
effect and no proceeding is pending or, to the Knowledge of the Seller,
threatened, to revoke or limit any such Permit, nor is there a Basis for any
such revocation. Except as set forth in Schedule 3.13(b):
(i) the Company is, and at all times since January 1, 2001 has
been, in full compliance with all of the terms and requirements of each Permit
listed in Schedule 3.13(b);
(ii) since January 1, 2001, neither the Seller nor the Company
has received any notice or other communication (whether oral or written) from
any Governmental Agency or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Permit, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Permit, nor is there any Basis for such notice or other
communication; and
(iii) all applications required to have been filed for the
renewal of the Permits have been duly filed on a timely basis with the
appropriate Governmental Agencies, and all other filings required to have been
made with respect to such Permits have been duly made on a timely basis with the
appropriate Governmental Agencies.
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SECTION 3.14. AFFILIATE AGREEMENTS AND LIABILITIES.
Except as set forth on Schedule 3.14:
(a) there are no written or oral Contracts between the Company and
any Seller Entity including, without limitation, any such Contracts relating to
the provision of any services by the Company to any such Seller Entity, or by
any such Seller Entity to the Company; and
(b) (i) since the Balance Sheet Date, there have been, (ii) from the
date hereof to the Closing Date there will be, and (iii) after the Closing Date
there will be, no transactions, agreements, arrangements or indebtedness between
the Company and (x) any Seller Entity, (y) any director or officer of the
Company or (z) any member of the immediate family of any individual described in
clause (x) or (y) of this sentence.
SECTION 3.15. CONTRACTS.
(a) Schedule 3.15 hereto lists all of the Contracts, commitments,
arrangements and understandings which are material to the properties, conduct,
operations or financial condition of the Company or are otherwise material.
(b) Except as set forth on Schedule 3.15 (and for Leases and
Permitted Liens), the Company is not a party to or bound by any of the
following, which are material to the properties, conduct, operations or
financial condition of the Company or are otherwise material: (i) mortgage,
indenture, note, or installment obligation, or other instrument for or relating
to Indebtedness;
(ii) guaranty of any obligation for borrowings or performance,
or guaranty or warranty of products or services, excluding endorsements or
guaranties of instruments made in the Ordinary Course of Business in connection
with the deposit of items for collection, and statutory warranties;
(iii) agreement or arrangement for the sale or lease of any of
its assets other than in the usual, regular and Ordinary Course of Business;
(iv) agreement or other arrangement for the purchase of any
real estate, machinery, equipment, or other capital assets;
(v) Contract for the future purchase of materials, supplies,
services, merchandise, or equipment parts;
(vi) Contract pursuant to which it is or may be obligated to
make payments, contingent or otherwise, on account of or arising out of prior
acquisitions or sales of businesses, assets, or stock of other companies;
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(vii) distribution, dealership, representative, broker, sales
agency, advertising or consulting Contract excepting any such contract that is
terminable at will, or by giving notice of 30 days or less, without Liability;
(viii) lease or other agreement for the use of real or
personal property;
(ix) agreement imposing non-competition or exclusive dealing
obligations on it;
(x) agreement providing for payments to or by any Person based
on sales, purchases, or profits, other than direct payments for goods;
(xi) license or royalty agreement with obligations payable by
or to the Company;
(xii) Contract or agreement for the employment of any
stockholder, director, officer, consultant or key employee not terminable
without penalty or Liability arising from such termination or any severance or
change-in-control contract or arrangement;
(xiii) Contract relating to cleanup, abatement or other
actions in connection with environmental liabilities; or
(xiv) Contract which (A) involves future payment by or to the
Company or (B) is otherwise material to the extent relating to the conduct of
the business of the Company.
(c) Each Contract, including the Contracts listed or required to be
listed on Schedule 3.15, is valid, binding and enforceable against the Company,
and to the Seller's Knowledge the other parties thereto in accordance with its
terms, and is in full force and effect. The Company has performed all material
obligations required to be performed by it to date under each of the Contracts.
Except as set forth in Schedule 3.15, neither the Company nor, to the Seller's
Knowledge, any other party thereto is in material breach of or default under any
Contract to which the Company is a party or by which it is bound or to which its
assets are subject (and no event has occurred which, with due notice or lapse of
time or both, would constitute such a lapse or default). The Seller has
delivered to the Purchaser a copy of each Contract or other written evidence of
the obligations, and all amendments thereto, listed or required to be listed in
Schedule 3.15, except to the extent otherwise noted thereon.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) Set forth on Schedule 3.16(a) is a true and complete list of all
Intellectual Property and Software Products (as defined in Section 3.17 below)
(collectively, the "LISTED INTELLECTUAL PROPERTY") now used in the business of
the Company except the mass- market third-party software described in Section
3.16(d).
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(b) Set forth on Schedule 3.16(b) is a complete list of all licenses
or agreements which in any way affect the rights of the Company to any of the
Listed Intellectual Property (the "Intellectual Property Licenses"); such list
indicates the specific Listed Intellectual Property affected by each such
Intellectual Property License.
(c) Except as set forth on Schedules 3.16(a) and Schedule 3.16(b),
neither the Listed Intellectual Property nor any Intellectual Property License
infringes or provides any basis to believe that the Company's operations or any
Listed Intellectual Property or Intellectual Property License would infringe
upon any validly issued trademark, trade name, service xxxx, copyright or, any
validly issued patent or other right of any other third party. The manner in
which the Company has manufactured, packaged, shipped, advertised, labeled and
sold its products complies with all applicable laws and regulations pertaining
thereto, the failure to comply with which would have a Material Adverse Effect.
(d) The Company has a valid license to use each copy of mass-market
third-party software used by it.
(e) Except as set forth on Schedule 3.16(a) and Schedule 3.16(b),
each of the Intellectual Property Licenses is valid, binding and enforceable in
accordance with its terms against the parties thereto, the Company has performed
all obligations imposed upon it thereunder, and neither the Company nor any
other party thereto is in default thereunder, nor is there any event which with
notice or lapse of time, or both, would constitute a default thereunder.
(f) All Marks, Patents and registered copyrights are valid,
subsisting, unexpired, in proper form and enforceable and all renewal fees and
other maintenance fees which have fallen due on or prior to the effective date
of this Agreement have been paid. The grants, registrations and applications for
such Marks, Patents and registered copyrights have not lapsed, expired or been
abandoned and, except for the Trademark Opposition, no application or
registration thereof is the subject of any legal or governmental proceeding
before any governmental, registration or other authority in any jurisdiction.
All products and materials containing a Xxxx xxxx the proper notice where
permitted by law.
(g) Trade Secrets
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
(ii) The Seller and the Company has taken all reasonable
precautions to protect the secrecy, confidentiality, and value of the Trade
Secrets.
(iii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not
part of the public knowledge or literature, and, to the Seller's Knowledge, have
not been used, divulged, or appropriated either for the benefit of any Person
(other than the Company) or to the detriment of the Company. No Trade Secret is
subject to any adverse claim or has been challenged or threatened in any way.
29
(h) Except as set forth in Schedule 3.16, to the Knowledge of the
Seller, there are no conflicts with or infringements of any Intellectual
Property by any third party. Apart from the AKS Litigation, no Xxxx has been or
is now involved in any opposition, invalidation or cancellation and, to the
Seller's Knowledge, no such action is threatened with respect to any of the
Marks. Except as set forth in Schedule 3.16, the conduct of the Company's
business as currently conducted does not conflict with or infringe in any way
with any proprietary right of any third party, which conflict or infringement
could have a material adverse effect on the Company, the Intellectual Property
or the business of the Company. Except as set forth in Schedule 3.16, there is
no claim, suit, action or proceeding pending or threatened against the Company
(i) alleging any such conflict or infringement with any third party's
proprietary rights or (ii) challenging the ownership, use, validity or
enforceability of the Intellectual Property.
(i) No consents, filings or authorizations by or with Governmental
Agencies or third parties in respect of the Listed Intellectual Property are
necessary to consummate the transactions contemplated hereby.
(j) Neither the Seller nor the Company has entered into any material
consent, indemnification, forbearance to xxx, settlement agreement or
cross-licensing arrangement with any person relating to the Intellectual
Property or the intellectual property of any third party other than as may be
contained in the license agreements listed in Schedule 3.16. Except as set forth
in Schedule 3.16, the Company is not under any obligation to pay royalties or
similar payments in connection with any license to any of its Affiliates.
(k) No former or present employees, officers or directors of the
Company hold any right, title or interest directly or indirectly, in whole or in
part, in or to any Intellectual Property.
SECTION 3.17. SOFTWARE PRODUCTS.
Except as specifically set forth on Schedule 3.17, the Company is
the sole and exclusive owner or licensee of:
(a) the Listed Intellectual Property, the Intellectual Property
Licenses and the technology, know-how and processes now used by the Company, or
used in connection with any product now being manufactured and sold by the
Company, in the manner that such product is now being manufactured and sold; and
(b) all rights, title and interest of whatever kind or nature
throughout the world in and to the fully or partially developed computer
software products listed on Schedule 3.16(a) and Schedule 3.16(b), with all
modifications, enhancements and additions thereto, including, without
limitation, all rights in and to all versions thereof and all source code,
object code, manuals and other documentation and related materials thereof
(collectively, the "Software Products"). Without limiting the generality of the
above, the Software Products shall also include all of the Company's related
programs, trade secrets, algorithms and processes relating to the Software
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Products or such programs, the Company's copyright in and to each of the
Software Products and all works derivative therefrom, all current, previous,
enhanced and developmental versions of the source and object code and any
variations thereof, all user and programmer documentation, all design
specifications, all maintenance and installation routines, all system
documentation (including all flow charts, systems procedures and program
component descriptions), all procedures for modification and preparation for the
release of enhanced versions and all test data available (excluding all
proprietary information of third parties) with respect to the Software Products.
(c) The transactions contemplated hereby will not result in the
termination of any publishing or license agreements with respect to products or
materials incorporated in the Software Products or otherwise alter the Company's
ability to sell the Software Products.
(d) The Software Products are free from any significant software
defect or programming or documentation error, conform to the specifications
thereof, and, with respect to owned Software Products, the applications can be
recreated from their associated source code.
