Contract
Exhibit
10.117
by
and between
WARP
TECHNOLOGY HOLDINGS, INC. (D/B/A HALO TECHNOLOGY HOLDINGS)
and
EXECUTIVE
CONSULTANTS, INC.
January
30, 2006
This
MERGER AGREEMENT (this “Agreement”) is made and entered into as of January 30,
2006, by and between Warp Technology Holdings, Inc., a Nevada corporation
doing
business as Halo Technology Holdings (“Purchaser”), ECI Acquisition, Inc., a
Maryland corporation and wholly owned subsidiary of Purchaser (“MergerSub”),
Executive Consultants, Inc., a Maryland corporation (the “Company”) and all of
the stockholders of the Company (the “Sellers”). The Sellers are listed on the
signature page to this Agreement.
R
E C I T A L S
A.
The
Sellers own in the aggregate 100% of the outstanding equity securities of
the
Company (the “Equity Interests”).
B.
Each
of
the Company, the Sellers and the Purchaser desire to cause the Company to
become
an indirect wholly owned subsidiary of the Purchaser on the terms and subject
to
the conditions of this Agreement.
A
G R E E M E N T
In
consideration of the foregoing recitals and the respective covenants,
agreements, representations and warranties contained herein, the parties,
intending to be legally bound, agree as follows:
ARTICLE
1
DEFINITIONS
1.1 Unless
otherwise defined, capitalized terms used herein shall have the following
meanings:
“Action”
shall
mean any action, claim, suit, litigation, proceeding, arbitration or
mediation.
“Agreement”
shall
have the meaning given to it in the Preamble.
“Books
and Records”
shall
mean all product, business and marketing plans, sales and promotional literature
and artwork relating to the Company, (b) all books, records, lists, ledgers,
financial data, files, reports, product and design manuals, plans, drawings,
technical manuals and operating records of every kind relating to the Company
(including records and lists of customers, distributors, suppliers and
personnel), and (c) all telephone and fax numbers used by the Company, in
each
case whether maintained as hard copy or stored in computer memory, and (d)
the
organizational documents of the Company.
“Business”
shall
mean the business and operations of the applicable Company.
“Closing”
shall
have the meaning given to such term in Section 2.3 hereof.
“Closing
Date”
shall
have the meaning given to such term in Section 2.3 hereof.
“Code”
shall
mean the Internal Revenue Code of 1986, as amended.
“Company”
shall
have the meanings given to such term in the Preamble to this
Agreement.
“Company
Stockholders”
shall
mean all of the holders of Equity Interests, including the Sellers.
“Contracts”
shall
mean all contracts, arrangements, licenses, Leases, understandings, purchase
orders, invoices and other agreements to which any of the Company is a party,
whether written, oral, established through course of dealing or
otherwise.
“Damages”
shall
mean all claims, demands, losses, liabilities, obligations, damages
(including incidental and consequential damages), expenses, actions, judgments,
injunctions, orders, decrees, taxes, fines or diminution of value,
including, without limitation, interest, penalties and reasonable attorneys’,
accountants’ and experts’ fees and costs of investigation incurred as a result
thereof.
“Drop
Dead Date”
shall
have the meaning ascribed to it in Section 5.1.1.
“Environmental
Laws”
shall
mean all applicable Laws (including consent decrees and administrative orders)
relating to the public health and safety and protection of the environment,
including those governing the use, handling, storage, transportation and
disposal or remediation of hazardous substances.
“Equity
Interests”
shall
mean all of the outstanding equity interests of the Company, including the
Sellers’ Equity Interests.
“Employee
Benefit Plan(s)”
shall
mean other than any obligations pursuant to any Laws, (i) any Employee Welfare
Plan or any Pension Plan, (ii) any “multi-employer plan,” as defined in Section
4001(a)(3) of ERISA to which the Company has contributed or been obligated
to
contribute, and (iii) any deferred compensation plan, severance pay, bonus
plan,
profit sharing plan, stock option plan, employee stock purchase plan, and
any
other employee benefit plan, agreement (other than employment agreements
with
individual Employees), arrangement or commitment maintained by the Company
for
the benefit of Employees.
“Employee
Welfare Plan”
shall
mean other than any obligations pursuant to any Laws, any “employee welfare
benefit plan,” as defined in Section 3(l) of ERISA, which the
Company
sponsor,
or
under which the
Company
or any
of
the
Subsidiaries
may
incur any liability, and which covers any Employees, including each
multi-employer welfare benefit plan.
“Employees”
shall
have the meaning given to such term in Section 3.10.5 hereof.
“Encumbrances”
shall
mean any claim, lien, pledge, option, charge, mortgage, security interest,
restriction, encumbrance or other right of third parties, whether voluntarily
incurred or arising by operation of law, and includes any agreement to give
any
of the foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
“ERISA”
shall
mean the Employee Retirement Income Security Act of 1974, as
amended.
“Financial
Statements”
shall
have the meaning given to such term in Section 3.9.1 hereof.
“GAAP”
shall
mean generally accepted accounting principles as in effect in the United
States
of America on the date hereof, consistently applied.
“Governmental
Authority”
shall
mean (i) any nation, state, county, city or other jurisdiction of any nature,
(ii) any federal, state, local, municipal, foreign or other government (or
any
department, agency, or political subdivision thereof), (iii) any governmental
or
quasi-governmental authority of any nature, or (iv) any body exercising
executive, legislative, judicial, regulatory or administrative actions of
or
pertaining to government.
“Indebtedness”
shall
mean (i) any liability for borrowed money, including
without limitation (i) any liability evidenced by a note, (ii) any obligation
for the acquisition of property or assets, (iii) the sale or factoring of
any
obligation under working capital or other debt facility, (iv)
any
liability arising from a guarantee or
endorsement of
another Person’s borrowed money, (v)
a
promissory note or similar instrument of indebtedness, (vi)
any
lease payments due under leases constituting Material Contracts and which
are
required to be capitalized in accordance with GAAP, and (vii)
any
liability for the payment of purchase price from past acquisitions of
the
Company,
or past
acquisitions of other businesses by the
Company.
“Indemnitee”
shall
have the meaning given to such term in Section 9.2.3
hereof.
“Indemnitor”
shall
have the meaning given to such term in Section 9.2.3
hereof.
“Intellectual
Property”
shall
mean (i) any and all trademarks, service marks, tradenames,
mask
works, copyrights and patents (including registrations, licenses, and
applications pertaining thereto) owned by or licensed to the
Company,
and
(ii) any and all trade secrets, confidential Business information, discoveries,
inventions, know-how and any and all other intellectual property rights owned
by
or licensed to the Company that relate to, or are used by, the Company, other
than standard licenses to use ordinary, commercially available software and
systems.
“Knowledge
of
the Company”,
“to
the
Company’s
knowledge”
and
any
similar phrase shall mean the actual knowledge of Xxxxx Xxxxxxx or Xxx
Xxxxxxx.
“Laws”
shall
mean any and all case law, common law, and any and all federal, state, local
or
foreign laws, statutes, rules, regulations, executive orders, codes or
ordinances enacted, adopted, issued or promulgated by any Governmental
Authority.
“Leased
Real Property”
shall
have the meaning given to such term in Section 3.11 of this Agreement.
“Leases”
shall
mean all leases, subleases, licenses and other lease agreements, together
with
all amendments, supplements and nondisturbance agreements pertaining thereto,
to
which the Company is a party and pursuant to which the Company leases, subleases
or licenses any real property.