(e) Except as set forth on Schedule 3.17 hereto, the Seller has no
Knowledge of the existence of any bugs or viruses contained in CD-ROMs or in
downloadable files on which the Software Products are distributed which cause
the Software Products to be uninstallable.
SECTION 3.18. LABOR RELATIONS.
Except as set forth on Schedule 3.18, the Company is not a party to
any collective bargaining agreement covering Employees, there are no
controversies or unfair labor practice proceedings pending or, to the Seller's
Knowledge, threatened between the Company and any of its current or former
Employees or any labor or other collective bargaining unit representing any
current or former Employee of the Company that could reasonably be expected to
result in a labor strike, dispute, slow-down or work stoppage or otherwise have
a Material Adverse Effect. To the Seller's Knowledge, except as set forth on
Schedule 3.18, no organizational effort is presently being made or to the
Knowledge of the Seller, threatened by or on behalf of any labor union.
SECTION 3.19. EMPLOYEE BENEFITS.
(a) Schedule 3.19(a) sets forth all Employee Benefit Plans and all
other employee benefit arrangements or payroll practices, including, without
limitation, any such arrangements or payroll practices providing severance pay,
sick leave, vacation pay, salary continuation for disability, retirement
benefits, deferred compensation, bonus pay, incentive pay, stock options,
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, maintained by the Company or to which the Company is
obligated to contribute for Employees or Former Employees. Each of the employee
benefit plans, practices and arrangements set forth on Schedule 3.19(a) shall
hereafter be referred to as a "Plan" (or "Plans" as the context may require).
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(b) Except with respect to any Multiemployer Plan, copies of the
following documents, with respect to each of the Plans as applicable, have been
delivered to Purchaser by the Seller: (i) all plan and related trust documents,
and amendments thereto; (ii) the most recent IRS Form 5500; (iii) the last IRS
determination letter; (iv) summary plan descriptions; and (v) the most recent
actuarial report.
(c) Except as set forth on Schedule 3.19(c), none of the Plans is a
Multiemployer Plan. Neither the Company nor any ERISA Affiliate has incurred any
Liability resulting from a complete or partial withdrawal from any Multiemployer
Plan, and none of them has incurred, or is reasonably likely to incur, any
Liability due to the termination or reorganization of a Multiemployer Plan which
has not been satisfied in full, and to the Knowledge of the Seller, no event has
occurred that would subject the Company or any ERISA Affiliate to any such
liability.
(d) Neither the Company nor any ERISA Affiliate has incurred, or is
reasonably likely to incur, any Liability under Section 4062, 4063 or 4064 of
ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA with
respect to any Single-Employer Plan, and to the Knowledge of the Seller, no
event has occurred that would subject the Company or any ERISA Affiliate to any
such Liability. All premiums due the PBGC with respect to all Single-Employer
Plans maintained by the Company and its ERISA Affiliates have been timely paid.
Neither the Company nor any ERISA Affiliate has engaged in any transaction
described in Section 4069 of ERISA. Except as set forth on Schedule 3.19(d),
there has been no "reportable event", within the meaning of Section 4043 of
ERISA, with respect to any Single-Employer Plan maintained by the Company or its
ERISA Affiliates which would require the giving of notice to the PBGC. No
Single-Employer Plan maintained by the Company or its ERISA Affiliates has
incurred an accumulated funding deficiency within the meaning of Section 412 of
the Code.
(e) Except with respect to any Multiemployer Plan, each Plan
complies with, and has been established, operated and administered in accordance
with its terms and the requirements of, ERISA, the Code and other applicable
laws.
(f) Except with respect to any Multiemployer Plan, there are no
material pending or, to Seller's Knowledge, threatened claims by, on behalf of
or involving any Plan Administrator or any Plan Trustee (other than routine
claims for benefits).
(g) Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax or penalty imposed by Section 4975 of the Code or Section
502(i) of ERISA with respect to any Plan.
32
(h) With respect to each Plan that is a Single-Employer Plan, the
most recent actuarial report prepared by the Plan's actuary, using the actuarial
methods and assumptions contained in such report, fairly presents the fair
market value of the assets of each such Plan and the present value of the
Liabilities in respect of the benefits accrued under each such Plan, and since
the date of such actuarial report there has been no material adverse change in
the funded status of any such Plan after taking into account the additional
accrual of benefits by participants since the date of such actuarial report
through the Closing Date.
(i) Each Plan which is intended to qualify under Section 401(a) of
the Code has received an IRS determination letter concluding that such Plan so
qualifies in form, and no event has occurred and no condition exists that, to
the Seller's Knowledge, would cause such Plan to lose its qualified status.
(j) Except as set forth on Schedule 3.19(j) or as may be required
under Section 4980B of the Code, Section 601 of ERISA or other applicable
foreign, state or local law, the Company does not have any Liability for
post-retirement medical or life insurance benefits or coverage for any Employee
or Former Employee or any dependent of any such employee. The reserve reflected
in the Balance Sheet will be adequate in accordance with GAAP for the payment or
provision of all such benefits.
(k) Except as set forth on Schedule 3.19(k), the consummation of the
transactions contemplated by the Transaction Documents will not result in any
increase in the amount of compensation or benefits or accelerate the vesting or
timing of payment of any compensation or benefits payable by the Company to or
in respect of any Employee or Former Employee or the beneficiary or dependent of
any such employee under any Plan.
(l) All payments (including all employer contributions and employee
contributions with respect to the Employee Benefit Plans) required to have been
made under the Plans or by law (without regard to any waivers granted under
Section 412 of the Code) have been made by the due date thereof (including any
valid extension), and all payments for any period ending on or before the
Closing which are not yet due will have been paid or accrued by the Closing
Date.
SECTION 3.20. INSURANCE.
Schedule 3.20(a) sets forth a list of all insurance policies and all
material fidelity bonds or other insurance service contracts (the "INSURANCE
POLICIES") providing coverage for the properties or operations of the Company,
the type and amount of coverage, and the expiration dates of the Insurance
Policies. Except as set forth on Schedule 3.20(b), there is no claim by the
Company pending under any of the Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies. All
premiums payable under all Insurance Policies have been paid, and the Company
has otherwise complied in all material respects with the terms and conditions of
all the Insurance Policies. The Insurance Policies are valid and enforceable in
accordance with their terms, are issued by an insurer that is reputable, are in
full force and effect and insure against risk and liabilities customary in the
industry and as required by Legal Requirements and the Contracts. Neither the
Seller nor the Company has received notice from any insurance carrier: (i)
threatening a suspension, revocation, modification or cancellation of any
Insurance Policy or a material increase in any premium in connection therewith,
or (ii) informing Seller that any coverage listed on Schedule 3.20 will or may
not be available in the future on substantially the same terms as now in effect.
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SECTION 3.21. LITIGATION.
Except as set forth in Schedule 3.21, there are no claims, actions,
suits, proceedings, labor disputes or investigations pending or to the Seller's
Knowledge threatened before any Governmental Agency brought by or against the
Seller, the Company or any of their respective officers, directors, Employees,
agents or Affiliates involving, affecting or relating to any assets, properties
or operations of the Company or the transactions contemplated by the Transaction
Documents, nor to the Seller's Knowledge is there any Basis for any such action,
suit, proceeding or investigation. Schedule 3.21 sets forth a list and a summary
description of all such pending actions, suits, proceedings, disputes or
investigations. Neither the Company nor any of its assets or properties is
subject to any Order that affects or might affect its assets, properties,
operations, prospects, net income or financial condition or which would or might
interfere with the transactions contemplated by the Transaction Documents.
SECTION 3.22. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 3.22, to its Knowledge:
(a) the Company is, and since January 1, 2001 (the "Environmental
Reference Date"), has been in compliance with all Environmental Laws;
(b) the Company has no Liability, whether contingent or otherwise,
under any Environmental Law;
(c) no request for information, notice, Governmental Agency inquiry,
demand letter, notice of violation or alleged violation of, non-compliance or
alleged non-compliance with or any Liability under, any Environmental Law by or
relating to operations or properties of the Company has been received by or
threatened in writing against the Company since the Environmental Reference
Date, or, to Seller's Knowledge, before the Environmental Reference Date;
(d) the Company has not entered into or been subject to, and is not
currently a party or respondent to, any Orders nor are any administrative, civil
or criminal actions, suits, proceedings or investigations pending or, to
Seller's Knowledge, threatened, relating to any Environmental Law affecting the
Company;
(e) the Company has neither expressly nor by operation of law,
assumed or undertaken any Liability, including without limitation any obligation
for Costs of Remediation, of any other Person;
34
(f) the Company has not, and the Seller has no Knowledge of any
other Person who has, caused any Release or threatened Release of any Hazardous
Material on, in, under, or from the Leased Property nor does the Seller have
Knowledge of any such Release; and
(g) the Company has not received any written or, to the Seller's
Knowledge, other communication indicating or claiming potential Liability for
Damages or Costs of Remediation with respect to a Release or threatened Release
of any Hazardous Material.
SECTION 3.23. TAX MATTERS.
(a) Except as otherwise disclosed in Schedule 3.23(a), (i) the
Company has filed (or joined in the filing of) when due all Tax Returns required
by applicable law to be filed with respect to the Company and all Taxes shown to
be due on such Tax Returns have been paid; (ii) all such Tax Returns were true,
correct and complete as of the time of each such filing; (iii) all Taxes
relating to periods ending on or before the Closing Date owed by the Company
(whether or not shown on any Tax Return) or to which the Company may be liable
under Treasury Regulations ss. 1.1502-6 (or analogous state or foreign
provisions) by virtue of having been a member of any Affiliated Group (or other
group filing on a combined or unitary basis) at any time on or prior to the
Closing Date, if required to have been paid, have been paid (except for Taxes
which are being contested in good faith); (iv) any liability of the Company for
Taxes not yet due and payable, or which are being contested in good faith, has
been provided for on the financial statements of the Company in accordance with
generally accepted accounting principles; (v) there is no action, suit,
proceeding, investigation, audit or claim now pending against, or with respect
to, the Company in respect of any Tax or assessment, nor is any claim for
additional Tax or assessment asserted by any Governmental Agency; (vi) since
January 1, 2001, no claim has been made by any Governmental Agency in a
jurisdiction where the Company does not currently file a Tax Return that it is
or may be subject to Tax by such jurisdiction, nor to the Seller's Knowledge is
any such assertion threatened; (vii) there is no outstanding request for any
extension of time within which to pay any Taxes or file any Tax Returns (viii)
there has been no waiver or extension of any applicable statute of limitations
for the assessment or collection of any Taxes of the Company; (ix) the Company
is not a party to any agreement, whether written or unwritten, providing for the
payment of Taxes, payment for Tax losses, entitlements to refunds or similar Tax
matters; (x) no ruling with respect to Taxes (other than a request for
determination of the status of a qualified pension plan) has been requested by
or on behalf of the Company; and (xi) the Company has withheld and paid all
material Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(b) (i) no property of the Company is "tax-exempt use property"
within the meaning of Section 168(h) of the Code; (ii) the Company is not a
party to any lease made pursuant to former Section 168(f)(8) of the Internal
Revenue Code of 1954; (iii) the Company has not filed any agreement or consent
under Section 341(f) of the Code; (iv) the Seller is not a "foreign person"
within the meaning of Section 1445 of the Code; (v) the Company has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; and (vi) the Company has withheld and paid all
material Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party.
SECTION 3.24. INTERIM OPERATIONS.
Since the Balance Sheet Date, the Company has operated only in the
Ordinary Course of Business, and except as set forth in Schedule 3.24 the
Company has not:
(a) suffered any material adverse change in the assets, properties,
business, operations, prospects, net income or financial condition of the
Company or any Basis therefor;
(b) changed its authorized or issued capital stock; granted any
stock option or right to purchase shares of capital stock; issued any security
convertible into such capital stock; or made any Equity Distributions;
35
(c) incurred or become subject to, or agreed to incur or become
subject to, any material obligation or Liability, except in the Ordinary Course
of Business;
(d) mortgaged or pledged any of its assets, tangible or intangible,
except for Permitted Liens;
(e) sold or transferred or agreed to sell or transfer any of its
assets, or canceled or agreed to cancel any debts or claims except in the
Ordinary Course of Business;
(f) suffered any extraordinary losses or, except in the Ordinary
Course of Business, waived any material rights;
(g) terminated any contract, agreement, license, or other instrument
to which it is a party, except in the Ordinary Course of Business;
(h) increased the rate of compensation payable by it to any
employee, whose compensation is determined other than by multiplying the number
of hours worked by an hourly rate (a "Salaried Employee"), over the rate being
paid or accrued to them as of the Balance Sheet Date;
(i) made or agreed to make any accrual or arrangement for or payment
of bonuses or special compensation of any kind to any of its Salaried Employees;
or general increase in the salary or bonus payable or to become payable by the
Company to any Employee other than Salaried Employees (other than increases
granted to individual employees for merit, length of service, change in position
or responsibility or other reasons applicable to specific Employees and not
generally to a class or group thereof);
36
(j) entered into any agreement, written or oral, providing for the
employment of any Employee or any severance or termination benefits payable or
to become payable by the Company to any Employee;
(k) taken any action which would have constituted a breach of any
negative covenant of the Seller set forth in Article V or VI if such negative
covenant had applied since the Balance Sheet Date; or
(l) suffered any shortages of materials or supplies or any casualty
that individually or in the aggregate has had or could reasonably be expected to
have a Material Adverse Effect.
SECTION 3.25. BROKERS.
All negotiations relative to the Transaction Documents and the
transactions contemplated hereby and thereby have been carried on by the Seller
without the intervention of any other Person acting on their behalf in such
manner as to give rise to any valid claim by any such Person against the Company
or Purchaser for a finder's fee, brokerage commission or other similar payment
based on an arrangement with the Seller, with the exception of Baytree Capital
Associates, LLC.
SECTION 3.26. PRODUCT LIABILITY.
Except as disclosed in Schedule 3.26:
(a) to the Company's knowledge (without the requirement of due
inquiry) there has not been during the past six (6) years and there is no
notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice of
violation or investigation of a civil, criminal or administrative nature by or
before any Governmental Agency against or involving any product, substance or
material (collectively, a "Product"), or class of claims or lawsuits involving a
Product manufactured, produced, distributed or sold by or on behalf of the
Company which is pending or, to the Seller's Knowledge (without the requirement
of due inquiry), threatened, on behalf of the ultimate retail purchaser of any
Product, resulting from an alleged defect in design, manufacture, materials or
workmanship of any Product manufactured, produced, distributed or sold by or on
behalf of the Company, or any alleged failure to warn, or from any breach of
express or implied specifications or warranties or representations (a "Product
Claim");
(b) there has not been, nor is there under consideration or
investigation by the Company, any Product recall, rework, retrofit or post-sale
warning (collectively, "Recalls") conducted by or on behalf of the Company
concerning any Products manufactured, produced, distributed or sold by or on
behalf of the Company or, to the Knowledge of the Seller, any Recall conducted
by or on behalf of any entity as a result of any alleged defect in any Product
supplied by the Company; and
(c) there is no Product Claim pending or, to the Seller's Knowledge
threatened, on behalf of a customer of the Company or any Governmental Agency
which individually or in the aggregate has had or could reasonably be expected
to have a Material Adverse Effect.
37
SECTION 3.27. BOOKS AND RECORDS OF THE COMPANY.
The books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to the Purchaser,
are complete and correct, accurately reflect in reasonable detail the
transactions to which the Company is a party or by which its properties are
bound in accordance with GAAP and have been maintained in accordance with sound
business practices and the requirements of Section 13(b)(2) of the Securities
Exchange Act (regardless of the fact that the Company is not subject to that
Section), including the maintenance of an adequate system of internal controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the boards of
directors, and committees of the board of directors of the Company, and no
meeting of any such stockholders, board of directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be delivered to the
Purchaser.
SECTION 3.28. SUPPLIERS.
Schedule 3.28 lists the ten largest suppliers (measured by dollar
volume) of the Company during the last fiscal year ("MAJOR SUPPLIERS") and the
amount of business done with each Major Supplier in such year. As of the date of
this Agreement, except as set forth on Schedule 3.28, (a) the Company is not
engaged in a material dispute with any Major Supplier, (b) there has been no
material adverse change in the business relationship of the Company with any
Major Supplier since December 31, 2002, and (d) no Major Supplier has threatened
in writing any material modification or change in the business relationship with
the Company.
SECTION 3.29. CERTAIN PAYMENTS.
Since January 1, 2001, neither the Seller nor the Company nor any of
their respective directors, officers, agents, or Employees, or to the Seller's
Knowledge any other Person associated with or acting for or on behalf of the
Seller or the Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
the Company, or (iv) in violation of any Legal Requirement, or (b) established
or maintained any fund or asset that has not been recorded in the books and
records of the Company.
38
SECTION 3.30. ACCOUNTS.
Schedule 3.30 hereto correctly identifies each bank account,
brokerage account and safety deposit box maintained by or on behalf or for the
benefit of the Company and the name of each person with any power or authority
to act with respect thereto.
SECTION 3.31. DISCLOSURE.
(a) No representation or warranty of the Seller in this Agreement
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
(b) There is no fact known to the Seller that has specific
application to either the Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as the
Seller can reasonably foresee, materially threatens the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or the Schedules hereto.
SECTION 3.32. INVESTMENT INTENT; STATUS.
The Stock Consideration will be acquired hereunder solely for the
account of the Seller for investment, and not with a view to the resale or
distribution thereof in violation of the Securities Act, subject to the right of
the Seller to sell, assign, transfer or distribute any or all of the Stock
Consideration to any Person which is an Affiliate of the Seller. Seller is an
"accredited investor" within the meaning of Regulation 501 promulgated under the
Securities Act.
SECTION 3.33. NO CHANGE TO BUSINESS.
Since the date of the Balance Sheet, there has been no material
change to the conduct or operation of the Business.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller as follows:
SECTION 4.1. AUTHORITY OF PURCHASER.
The Purchaser is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California. The Purchaser has
full corporate power and authority to execute and deliver the Transaction
Documents, the execution and delivery by Purchaser of the Transaction Documents
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Purchaser, and this Agreement constitutes, and the other Transaction
Documents when executed and delivered by the parties thereto will constitute,
the legal, valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws from
time to time in effect which affect creditors' rights generally, and by legal
and equitable limitations on the enforceability of specific remedies. The
Purchaser has the requisite corporate power and authority to own its properties
and to carry on the business presently being conducted by it.
39
SECTION 4.2. NO CONFLICT OR VIOLATION.
Neither the execution and delivery of the Transaction Documents by
the Purchaser, nor the consummation or performance of any of the transactions
contemplated hereby or thereby will, directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Articles of Incorporation or By-Laws of the Purchaser, or (ii)
any resolution adopted by the board of directors or the stockholders of the
Purchaser;
(b) contravene, conflict with, or result in a violation of, or give
any Governmental Agency or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under, any Legal Requirement to which the Purchaser may be subject;
(c) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any material contract, lease, or permit of the Purchaser;
or
(d) except for filings under the Securities Act, and the Securities
Exchange Act, require the consent, approval, or authorization of, or
registration or filing with, any Governmental Agency or any other Person on
behalf of Purchaser;
provided, however, that no representation or warranty is made hereby
by the Purchaser with respect to the effect of antitrust laws or regulations.
SECTION 4.3. LITIGATION.
There are no actions, causes of action, claims, suits, proceedings
or Orders pending or, to the actual knowledge, after reasonable inquiry, of the
executive officers of the Purchaser, threatened against the Purchaser at law, in
equity, in admiralty or otherwise, or before or by any Governmental Agency,
which seek to restrain or enjoin the consummation of the transactions
contemplated hereby.
SECTION 4.4. BROKERS.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by the Purchaser without the
intervention of any other Person acting on its behalf in such manner as to give
rise to any valid claim by any such Person against the Seller or its Affiliates
(other than, after the Closing, the Company) for a finder's fee, brokerage
commission or other similar payment based on an arrangement with the Purchaser.