“Material
Adverse Effect”
shall
mean any event, change, circumstance or effect that has, or is reasonably
likely
to have, a material adverse effect on the business, operations, condition,
financial or otherwise,
or
prospects,
taken
as a whole, of
the
respective Company, other than any event, change, circumstance or effect
relating (i) to the United States economy in general, or the economy of any
foreign country in general in which the Company participates, (ii) in general
to
the industries in which the Company operates and not specifically relating
to
the Company, (iii) financial, banking, or securities markets (including any
disruption thereof and any decline in the price of any security or any market
index), (iv) to the announcement of the Agreement or any transactions
contemplated hereunder, the fulfillment of the parties’ obligations hereunder or
the consummation of the transactions contemplated by this Agreement, or (v)
to
any outbreak or escalation of hostilities or acts of terrorism involving
the
United States or any declaration of war by the U.S. Congress.
“Material
Contracts”
shall
have the meaning given to such term in Section 3.12.1.
“Most
Recent Balance Sheet”
shall
have the meaning given to such term in Section 3.9.1.
“Net
Working Capital”
shall
mean the Company’s aggregate (a) cash on hand, plus (b) accounts receivable (net
of the
allowance for doubtful accounts
reflected on the Financial Statements), plus (c) cash deposits held by third
parties, plus (d) prepaid expenses, less (x) Accounts Payable (as defined
below), (y) Accrued Expenses (as defined below), and (z) Accrued Compensation
(as defined below) and related benefits including bonuses and commissions.
“Accrued
Expenses”
shall
mean all expenses of the Company, including Taxes, that have been accrued
and
unpaid as of the date of determination. “Accrued
Compensation”
shall
mean all accrued, but unpaid, compensation to Employees for services to the
Company, in their capacity as Employees, for a compensation time period ending
as of the date of determination but which is to be paid to such Employees
on a
date occurring after the date of determination. “Accounts
Payable”
shall
mean the right to payments by third parties who have delivered goods or
performed services to the Company as of the date of determination, whether
billed or unbilled, and whether or not evidenced by any contract or agreement.
Specifically excluded from Net Working Capital are any inter-company obligations
between and/or among the Sellers and the Company, none of which shall exist
as
of the Closing Date.
“Objection
Notice”
shall
have the meaning ascribed to it in Section 2.9.1.
“Obligation”
shall
mean any debt, liability or obligation of any nature, whether secured,
unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute,
fixed, contingent, ascertained, unascertained, known, unknown or
otherwise.
“Ordinary
Course”
means
the ordinary course of Business of the applicable Company consistent with
past
custom and practice (including with respect to quantity and
frequency).
“Pension
Plan”
shall
mean other than any obligations pursuant to any Laws, any “employee pension
benefit plan,” as defined in Section 3(2) of ERISA (including any “multiemployer
plan,” as defined in Section 3(37) of ERISA), which the Company sponsors or to
which the Company contributes or is required to contribute, or under which
the
Company may incur any liability.
“Permits”
shall
mean all franchises, permits, licenses, qualifications, rights-of-way,
easements, municipal and other approvals, authorizations, orders, consents
and
other rights from, and filings with, any Governmental Authority.
“Permitted
Encumbrances”
shall
mean (i) tax liens with respect to taxes not yet due and payable or which
are
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established in accordance with GAAP, consistently
applied; (ii) deposits or pledges made in connection with, or to secure payment
of, utilities or similar services, workers
compensation, unemployment insurance, old age pensions or other social security
obligations; (iii) liens reflected on the Most Recent Balance Sheet; (iv)
mechanics’, materialmen’s or contractors’ liens or encumbrances or any similar
lien or restriction for amounts not yet due and payable or which are being
contested in good faith by appropriate proceedings and for which appropriate
reserves have been established in accordance with GAAP, consistently applied;
(v) easements, rights-of-way, restrictions and other similar charges and
encumbrances not interfering with the Ordinary Course of the Company or
materially detracting from the value of the assets of the Company; and (vi)
source code escrows granted in favor of certain customers.
“Person”
means
an individual, a partnership (general or limited), a corporation, an
association, a limited liability company, a joint stock company, a trust,
an
estate, a joint venture or an unincorporated organization.