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SECTION 4.5. STOCK CONSIDERATION.
The issuance of the Stock Consideration to the Seller has been duly
authorized and, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable.
SECTION 4.6. SEC REPORTS AND FINANCIAL STATEMENTS.
The Purchaser has filed with the Securities and Exchange Commission
true and complete copies of the Purchaser's Annual Report on Form 10-KSB for the
year ended June 30, 2003 and all forms, reports, schedules, statements and other
documents required to be filed by the Purchaser under the Securities Act, or the
Securities Exchange Act, from and after the filing thereof (such annual report,
forms, reports, schedules, statements and other documents, including any
financial statements or schedules included therein, the "PURCHASER SEC
DOCUMENTS"). The Purchaser SEC documents, at the time filed, (a) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Securities Exchange Act, and the Securities Act, as the case
may be, and the applicable rules and regulations promulgated thereunder. There
have not been any amendments to the Purchaser SEC Documents since the initial
filing thereof. The financial statements of the Purchaser contained in the
Purchaser SEC Documents have been prepared in accordance with GAAP applied on a
consistent basis during the period involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X promulgated by the Securities and Exchange Commission)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the
Purchaser and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
SECTION 4.7. INVESTMENT INTENT; STATUS.
The Stock will be acquired hereunder solely for the account of the
Purchaser for investment, and not with a view to the resale or distribution
thereof in violation of the Securities Act, subject to the right of the
Purchaser and any such designees to sell, assign, transfer or distribute any or
all of the Stock to any Person which is an Affiliate of the Purchaser. Purchaser
is an "accredited investor" within the meaning of Regulation 501 promulgated
under the Securities Act.
ARTICLE V.
CERTAIN COVENANTS OF THE SELLER
The Seller covenants with the Purchaser that from and after the date
hereof through the Closing Date (except as consented to or approved by the
Purchaser in writing):
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SECTION 5.1. CONDUCT OF BUSINESS.
The Seller shall cause the Company:
(a) to operate only in the Ordinary Course of Business and to
continue to maintain, in all material respects, its properties in accordance
with present practices in a condition suitable for their current use.
**Confidential portion omitted and filed separately with the Securities and
Exchange Commission**;
(b) to use commercially reasonable efforts to keep available
generally the services of its present officers and Employees, and preserve
generally the present relationships with Persons having business dealings with
it;
(c) not to make any sale, assignment, transfer, abandonment, or
other conveyance of any of its assets or any part thereof;
(d) to keep in full force and effect insurance comparable in amount
and scope to coverage maintained by it (or on behalf of it) on the date hereof;
(e) not to settle, release or forgive any material claim or
litigation or waive any material right; **Confidential portion omitted and filed
separately with the Securities and Exchange Commission**;
(f) not to make, change or revoke, or permit to be made, changed or
revoked, without the consent of the Purchaser, which shall not be unreasonably
withheld, any material election or method of accounting with respect to Taxes;
(g) not to enter into, or permit to be entered into, without the
consent of the Purchaser any closing or other agreement or settlement with
respect to Taxes affecting or relating to the Company;
(h) not to enter into or amend any Plan and not to grant any
increase in the salary or other compensation of any Employee, except as would
not constitute a breach of Section 3.24;
(i) Except as set forth in Schedule 5.1, not to enter into any
employment Contract with any director, executive officer or Employee of the
Company or make any loan to, or enter into any material transaction of any other
nature with, any director, executive officer or Employee of the Company;
(j) Except as set forth in Schedule 5.1, not to acquire, lease or
dispose or agree to acquire, lease or dispose of any capital assets;
(k) not to change its authorized or issued capital stock; grant any
stock option or right to purchase shares of capital stock; issue any security
convertible into such capital stock; or make any Equity Distribution;
(l) not to incur any Indebtedness other than working capital
borrowings in the Ordinary Course of Business;
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(m) not to incur, or suffer to exist, any Lien on the assets of the
Company other than Permitted Liens;
(n) not to take any action that would cause any of the
representations and warranties made by the Seller in this Agreement not to
remain true and correct; and
(o) to inform the Purchaser of the occurrence of any event which
could reasonably be expected to result in a breach of any representation or
warranty contained in Article III.
SECTION 5.2. INFORMATION AND ACCESS.
The Seller shall permit and cause the Company to permit
representatives of the Purchaser to have reasonable access during normal
business hours, and in a manner so as not to interfere with the normal
operations of the Company, to all premises, properties, personnel, accountants,
books, records, contracts and documents of the Company.
SECTION 5.3. CONFIDENTIALITY AGREEMENTS.
At the Closing, the Seller shall assign to the Purchaser the
benefits of all confidentiality agreements, if any, relating to the possible
sale of the Company or any material portion of the assets thereof to the extent
such assignment is not expressly prohibited by the terms of such agreements.
SECTION 5.4. BEST EFFORTS.
Upon the terms and subject to the conditions of this Agreement, each
of the parties hereto shall use reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable consistent with applicable law to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby;
provided, however, that nothing in this covenant or any other provision of this
Agreement or any other Transaction Document shall require the Purchaser to agree
to any divestiture, hold-separate or other similar agreement or requirement.
SECTION 5.5. NO SHOP.
(a) The Seller shall not and shall cause the Company not to,
directly or indirectly, through any representative or otherwise, solicit or
entertain offers from, negotiate with or in any manner encourage, discuss,
accept, or consider any proposal of any other Person relating to the acquisition
of the Stock or the Company, its assets or business, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation, or
otherwise (other than sales of inventory in the ordinary course); and
(b) The Seller shall immediately notify the Purchaser regarding any
contact between the Seller, the Company or their respective representatives and
any other Person regarding any such offer or proposal or any related inquiry.
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SECTION 5.6. NOTICES OF CERTAIN EVENTS.
The Seller shall promptly notify the Purchaser of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement or any other Transaction Document;
(b) any notice or other communication from any Governmental Agency
in connection with the transactions contemplated by this Agreement or any other
Transaction Document; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting the Seller or the Company if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
3.21 or that relate to the consummation of the transactions contemplated by this
Agreement or any other Transaction Document.
SECTION 5.7. NO DUPLICATES.
Neither the Seller nor any of its Affiliates shall directly or
indirectly retain, use or transfer any copies, duplicates or derivative versions
of any of the Company's databases or mailing lists (whether in postal or e-mail
form) from and after the Closing Date without the Purchaser's prior express
written consent; provided, however that the Seller may continue to use the
Seller's own databases and mailing lists which contain some limited overlap of
information with that contained in the Company's databases and mailing lists, so
long as the Seller does not take any action inconsistent with the Purchaser's
sole rights in the Company's databases and mailing lists.
ARTICLE VI.
CERTAIN COVENANTS AND AGREEMENTS
SECTION 6.1. TRANSFER TAXES.
All sales, recording, transfer, stamp, registration, conveyance,
value added, use, or other similar Taxes, duties, excise, governmental charges
or fees (including penalties and interest) imposed as a result of the sale of
the Stock to the Purchaser or the issuance of the Stock Consideration to the
Seller pursuant to this Agreement shall be borne by the Seller. The Purchaser
shall promptly remit any refunds of such items to the Seller. The Seller and the
Purchaser, to the extent required by Legal Requirements, shall prepare and file
all Tax Returns and other documentation on a timely basis with respect to any
such Taxes or fees.
SECTION 6.2. OBLIGATION TO FILE TAX RETURNS.
The Seller shall cause to be prepared and filed all Tax Returns with
the appropriate federal, state, local and foreign Governmental Agencies relating
to the Company for periods ending on or prior to the Closing Date and shall pay
all Taxes due with respect to such Tax Returns. The Purchaser shall cause to be
prepared and filed all Tax Returns required to be filed by the Company for
periods after to the Closing Date and shall pay all Taxes due with respect to
such Tax Returns.
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SECTION 6.3. CERTAIN PROVISIONS RELATING TO CONSENTS.
The Seller shall use commercially reasonable efforts prior to and
after the Closing Date to obtain all consents that are required in connection
with the transactions contemplated by this Agreement and the other Transaction
Documents. The Seller shall not obtain any consent that will affect the
Purchaser or the Company to the economic detriment of either, including any
modification of any Contract, Lease or Permit. The Purchaser shall cooperate as
reasonably necessary or desirable to secure the third party consents, including,
without limitation, providing to such third party information, including
financial information; provided, however, that neither the Purchaser nor the
Company shall be required to incur any liability or obligation in connection
therewith, other than for the underlying matter for which such consent was
obtained as in effect immediately prior to such consent.
SECTION 6.4. NONDISCLOSURE; NONCOMPETITION; NON-SOLICITATION.
(a) Except as required by law, from and after the Closing Date, the
Seller shall not use, divulge, furnish or make accessible to anyone any
proprietary, material non-public, confidential or secret information to the
extent relating to the Company (including, without limitation, customer lists,
supplier lists and pricing and marketing arrangements with customers or
suppliers) or the Business, and the Seller shall cooperate reasonably with the
Purchaser in preserving such proprietary, confidential or secret aspects of the
Company and the Business. Notwithstanding the foregoing, nothing in this
Agreement shall prohibit the disclosure of the tax treatment and tax structure,
each as defined in Treasury Regulations Section 1.6011-4, of the transaction
(but no other details about the matters covered by this Agreement, including,
without limitation, the identities of the parties except as may be required by
legal rule, regulation or legal process).
(b) Prior to the end of the Third Earn-Out Period, Seller shall not
engage in Competitive Business Activities. Subject to Section 6.9, the Seller
shall not, directly or indirectly, for a period of three (3) years from the
Closing Date, (i) solicit for hire or enter into any contractual arrangement
with any Employee without the prior written consent of the Purchaser unless such
Employee has not been employed by the Company or the Purchaser for a period of
two (2) years; or (ii) call on or solicit any of the customers or suppliers of
the Business or make known the names and addresses of such customers or
suppliers or any information relating in any manner to the Business or the
Company's relationships with such customers or suppliers. The Seller agrees that
a violation of this Section will cause irreparable injury to the Purchaser, and
the Purchaser shall be entitled, in addition to any other rights and remedies it
may have at law or in equity, to an injunction enjoining and restraining the
Seller from doing or continuing to do any such violation and any other
violations or threatened violations of this Section.
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(c) The Seller acknowledges and agrees that the covenants set forth
in this Section are reasonable and valid in scope and in all other respects. If
any of such covenants is found to be invalid or unenforceable by a final
determination of a court of competent jurisdiction (i) the remaining terms and
provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision. In the event that, notwithstanding the first
sentence of this paragraph (c), any of the provisions of this Section relating
to scope of the covenants contained therein or the nature of the business
restricted thereby shall be declared by a court of competent jurisdiction to
exceed the maximum restrictiveness such court deems enforceable, such provision
shall be deemed to be replaced herein by the maximum restriction deemed
enforceable by such court.
SECTION 6.5. SECTION 338(H)(10) ELECTION.
(a) With respect to the sale of the Stock, in the event that Seller
is unable to obtain assurances from its tax advisors and if so requested by the
Purchaser upon notice to the Seller on or before the Closing Date, the Seller
and the Purchaser shall jointly make a Section 338(h)(10) Election (as
hereinafter defined) in accordance with applicable laws and under any comparable
provision of state, local or foreign law for which a separate election is
permissible and as set forth herein. The Purchaser and the Seller shall take all
necessary steps to properly make a Section 338(h)(10) Election in accordance
with applicable laws and under any comparable provision of state, local or
foreign law for which a separate election is permissible. The Purchaser and the
Seller agree to cooperate in good faith with each other in the preparation and
timely filing of any Tax Returns required to be filed in connection with the
making of such an election, including the exchange of information and the joint
preparation and filing of Form 8023 and related schedules. The Purchaser and the
Seller agree to report the transfers under this Agreement consistent with such
elections and shall take no position contrary thereto unless required to do so
by applicable tax law pursuant to a determination as defined in Section 1313(a)
of the Code.
(b) The Purchaser shall be responsible for the preparation and
filing of all Section 388 Forms (as hereinafter defined) in accordance with
applicable tax laws and the terms of this Agreement and shall deliver such
Section 338 Forms to the Seller at least 30 days prior to the date such Section
338 Forms are required to be filed. Seller shall execute and deliver to the
Purchaser such documents or forms (including executed Section 338 Forms) as are
requested and are required by any laws in order to properly complete the Section
338 Forms at least 20 days prior to the date such Section 338 Forms are required
to be filed. The Seller shall provide the Purchaser with such information as the
Purchaser reasonably requests in order to prepare the Section 338 Forms by the
later of 30 days after the Purchaser's request for such information or 30 days
prior to the date on which the Purchaser is required to deliver such forms to
the Seller.
(c) The Purchase Price, liabilities of the Company and other
relevant items shall be allocated in accordance with Section 338(b)(5) of the
Code and the Treasury Regulations thereunder. Purchaser shall, at its option,
determine the fair market value of the assets of the Company (the "Valuation").
The Valuation shall be binding on the Purchaser and the Seller unless the Seller
shall, within 10 days of delivery to the Seller of the Valuation, conclude in
good faith that the Valuation is manifestly unreasonable. The Purchaser shall be
under no obligation to have such Valuation prepared by an independent appraiser.
All values contained in the Valuation shall be used by each party in preparing
the forms referred to in Section 6.5(b) above and all other relevant Tax
Returns.
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(d) "Section 338 Forms" means all returns, documents, statements,
and other forms that are required to be submitted to any federal, state, county
or other local Tax authority in connection with a Section 338(h)(10) Election.
Section 338 Forms shall include, without limitation, any "statement of section
338 election" and IRS Form 8023 (together with any schedules or attachments
thereto) that are required pursuant to Treas. Regs. Section 1.338-1 or Treas.
Regs. Section 1.338(h)(10)-1 or any successor provisions.
(e) Notwithstanding any other provision of this Agreement to the
contrary, the Seller agrees that any income and gain recognized as a result of,
and in accordance with, the making of the Section 338(h)(10) Election will be
included in the consolidated federal income tax return of the Seller's
consolidated group and any resulting tax liability will be paid by the Seller,
as the common parent of the Seller's consolidated group. The Purchaser agrees
that it will pay and be responsible for, and will indemnify and save the Seller
harmless from, any reasonable costs incurred by the Seller (including but not
limited to costs incurred in connection with the preparation or restatement of
any Tax Return) or Taxes imposed on the Seller by any federal, state or local
Tax authority, in each case resulting from the Purchaser's election to treat the
purchase of the Stock as an asset acquisition under the statutes of any such Tax
authority.
(f) "Section 338(h)(10) Election" means an election described in
Section 338(h)(10) of the Code with respect to Purchaser's acquisition of Shares
pursuant to this Agreement. Section 338(h)(10) Election shall include any
corresponding election under state or local law pursuant to which a separate
election is permissible with respect to Purchaser's acquisition of Shares
pursuant to this Agreement.
SECTION 6.6. ONGOING TAX/AUDIT COOPERATION.
(a) If the Closing occurs, the Seller and the Purchaser shall
cooperate fully with each other and make available or cause to be made available
to each other in a timely fashion such Tax data, prior Tax Returns and filings
and other information as may be reasonably required for the preparation by the
Purchaser or the Seller of any Tax Returns, elections, consents or certificates
required to be prepared and filed by the Purchaser or the Seller and any audit
or other examination by any Governmental Agency, or judicial or administrative
proceeding relating to liability for Taxes. Without limiting the generality of
the foregoing, each of the Purchaser and the Seller shall retain copies of all
Tax Returns, supporting work schedules and other records relating to tax periods
or portions thereof ending prior to or including the Closing Date until the
later of (i) the expiration of the statute of limitations for the taxable
periods to which such Tax Returns and other documents relate, without regard to
extensions except for extensions obtained by that party or its Affiliates or
47
extensions regarding which such party has received written notice from another
party, or (ii) six years following the due date (without extensions) for such
Tax Returns; provided, however, that no party will dispose of its copies without
first notifying the other parties and providing such other parties with a
reasonable period of time to assume possession of such copies. In addition,
without limiting the generality of the foregoing, each party shall make its
personnel and those of its Affiliates reasonably available for deposition and
testimony in any tax controversy or proceeding. The Purchaser shall cooperate
with the Seller to the extent reasonably necessary for the Seller's preparation
of its financial statements and Tax Returns and in the sharing of financial and
accounting information with respect thereto or with respect to any audit,
examination, or other proceeding with respect thereto.
(b) If the Closing occurs, the Seller and the Purchaser shall
cooperate fully with each other and make available or cause to be made available
to each other in a timely fashion such financial data and other information as
may be reasonably required for the preparation by the Purchaser and the Seller
of their year-end audits and Form 10-KSB filings for their fiscal year ended
December 31, 2003 and June 30, 2004, respectively, and any other filings
required to be prepared and filed by the Seller or Purchaser by any Governmental
Agency. Without limiting the generality of the foregoing, the Purchaser and the
Seller shall retain copies of all financial data and other financial records
relating to the Company. The Purchaser and Seller shall cooperate to the extent
reasonably necessary for the preparation of its financial statements and
accounting information with respect thereto or with respect to any audit.
(c) No information or documentation provided pursuant to this
Section 6.6 shall be disclosed by the recipient thereof to any Person except its
accountants and relevant tax authorities or as required by applicable law (in
which case the disclosing party shall consult in good faith with the other party
prior to making any such disclosure).
SECTION 6.7. TAX RELATED COVENANTS.
Without the prior written consent of the Purchaser, neither the
Company nor any of its Subsidiaries shall make or change any election, change an
annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or any of its Subsidiaries, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating to the
Company or any of its Subsidiaries, or take any other similar action relating to
the filing of any Tax Return or the payment of any Tax, if such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action would have the effect of increasing the Tax liability of the Company or
any of its Subsidiaries for any period ending after the Closing Date or
decreasing any Tax attribute of the Company or any of its Subsidiaries existing
on the Closing Date.
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SECTION 6.8. FURTHER ASSURANCES.
Upon the request of the Purchaser at any time after the Closing
Date, the Seller shall forthwith execute and deliver such further instruments of
assignment, transfer, conveyance, endorsement, direction or authorization and
other documents as the Purchaser may reasonably request in order to perfect
title of the Purchaser and its successors and assigns to the Stock or otherwise
to effectuate the purposes of this Agreement.
SECTION 6.9. PURCHASER CONDUCT OF BUSINESS.
(a) Purchaser agrees to take all reasonable steps necessary and
required to allow the Company to meet the applicable maximum Earn-Out Payment
for each of the Earn-Out Periods. In furtherance thereof and not in limitation
thereto, except as otherwise agreed to by Seller, the Purchaser, until the
termination of the Third Earn-Out Period, covenants:
(i) to continue to operate the Business and maintain the
Company as a separate subsidiary, allowing it to conduct its business in the
ordinary course and not to materially change its operations, including, but not
limited to, not discontinuing any of the Company's products, services, business
models or development efforts.
(ii) to not take any action which would materially adversely
affect the ability of the Company to earn and realize the Aladdin Revenue,
including, but not limited to, (A) changing pricing or business models, (B) not
properly staffing the Company, in accordance with historical staffing levels and
with current revenue levels, and (C) not providing sufficient marketing
resources or advertising budgets, in accordance with historical level and with
current revenue levels.
(iii) to use its best efforts to preserve the Company's
business organization, sales channel and distribution network, to keep available
the services of the Company's present officers and key employees, to preserve
the good will of those having business relationships with the Company and to
continue its existing relationships with the Company's lenders, suppliers,
customers and key employees.
(b) Seller shall provide notice to Purchaser promptly upon the
occurrence of any breach of this Section 6.9, whereupon the Purchaser shall have
a period of 30 days to correct such breach. In the event the breach is not cured
within such 30 day period, the balance of the Earn-Out Payments not yet earned
during then-current and future Earn-Out Periods shall be deemed earned, and
shall be paid to the Seller immediately.