“Pre-Closing
Tax Period”
shall
have the meaning given to such term in Section 7.1 hereof.
“Proceeding”
shall
mean any demand, claim, suit, action, litigation, investigation, audit,
arbitration, administrative hearing or other proceeding of any nature.
“Purchase
Price”
shall
have the meaning given to such term in Section 2.9 hereof.
“Purchase
Price Reduction Amount”
shall
have the meaning given to such term in Section 2.9.2 hereof.
“Purchase
Price Increase Amount”
shall
have the meaning given to such term in Section 2.9.2 hereof.
“Purchaser”
shall
have the meaning given to such term in the Preamble to this Agreement.
“Purchaser
Shares”
means
shares
of
Common Stock of the Purchaser.
“Registration
Rights Agreement”
shall
mean that certain Registration Rights Agreement dated January __, 2006, as
amended by Amendment No. 1 to Registration Rights Agreement in the form attached
hereto as Exhibit A between the Purchaser and the Sellers, pursuant to which
the
Sellers shall be granted certain registration rights with respect to the
Purchaser Shares.
“Related
Party”
shall
mean, with respect to any Person, any partner, owner, equity owner, member,
director, officer, manager, or controlling Person of such Person.
“Representative”
shall
mean any officer, director, principal, shareholder, partner, member, attorney,
accountant, advisor, agent, trustee, employee or other representative of
a
party.
“Sellers”
shall
have the meaning given to such term in the Preamble to this Agreement and
“Seller”
shall
mean any one of them, as applicable.
“Software”
shall
mean any computer program, operating or other system, application, firmware
or
software of any nature, whether operational, active, under development or
design, non-operational, or inactive (including, without limitation, all
object
code, source code, comment code, algorithms, processes, formulae, interfaces,
navigational devices, menu structures or arrangements, icons, operational
instructions, scripts, commands, syntax, screen designs, reports, designs,
concepts, and visual expressions), technical manuals, test scripts, user
manuals
and other documentation therefore, whether in machine-readable form, programming
language or any other language or symbols, and whether stored, encoded, recorded
or written on disk, tape, film, memory device, paper or other media of any
nature and any and all databases necessary or appropriate to operate or in
the
use of any such computer program, operating or other system, application,
firmware or software.
“Tax(es)”
shall
mean all taxes, charges, fees, levies, duties, imposts or other assessments
or
charges imposed by and required to be paid to any Governmental Authority,
including, without limitation, income, excise, property, sales, use, transfer,
gains, ad valorem or value added, stamp, payroll, windfall, profits, gross
receipts, employment, withholding, social security, workers’
compensation, unemployment compensation, documentation, license, registration,
customs duties, tariffs, net worth and franchise taxes (including any interest,
penalties or additions attributable to or imposed on or with respect to any
such
assessment) and any estimated payments or estimated taxes.
“Tax
Audit”
shall
have the meaning given to such term in Section 10.4 hereof.
“Tax
Return”
shall
mean any return, report, information return or other similar document or
statement (including any related or supporting information) filed or required
to
be filed with any Governmental Authority in connection with the determination,
assessment or collection of any Tax or the administration of any Laws,
regulations or administrative requirements relating to any Tax, including,
without limitation, any information, return, claim for refund, amended return
or
declaration of estimated Tax and all federal, state, local and foreign returns,
reports and similar statements.
“Third
Party Reimbursement”
shall
have the meaning given to such term in Section 9.5 hereof.
ARTICLE
2
THE
MERGER.
2.1 The
Merger.
Upon
the terms and subject to the conditions set forth in this Agreement, and
in
accordance with the Maryland Annotated Code, Corporations Article (the “MACCL”),
at the Effective Time, the MergerSub shall be merged with and into the Company,
the separate corporate existence of the MergerSub shall thereupon cease and
the
Company shall be the successor or surviving corporation. The Company, as
the
surviving corporation after the consummation of the Merger, is sometimes
hereinafter referred to as the “Surviving Corporation.”