(c) Notwithstanding anything to the contrary herein, Seller and
Purchaser may, from time to time, agree in writing, to modify the provisions of
this so that it better reflects, in light of changing business circumstances,
the intent of the parties to allow the Company to achieve the maximum amount of
the Earn Out Payment.
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SECTION 6.10. MANAGEMENT OF SELLER.
Notwithstanding any other provision in this Agreement or the
Transaction Documents, Purchaser acknowledges that Xxxxxxxx Xxxx, Xxxxxx Xxxxxx
and Xxxxxxxxx Xxxxxxxx may continue to provide services to Seller as related to
(a) serving on Seller's Board of Directors, (b) Seller's on-going Securities Act
reporting requirements, (c) management of the assets of the Seller, (d)
**Confidential portion omitted and filed separately with the Securities and
Exchange Commission**, (e) the sale of Seller's Aladdin Enterprise Systems
subsidiary, and (f) distribution of the assets of the Seller (including the
establishment of a trust for the benefit of Seller's stockholders. Purchaser
agrees that no such acts on the part of Xxxxxxxx Xxxx, Xxxxxx Xxxxxx and
Xxxxxxxxx Xxxxxxxx shall be deemed to be a breach of this Agreement, any of the
Transaction Documents or a breach of any duty any of the foregoing might owe to
Purchaser or the Company as employees.
SECTION 6.11. USE OF ALADDIN NAME.
Notwithstanding anything to the contrary contained herein, Seller
may continue to use the name "Aladdin" as part of its corporate name for a
reasonable period of time, as solely determined by the Seller.
SECTION 6.12. TRANSFER OF PURCHASER PRODUCTS.
On the Closing Date, Purchaser shall assign to the Company,
Purchaser's HiJaak and Net Accelerator software lines for sale by the Company,
along with such other product lines as may be mutually agreed by the parties.
SECTION 6.13. **Confidential portion omitted and filed separately with the
Securities and Exchange Commission**
ARTICLE VII.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by the Seller) of each of the following conditions on or prior to the
Closing Date:
SECTION 7.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in
this Agreement which are qualified as to materiality shall be true and correct
on and as of the Closing Date as though such representations and warranties were
made anew on and as of the Closing Date, and all other representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made anew on and as of the Closing Date. The
Purchaser shall have delivered to the Seller a certificate of its President or a
Vice President, dated the Closing Date, to the foregoing effect.
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SECTION 7.2. COMPLIANCE WITH AGREEMENT.
The Purchaser shall have performed and complied with all covenants
to be performed or complied with by it on or prior to the Closing Date. The
Purchaser shall have delivered to the Seller a certificate of its President or a
Vice President, dated the Closing Date, to the foregoing effect.
SECTION 7.3. NO VIOLATION OF ORDERS.
No preliminary or permanent injunction or other order issued by any
court or Governmental Agency, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any Governmental Agency that declares
this Agreement or any other Transaction Document invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby or thereby shall be in effect; and no action or proceeding before any
court or Governmental Agency, shall have been instituted or threatened by any
Governmental Agency or by any other person or entity, which seeks to prevent or
delay the consummation of the transactions contemplated by this Agreement or any
other Transaction Document or which challenges the validity or enforceability
hereof or thereof.
SECTION 7.4. CORPORATE DOCUMENTS.
The Seller shall have received from the Purchaser certified copies
of the resolutions duly adopted by the board of directors of the Purchaser
approving the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, and such resolutions shall be in full force and effect as of the
Closing Date.
SECTION 7.5. TRANSACTION DOCUMENTS.
The Purchaser shall have executed and delivered to the Seller an
Escrow Agreement in substantially the form set forth in Exhibit E (the "ESCROW
AGREEMENT"), and a Registration Rights Agreement in substantially the form
attached hereto as Exhibit F (the "REGISTRATION RIGHTS AGREEMENT").
SECTION 7.6. EMPLOYMENT AGREEMENTS.
The Purchaser shall have agreed to engage Xxxxxxxx Xxxx and Xxxxx
Xxxxxx on substantially the terms set forth in those Executive Employment
Agreements set forth as Exhibit G and H.
SECTION 7.7. OPINION OF COUNSEL.
Seller shall have received an opinion of Xxxxxx & Diamond LLP,
counsel to the Purchaser, in the form of Exhibit I, with such customary changes
and modifications as the Purchaser shall reasonably request in light of the
nature of the transactions contemplated hereby.
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ARTICLE VIII.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by the Purchaser) of each of the following conditions on or prior to the
Closing Date:
SECTION 8.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Seller contained in this
Agreement which are qualified as to materiality or Material Adverse Effect shall
be true and correct on and as of the Closing Date as though such representations
and warranties were made anew on and as of the Closing Date (unless such
representations are expressly made as of some other date, in which case they
shall be true and correct as of such date), and all other representations and
warranties of the Seller contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as though such
representations and warranties were made anew on and as of the Closing Date
(unless such representations are expressly made as of some other date, in which
case they shall be true and correct as of such date). The Seller shall have
delivered to the Purchaser a certificate of its President or Vice President,
dated the Closing Date, to the foregoing effect.
SECTION 8.2. COMPLIANCE WITH AGREEMENT.
The Seller shall have performed and complied with all covenants to
be performed or complied with by it on or prior to the Closing Date. The Seller
shall have delivered to the Purchaser a certificate of its President or Vice
President, dated the Closing Date, to the foregoing effect.
SECTION 8.3. CONSENTS.
All consents, Permits, authorizations, approvals, waivers and
amendments which are listed on Schedule 8.3 hereto shall have been obtained.
SECTION 8.4. CORPORATE DOCUMENTS.
The Purchaser shall have received from the Seller certified copies
of the resolutions duly adopted by the board of directors of the Seller
approving the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, and such resolutions shall be in full force and effect as of the
Closing Date.
SECTION 8.5. EMPLOYEES.
At least 50% of the persons employed by the Company on the date
first set forth above shall continue to be employed by the Company as of the
Closing Date. Mssrs. Xxxxxxxx Xxxx and Xxxxxx Xxxxxx shall have agreed to accept
employment by Purchaser on substantially the terms set forth in those Executive
Employment Agreements set forth as Exhibit G and H.
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SECTION 8.6. MATERIAL ADVERSE EFFECT.
Since the date of this Agreement, there shall not have occurred (i)
a Material Adverse Effect or (ii) any event which could reasonably be expected
to result in a Material Adverse Effect.
SECTION 8.7. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.
There must not have been made or threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any Stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Stock.
SECTION 8.8. OPINION OF COUNSEL.
Purchaser shall have received an opinion of Cyruli Xxxxxx & Zizmor,
LLP, counsel to the Seller, in the form attached as Exhibit J, with such
customary changes and modifications as the Seller shall reasonably request in
light of the nature of the transactions contemplated hereby ("SELLER'S OPINION
OF COUNSEL").
SECTION 8.9. NO VIOLATION OF ORDERS.
No preliminary or permanent injunction or other order issued by any
court or Governmental Agency, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any Governmental Agency that declares
this Agreement or any other Transaction Document invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby or thereby shall be in effect; and no action or proceeding before any
court or Governmental Agency, shall have been instituted or threatened by any
Governmental Agency or by any other person or entity, which seeks to prevent or
delay the consummation of the transactions contemplated by this Agreement or any
other Transaction Document or which challenges the validity or enforceability
hereof or thereof.
SECTION 8.10. DUE DILIGENCE.
The Purchaser shall have received all business, legal, accounting
and other due diligence materials requested from the Company and the Seller,
shall have completed the review of said due diligence to its satisfaction, and
such due diligence shall be reasonably satisfactory to the Purchaser in its sole
discretion.
SECTION 8.11. TRANSACTION DOCUMENTS.
The Seller shall have executed and delivered to the Purchaser the
Registration Rights Agreement, the Pledge Agreement and the Escrow Agreement.
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SECTION 8.12. RESIGNATIONS.
The Purchaser shall have received the resignations, effective as of
the Closing Date, of each of the directors of the Company.
SECTION 8.13. OPTIONS AND WARRANTS.
The Seller shall have caused any and all outstanding options and
warrants to purchase capital stock of the Company or any of its subsidiaries to
have been (i) cancelled in accordance with their terms or (ii) exercised in
accordance with their terms, and in the case of (ii) the Seller shall have
repurchased all shares of its capital stock underlying such exercised options.
SECTION 8.14. NO LIENS.
There shall be no outstanding Liens on or in respect of any assets
of the Company or the Business, and the Seller shall have provided evidence of
such absence of Liens to the Purchaser in form acceptable to the Purchaser in
its sole discretion.
SECTION 8.15. TAX SHARING AGREEMENTS.
Any tax sharing agreements among the Company or any Subsidiaries and
any other Person shall have been terminated as of the Closing Date with no
further liability to the Purchaser, the Company or any such Subsidiary.
ARTICLE IX.
THE CLOSING
SECTION 9.1. THE CLOSING.
The Closing of the transactions contemplated hereby (the "Closing")
shall be held two Business Days after each of the conditions precedent set forth
in Articles VII and VIII have been satisfied or waived by the party entitled to
the benefit thereof and in any event within 35 days following the date first set
forth above (the "Closing Date") or at such other time as the parties may
mutually agree. The Closing shall be held at the offices of Xxxxxx & Diamond
LLP, 00 Xxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx, XX 00000 or at such
other place as the parties may mutually agree. At the Closing, all of the
transactions provided for in Article II hereof shall be consummated on a
substantially concurrent basis.
SECTION 9.2. DELIVERIES BY THE SELLER AT THE CLOSING.
At the Closing, the Seller shall deliver, or cause to be delivered,
to the Purchaser, the following items:
(a) the duly executed officer's certificates and certified
resolutions referred to in Sections 8.1, 8.2, and 8.4;
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(b) the consents listed on Schedule 8.3;
(c) Seller's Opinion of Counsel;
(d) the resignations referred to in Section 8.12.
(e) the Escrow Agreement, the Pledge Agreement and the Registration
Rights Agreement duly executed by the Seller;
(f) a certificate or certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by appropriate powers duly
executed in blank; and
(g) all other previously undelivered documents that the Seller is
required to deliver to the Purchaser pursuant to this Agreement.
SECTION 9.3. DELIVERIES BY THE PURCHASER AT THE CLOSING.
At the Closing, the Purchaser shall deliver, or cause to be
delivered, to the Seller, the following items:
(a) by wire transfer of immediately available funds the amount equal
to one million three hundred fifty thousand Dollars ($1,350,000) (the "Closing
Date Cash Payment");
(b) the originally executed First Note;
(c) the duly executed officer's certificates referred to in Sections
7.1, 7.2, and 7.4;
(d) duly executed and acknowledged transfer tax and other required
tax forms reasonably required by the Seller to consummate the transactions
contemplated hereby, all in the form required by applicable law;
(e) the Escrow Agreement, the Pledge Agreement and the Registration
Rights Agreement duly executed by the Purchaser;
(f) evidence of receipt by the Escrow Agent of the Cash Escrow
Amount and the Second Note; and
(g) all other previously undelivered documents that the Purchaser is
required to deliver to the Seller pursuant to this Agreement.
SECTION 9.4. ESTABLISHMENT OF ESCROW.
Immediately upon the Closing, the Purchase shall cause to be
delivered to the Escrow Agent, by wire transfer of immediately available funds,
the remaining amount of the Cash Consideration, constituting $150,000 (the "Cash
Escrow Amount") and the Second Note, to be held in escrow in accordance with the
terms of the Escrow Agreement.
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ARTICLE X.
INDEMNIFICATION
SECTION 10.1. SURVIVAL.
Except as otherwise set forth in Section 10.2(b), all of the
representations and warranties of the Seller contained in Article III of this
Agreement or in any certificate delivered by the Seller pursuant to this
Agreement shall survive the Closing and continue in full force and effect as
follows: (a) in the case of the representations and warranties of the Seller
contained in Section 3.23 (Tax Matters), until six months after the expiration
of the statute of limitations with respect to the matter to which the claim
relates (including any extension of the statute of limitation consented to by or
on behalf of the Company), (b) in the case of the representations and warranties
of the Seller contained in Section 3.22 (Environmental Matters), until the fifth
anniversary of the Closing Date, and (c) in the case of any other representation
or warranty of the Seller contained in this Agreement and any certificate
delivered by the Seller pursuant to this Agreement pertaining to any of the
Seller's representations and warranties, until the second anniversary of the
Closing Date. Notwithstanding the foregoing, any notice given in accordance with
Section 12.1 of this Agreement claiming an alleged breach of any representation
or warranty hereunder shall without further action extend the survival period
for the representation or warranty alleged to have been breached as applied to
the circumstances set forth in such notice until immediately after the final
resolution of the matter. All of the representations and warranties of the
Purchaser contained in Article IV of this Agreement or in any certificate
delivered by the Purchaser pursuant to this Agreement pertaining thereto shall
survive the Closing and continue in full force and effect until the second
anniversary of the Closing Date.
SECTION 10.2. INDEMNIFICATION PROVISIONS FOR BENEFIT OF PURCHASER.
(a) In the event that the Seller breaches any of its
representations, warranties or covenants contained in this Agreement or in any
certificate delivered by the Seller pursuant hereto and provided that, as to any
claim for breach of representations or warranties, the Purchaser makes a written
claim for indemnification against the Seller within the applicable survival
period, if applicable, then the Seller agrees to indemnify the Purchaser and its
Affiliates from and against all Damages the Purchaser and its Affiliates suffer
resulting from or arising out of such event; provided, however, that the Seller
shall not have any obligation to indemnify the Purchaser from and against any
Damages resulting from the breach of any representation or warranty of the
Seller (as opposed to any covenant of the Seller) contained in Article III of
this Agreement until the Purchaser has suffered aggregate Damages, by reason of
all such breaches in excess of $25,000; provided further that (i) and Seller
shall have no obligation to indemnify the Purchaser for the initial $25,000 in
Damages, and (ii) no claim may be made by Purchaser under this Section 10.2(a)
unless such claim exceeds $10,000 in value. In any event, the maximum amount
that Seller shall be required to pay as to all claims made under this Section
10.2(a) shall be equal to the amount of unpaid Earn-Out Payments as of the date
on which each claim is made.
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(b) Without limiting the generality or effect of the foregoing, the
Seller shall indemnify, defend and hold harmless the Company, the Purchaser and
any of their respective Affiliates from and against any and all Damages
resulting from or arising out of any of the following (which indemnification,
defense and hold harmless shall not be subject to any of the limitations set
forth in Section 10.2(a)):
(i) Any claim of any creditor or beneficiary of the Seller or
any of its Affiliates (other than the Company), whether arising prior to, on or
after the Closing Date.
(ii) Pre-Closing Taxes. For purposes of this Agreement,
"Pre-Closing Taxes" shall mean, except to the extent included in the
determination of Adjusted Net Assets, (a) all liability for Taxes of the Company
for tax periods ending prior to the Closing Date; (b) all liability for Taxes
described in Section 6.1; (c) all liability attributable to any
misrepresentation or breach of warranty made by the Seller in Section 3.23 of
this Agreement; (d) all liability for Taxes attributable to any failure to
comply with any of the covenants or agreements of the Seller or the Company
under this Agreement; and (e) all liability for Taxes of any other person
pursuant to any contractual agreement entered into on or before the Closing
Date.
SECTION 10.3. MATTERS INVOLVING THIRD PARTIES.
(a) If any third party notifies the Purchaser (the "Indemnified
Party") with respect to any matter which may give rise to a claim (other than a
Tax Claim) for indemnification against the Seller (the "Indemnifying Party")
under Section 10.2, then the Indemnified Party shall use reasonable efforts to
notify the Indemnifying Party thereof promptly and in any event within ten days
after receiving any written notice from a third party; provided, however, that
no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless,
and then solely to the extent that, the Indemnifying Party is actually
prejudiced thereby.
(b) Once the Indemnified Party has given notice of the matter to the
Indemnifying Party, the Indemnified Party may, subject to the Indemnifying
Party's rights to assume the defense of such matter pursuant to paragraph (c)
below, defend against the matter in any manner it deems appropriate.
(c) The Indemnifying Party may at any point in time choose to assume
the defense of all of such matter, in which event:
(i) the Indemnifying Party shall defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party,
(ii) the Indemnified Party may retain separate counsel at its
sole cost and expense (except that the Indemnifying Party shall be responsible
for the fees and expenses of one separate co-counsel for all Indemnified Parties
to the extent the Indemnified Party is advised, in writing by its counsel, that
either (x) the counsel the Indemnifying Party has selected has a conflict of
interest, or (y) there are legal defenses available to the Indemnified Party
that are different from or additional to those available to the Indemnifying
Party), and
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(iii) the Indemnifying Party shall reimburse the Indemnified
Party for the reasonable costs of defense or investigation for the period prior
to the assumption of the defense.
(d) Assumption of the defense of any matter by the Indemnifying
Party shall without further action constitute an irrevocable waiver by the
Indemnifying Party of its right to claim at a later date that such third party
action for which the defense was assumed is not a proper matter for
indemnification pursuant to this Article X.
(e) The Indemnified Party shall not consent to the entry of a
judgment or enter into any settlement with respect to any matter which may give
rise to a claim for indemnification without the written consent of the
Indemnifying Party, which consent may not be unreasonably withheld or delayed;
provided, however, that if the Indemnifying Party has failed to provide
indemnification required to be provided pursuant to this Article X for fifteen
days after a request therefor, then the Indemnified Party may take any such
action without the consent of the Indemnifying Party.
(f) The Indemnifying Party shall not consent to the entry of a
judgment with respect to any matter which may give rise to a claim for
indemnification or enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all liability with respect thereto, without the written consent of the
Indemnified Party (not to be unreasonably withheld or delayed).
SECTION 10.4. CERTAIN ADDITIONAL PROVISIONS RELATING TO INDEMNIFICATION.
(a) Notwithstanding Section 12.11, after the Closing Date, the
indemnification provisions set forth in this Article X shall constitute the sole
and exclusive recourse and remedy available to the Purchaser with respect to the
breach of any representation or warranty contained in this Agreement or in any
certificate delivered pursuant to this Agreement except for actual fraud.
(b) Notwithstanding anything in this Agreement to the contrary, for
purposes of this Article X, in determining the existence of a breach of any
representation, warranty, covenant or agreement and the amount of Damages, no
effect shall be given to any qualification as to materiality or Material Adverse
Effect.
(c) All payments by an Indemnifying Party under Article X shall be
treated as an adjustment to the Purchase Price for all foreign, federal, state
and local income tax purposes.
(d) The Indemnification provided for in this Article X shall survive
any investigation at any time made by or on behalf of the Purchaser or any
knowledge or information that the Purchaser may have.
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SECTION 10.5. PROCEDURES RELATING TO TAX CLAIMS.
If a claim is made by any Tax authority which, if successful, is
likely to result in an indemnity payment to the Purchaser or any of its
Affiliates pursuant to this Article X, the Purchaser shall notify the Seller of
such claim (a "TAX CLAIM"), stating the nature and basis of such claim and the
amount thereof, to the extent known. Failure to give such notice shall not
relieve the Seller from any liability which it may have on account of this
indemnification or otherwise, except to the extent that the Seller is materially
prejudiced thereby. The Seller will have the right, at its option, upon timely
notice to the Purchaser, to assume control of any defense of any Tax Claim
(other than a Tax Claim relating solely to Taxes of the Company for a Straddle
Period) with its own counsel, provided, however, such counsel is reasonable
satisfactory to the Purchaser. The Seller's right to control a Tax Claim will be
limited to amounts in dispute which would be paid by the Seller or for which the
Seller would be liable pursuant to this Article X. Costs of such Tax Claims are
to be borne by the Seller unless the Tax Claim relates to taxable periods ending
after the Closing Date, in which event such costs will be fairly apportioned.