2.2 Effective
Time.
Subject
to the provisions of this Agreement, the parties shall cause the Merger to
be
consummated by filing the certificate of merger of the Company and MergerSub
(the “Certificate of Merger”) with the Secretary of State of the State of
Maryland in such form as required by, and executed in accordance with, the
relevant provisions of the MACCL as soon as practicable on or before the
Closing
Date. The Merger shall become effective upon such filing or at such time
thereafter as is provided in the Certificate of Merger (the “Effective Time”).
The Certificate of Merger will be in such form as may be agreed to by the
Company and the Purchaser prior to its filing.
2.3 Closing.
The
closing of the Merger (the “Closing”) shall take place at 10:00 a.m., local
time, at the offices of counsel for Purchaser, on the date the Effective
Time
occurs (the “Closing Date”).
2.4 Effect
of
the Merger.
At
the
Effective Time, the effect of the Merger shall be as provided in this Agreement
and the applicable provisions of the MACCL. Without limiting the generality
of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and MergerSub shall
vest in the Surviving Corporation, and all debts, liabilities and duties
of the
Company and MergerSub shall become the debts, liabilities and duties of the
Surviving Corporation.
2.5 Certificate
of Incorporation; Name.
At the
Effective Time, the Articles of Incorporation of the Company immediately
prior
to the Effective Time shall be the Articles of Incorporation of the Surviving
Corporation, and the name of the Surviving Corporation shall continue to
be
“Executive Consultants, Inc.”.
2.6 By-Laws.
At the
Effective Time, the By-Laws of the Corporation in effect immediately prior
to
the Effective Time shall become the By-Laws of the Surviving
Corporation.
2.7 Directors.
The
directors of MergerSub shall be the initial directors of the Surviving
Corporation, until their respective successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in
accordance with the Surviving Corporation’s Articles of Incorporation and
By-Laws.
2.8 Officers.
The
officers of the Corporation shall be the initial officers of the Surviving
Corporation, until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation’s Articles of Incorporation and
By-Laws.
2.9 Merger
Consideration.
The
total merger consideration for the Equity Interests (the “Purchase Price”) shall
be $603,571.43 in cash and cash equivalents and 330,688 Purchaser Shares,
which
shall be made available for delivery to the Sellers at the Closing. Each
Seller’s allocation of the Purchase Price is set forth on Exhibit 2.9. The
parties acknowledge that the cash portion of the Purchase Price may be reduced
by $25,000 if the Company transfers one of the Company vehicles to one of
the
Sellers prior to the Closing.
2.9.1 Not
later
than thirty (30) days after the Closing Date, Purchaser shall calculate the
Net
Working Capital as of the Closing Date and shall provide Sellers with a written
copy of such calculation. Such calculation shall be definitive and binding
upon
the parties unless Sellers shall give Purchaser written notice of any objection
to such calculation within thirty days after the receipt thereof (an “Objection
Notice”). If Sellers deliver an Objection Notice, the parties shall negotiate in
good faith to resolve all disputes regarding the Net Working Capital. If
the
parties can not resolve such a dispute they shall mutually agree upon a
nationally or regionally recognized accounting firm to determine the Net
Working
Capital, whose decision, absent manifest error, shall be binding upon the
parties.
2.9.2 To
the
extent the Net Working Capital as of the Closing Date is less than $0 (the
amount of any such difference referred to as the “Purchase Price Reduction
Amount”), the Purchase Price, shall be reduced, dollar for dollar and share for
share (based on the per share closing valuation), by the Purchase Price
Reduction Amount. To the extent the Net Working Capital as of the Closing
Date
is greater than $ 0 (the amount of any such difference referred to as the
“Purchase Price Increase Amount”) the Purchase Price, shall be increased, dollar
for dollar and share for share (based on the per share closing valuation),
by
such amount. The amount due hereunder shall be paid within five (5) business
days of the final determination of the Purchase Price Reduction Amount or
Purchase Price Increase Amount, as the case may be, by wire transfer of
immediately available funds. The the extent the calculation of Net Working
Capital results in a Purchase Price Reduction Amount, the Sellers shall be
responsible for this amount, although the Sellers may make arrangements among
the Company Stockholders to allocate this obligation pro rata among all Company
Stockholders.
2.9.3 Nothing
contained in this Section 2.9 shall be interpreted to limit the indemnification
provisions contained in Article 9 hereof except that to the extent the Net
Working Capital calculation includes an amount for an item, such amount and
item
can not form the basis of a claim for indemnification under Article
9.
2.10 Conversion
of Shares. As
of the
Effective Time, by virtue of the Merger and without any action on the part
of
any holder of Equity Interests or any shares of common stock of
MergerSub:
2.10.1 Each
common share of the Company that is issued and outstanding as of the Effective
Time shall, by virtue of the Merger and without any action on the part of
the
holder thereof, be terminated and canceled and become the right to receive
the
consideration described in Exhibit 2.9 for each Seller. As of the Effective
Time, all such Company common shares shall be canceled, and when so canceled,
shall no longer be outstanding and shall automatically be retired and shall
cease to exist, and each holder of a certificate or other instrument
representing any such common shares shall cease to have any rights with respect
thereto, except the right to receive the Purchaser Shares hereunder, without
interest.
2.10.2 Each
option granted to an employee, consultant, director or independent contractor
of
the Company to acquire common shares that is outstanding as of the Effective
Time, whether or not then vested or exercisable, shall automatically be
terminated and canceled for no consideration whatsoever.
2.10.3 All
other
Equity Interests, including common stock or other equity of the Company that
is
owned by, or held in the treasury of, the Company as of the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder
thereof, automatically be canceled and retired and shall cease to exist,
and no
consideration shall be delivered in exchange therefor.
2.10.4 Each
share of the capital stock of MergerSub that is issued and outstanding as
of the
Effective Time shall, by virtue of the Merger and without any action on the
part
of the holder thereof, automatically be converted into and become one validly
issued, fully paid and non-assessable share of the Surviving Corporation.
Such
newly issued shares shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES OF SELLERS
Sellers
jointly and severally represent and warrant to Purchaser as set forth
below:
3.1 Organization
and Existence.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its state of Maryland. TheCompany has all requisite
power and authority to own and operate its Business and to carry on such
Business as presently conducted. The Company is qualified or licensed to
do
business in each jurisdiction in which the conduct of its Business or ownership
of its properties make such qualification necessary, except for such
jurisdictions in which the failure to be so duly qualified or licensed would
not
have a Material Adverse Effect on the Company. Schedule 3.1 lists: (i) the
employer identification number for the Company; (ii) all legal names used
by the
Company and its predecessors in the last three (3) years; (iii) all entities
merged with or into the Company or its predecessors in the last three (3)
years;
and (iv) the address for each location at which the Company has an office
or
otherwise has any material assets (other than Employees working out of their
homes). Accurate and
complete copies of the articles or certificates of organization or formation,
operating agreements and other organization documents for the Company, each
as
amended to date, have been delivered to Purchaser.
3.2 Authorization.
The
Company and each Seller has the requisite power and authority to enter into
this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of
this Agreement by the Company and each Seller has been duly authorized by
all
necessary action on the part of the Company and such Seller.
3.3 Due
Execution and Delivery; Binding Obligations.
This
Agreement has been duly executed and delivered by the Company and each Seller.
This Agreement constitutes a legal, valid and binding agreement of the Company
and each Seller, enforceable against the Company and each Seller in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or similar Laws relating
to
or limiting creditors’ rights generally or by equitable principles relating to
enforceability.
3.4 Capitalization;
Title to Equity Interests.