The Purchaser and the Company shall cooperate with the Seller in contesting any
Tax Claim, which cooperation shall include the retention and, upon the Seller's
request, the provision of records and information which are reasonably relevant
to such Tax Claim and making employees available on a mutually convenient basis
to provide additional information or explanation of any material provided
hereunder. Notwithstanding the foregoing, the Seller shall neither consent nor
agree (nor cause the Company to consent or agree) to the settlement of any Tax
Claim with respect to any liability for Taxes that may affect the liability for
any state or federal income tax of the Company or any Affiliated Group of which
the Company is a member for any taxable period ending subsequent to the Closing
Date without the prior written consent of the Purchaser, and neither the Seller,
nor any Seller Entity, shall file an amended Tax Return that may affect the
liability for Taxes of the Company without the prior written consent of the
Purchaser. The Purchaser and the Seller shall jointly control all proceedings
taken in connection with any claims for Taxes relating solely to a Straddle
Period of the Company.
SECTION 10.6. PURCHASER'S INDEMNIFICATION OF SELLER.
In the event that the Purchaser breaches any of its representations,
warranties or covenants contained in this Agreement or in any certificate
delivered by the Purchaser pursuant hereto and provided that, as to any claim
for breach of representations or warranties, the Seller makes a written claim
for indemnification against the Purchaser within the applicable survival period,
if applicable, then the Purchaser agrees to indemnify the Seller and its
Affiliates from and against all Damages the Seller and its Affiliates suffer
resulting from or arising out of such event; provided, however, that the Seller
shall not have any obligation to indemnify the Purchaser from and against any
Damages resulting from the breach of any representation or warranty of the
Purchaser (as opposed to any covenant of the Purchaser) contained in Article IV
of this Agreement until the Seller has suffered aggregate Damages, by reason of
all such breaches in excess of $25,000; provided further that (i) and Purchaser
shall have no obligation to indemnify the Seller for the initial $25,000 in
Damages, and (ii) no claim may be made by Seller under this Section unless such
claim exceeds $10,000 in value. In any event, the maximum amount that Purchaser
shall be required to pay as to all claims made under this Section shall be the
maximum indemnification amount set forth in Section 10.2(a) for Seller's
indemnification of Purchaser. For the purposes of this Section 10.5, the
representations and warranties of Purchaser hereunder shall survive for a period
of two (2) years after the Closing Date.
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ARTICLE XI.
TERMINATION
SECTION 11.1. TERMINATION.
Anything in this Agreement to the contrary notwithstanding, this
Agreement and the transactions contemplated hereby may be terminated in any of
the following ways at any time before the Closing and in no other manner:
(a) By mutual written consent of the Purchaser and the Seller;
(b) By the Purchaser upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in Article VIII
is or becomes impossible (other than through the breach by the Purchaser of any
of its representations or warranties or the failure of the Purchaser to perform
any of its obligations pursuant to this Agreement) and the Purchaser shall not
have waived such condition in writing at or before the Closing Date;
(c) By the Seller upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in Article VII
is or becomes impossible (other than through the breach by the Seller of any of
its representations or warranties or the failure of the Seller to perform any of
its obligations pursuant to this Agreement) and the Seller shall not have waived
such condition in writing at or before the Closing Date;
(d) By the Purchaser or the Seller (if such terminating party is not
then in default of any obligation hereunder), if the Closing has not occurred
within 40 days following the date first set forth above; provided, however, that
such date shall be extended for ten (10) Business Days after any notice given
pursuant to Section 11.1(b) on or prior to such date; and provided that such
date shall be further extended as required to enable Seller to respond in good
faith and in timely fashion to comments from the SEC regarding the preliminary
information statement to be sent to Seller's shareholders advising them of the
transactions contemplated hereby; or
(e) By the Purchaser if the Purchaser has reasonable grounds to
believe that the Seller has violated the terms of Section 5.5.
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SECTION 11.2. EFFECT OF TERMINATION; TERMINATION FEE.
(a) In the event this Agreement is terminated pursuant to Section
11.1, all further obligations of the parties hereunder shall terminate, except
for the obligations set forth in Article X and in Sections 11.2(b), 12.3, 12.4,
and 12.8, and except that nothing in this Section 11.2 shall relieve any party
hereto of any liability for breach of any of the covenants or any of the
representations or warranties contained in this Agreement prior to such
termination.
(b) If (i) this Agreement is terminated pursuant to Section 11.1(e),
and (ii) a Business Combination shall occur within eighteen months after the
date this Agreement is terminated, then the Seller shall immediately, upon
consummation of such Business Combination, pay to the Purchaser in same day
funds all reasonable, documented attorneys', accountants', consultants' and
other out-of-pocket expenses incurred by Purchaser in connection with the
transactions contemplated by this Agreement. For purposes of this Agreement, the
term "Business Combination" means any of the following events: (i) the Company,
directly or indirectly, is acquired by merger or otherwise by any person or
group, including, without limitation, any officer or director or any group which
includes such officer or director as a member (a "Third Party"); (ii) the
Company or the Seller enters into an agreement with a Third Party which
contemplates the acquisition, directly or indirectly, of 30% or more of the
total assets of the Company; (iii) the Company or the Seller enters into a stock
purchase, subscription, merger, consolidation, share exchange or other agreement
with a Third Party which contemplates the acquisition, directly or indirectly,
of 30% or more of the outstanding shares of the Company's capital stock; (iv) a
Third Party directly or indirectly acquires 30% or more of the total assets of
the Company; (v) a Third Party directly or indirectly acquires 30% or more of
the outstanding shares of the Company's capital stock; or (vi) the Company or
the Seller adopts a plan of liquidation relating to 30% or more of the total
assets of the Company.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
SECTION 12.1. NOTICES.
All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one Business Day
after the date when sent to the recipient by reputable express courier service
(charges prepaid), or (d) seven Business Days after the date when mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Seller and to the Purchaser at the addresses indicated below:
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If to the Seller: Aladdin Systems Holdings, Inc.
000 Xxxxxxxxx Xx.
Xxxxxxxxxxx, XX 00000
Fax: (000) 000-0000
With a copy to: Cyruli Xxxxxx & Xxxxxx, LLP
(which shall not constitute notice) 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
000-000-0000
Attn: Xxxx Xxxxxxx, Esq.
000-000-0000 (Fax)
If to the Purchaser: International Microcomputer Software, Inc.
00 Xxxxxxx Xxx
Xxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxxx, President
Fax: (000) 000-0000
With a copy to: Xxxxxx & Diamond LLP
(which shall not constitute notice) 00 Xxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
or to such other address as either party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section.
SECTION 12.2. AMENDMENTS.
The terms, provisions and conditions of this Agreement may not be
changed, modified or amended in any manner except by an instrument in writing
duly executed by both of the parties hereto.
SECTION 12.3. ANNOUNCEMENTS.
All press releases, notices to customers and suppliers and similar
public announcements prior to or within five days after the Closing Date with
respect to this Agreement and the transactions contemplated by this Agreement
shall be approved by both the Purchaser and the Seller prior to the issuance
thereof; provided that either party may make any public disclosure it believes
in good faith is required by law, regulation or rule of any stock exchange on
which its securities are traded (in which case the disclosing party shall use
reasonable efforts to advise the other party prior to making such disclosure and
to provide the other party a reasonable opportunity to review the proposed
disclosure).
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SECTION 12.4. EXPENSES.
Except as expressly set forth in this Agreement, each party to this
Agreement shall bear all of its legal, accounting, investment banking, and other
expenses incurred by it or on its behalf in connection with the transactions
contemplated by this Agreement, whether or not such transactions are
consummated.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, supersedes and is in full
substitution for any and all prior agreements and understandings among them
relating to such subject matter, and no party shall be liable or bound to the
other party hereto in any manner with respect to such subject matter by any
warranties, representations, indemnities, covenants, or agreements except as
specifically set forth herein. The Exhibits and Schedules to this Agreement are
hereby incorporated and made a part hereof and are an integral part of this
Agreement.
SECTION 12.6. AMENDMENTS.
The descriptive headings of the several sections of this Agreement
are inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
SECTION 12.7. COUNTERPARTS.
For the convenience of the parties, any number of counterparts of
this Agreement may be executed by any one or more parties hereto, and each such
executed counterpart shall be, and shall be deemed to be, an original, but all
of which shall constitute, and shall be deemed to constitute, in the aggregate
but one and the same instrument.
SECTION 12.8. GOVERNING LAW; JURISDICTION.
(a) This Agreement and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed therein without
regard to principles of conflicts of law.
(b) Any legal action or proceeding with respect to this Agreement
shall be brought in the courts of the State of California or of the United
States of America for the Northern District of California, and, by execution and
delivery of this Agreement, the parties hereto hereby accept for themselves and
in respect of their property, generally and unconditionally, the jurisdiction of
the aforesaid courts. The parties hereto hereby irrevocably waive any objection,
including any objection to the laying of venue or based on the grounds of forum
non conveniens, which any of them may now or hereafter have to the bringing of
any such action or proceeding in such respective jurisdictions.
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SECTION 12.9. CONSTRUCTION.
The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction will be applied against any party. Any references to any
federal, state, local or foreign statute or law will also refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Unless the context otherwise requires: (a) a term has the meaning assigned to it
by this Agreement; (b) including means "including but not limited to"; (c) "or"
is disjunctive but not exclusive; (d) words in the singular include the plural,
and in the plural include the singular; and (e) "$" means the currency of the
United States of America.
SECTION 12.10. SEVERABILITY.
In the event that any one or more of the provisions contained in
this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, then to
the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument. Furthermore, in lieu of any such invalid or unenforceable
term or provision, the parties hereto intend that there shall be added as a part
of this Agreement a provision as similar in terms to such invalid or
unenforceable provision as may be possible and be valid and enforceable.
SECTION 12.11. SPECIFIC PERFORMANCE.
Without limiting or waiving in any respect any rights or remedies of
Purchaser under this Agreement now or hereinafter existing at law or in equity
or by statute, each of the parties hereto shall be entitled to seek specific
performance of the obligations to be performed by the other in accordance with
the provisions of this Agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have executed and
delivered this Agreement as of the day and year first written above.
SELLER Aladdin Systems Holdings, Inc.
By: /s/ Xxxxxxxx Xxxx
--------------------------
Name: Xxxxxxxx Xxxx
Title: President
PURCHASER International Microcomputer Software, Inc.
By: /s/ Xxxxxx Xxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxx
Title: President
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