3.4.1 (i)
The
Equity Interests are solely owned, of record and beneficially, by the Sellers.
The Equity Interests represent the only outstanding economic, voting, ownership
or any other type of equity interest in the Company. There are no securities
in
the Company other than the Equity Interests.
3.4.2 The
articles of incorporation and bylaws of the Company do
not
impose upon any holder of any Equity Interests any obligation to make capital
contribution commitments to such Company. As of the Closing Date, the Equity
Interests will be held by Sellers free and clear of all Encumbrances.
3.4.3 As
of the
Closing
Date,
none of
the Sellers are subject to any restrictions on transfer, rights of first
refusal
or other restrictions or obligations relating to the Equity Interests. As
of the
Closing Date, except as set forth on Schedule 3.4, there will be no outstanding
subscription, option, warrant, call right, preemptive right or other agreement
or commitment obligating the Company to issue, sell, deliver or transfer
(including any right of conversion or exchange under any outstanding security
or
other instrument) any economic, voting, ownership or any other type of
membership or other interest or security in the Company, other than pursuant
to
any actions taken by on behalf of Purchaser or its affiliates.
3.4.4 Schedule
3.4.4 sets forth a list of the officers and directors of the
Company.
3.5 Subsidiaries.
The
Company has no subsidiaries and owns no equity interests in any other
entity.
3.6 No
Conflict or Violation; Consents.
Except
as set forth on Schedule 3.6, neither the execution and delivery of this
Agreement by the Company and the Sellers nor the consummation of the
transactions contemplated hereby, will result in (i) a violation of, or a
conflict with, the organizational documents of such Seller or the Company;
(ii)
a violation by any Sellers or the Company of any applicable Law; (iii) a
violation by any Seller or the Company of any order, judgment, writ, injunction,
decree or award to which such Seller or the Company is a party or by which
any
Seller or the Company is bound or affected; (iv) a breach of or cause a default
under, or result in the termination of, or accelerate the performance of,
or
create in favor of any Person other than the Company a right of termination
or
consent under, any Material Contract to which the Company is a party; or
(v) an
imposition of an Encumbrance on the Equity Interests, or the assets of the
Company.
3.7 Governmental
Consents and Approvals.
Except
as set forth on Schedule 3.7, and except to the extent that the absence thereof
would not have a Material Adverse Effect on the Company, no Permit, approval,
consent or authorization of, or declaration, filing, application, transfer
or
registration with, any Governmental Authority is required to be made or obtained
by any Seller or the Company by virtue of the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby
in
order to enable Purchaser to own the Equity Interests and to permit the Company
to continue the lawful operation of its Business following the Closing Date
in
substantially the same manner as it is presently conducted by the
Company.
3.8 Pending
Litigation.
Schedule 3.8 sets forth a complete and correct list of all pending Actions
and,
to the knowledge the Company, any Actions threatened against the Company,
or
which have been initiated by the Company, or which would affect the ability
of
each Seller to consummate the sale of their respective Equity Interests.
None of
the Actions, if adversely determined against the Company, or its directors
or
officers, would reasonably be expected to result in a loss, individually
or in
the aggregate, in excess of $10,000. To the knowledge of the Company, there
is
no basis for any Action which, if adversely determined against the Company,
would reasonably be expected to result in a loss, individually or in the
aggregate, in excess of $10,000.
3.9 Financial
Information.
3.9.1 Financial
Statements.
The
Company have furnished to Purchaser copies of (i) the unaudited balance sheet
of
the Company as of December 31, 2004, and the related statements of income
for
the fiscal year then ended, (ii) the unaudited balance sheet of the Company
as
of December 31, 2003 and the related consolidated statements of income for
the
fiscal year then ended and (iii) the balance sheet for the Company as of
November, 2005 (with respect to the Company, the “Most
Recent Balance Sheet”)
and
the related statement of income for the 11 months then ended (with respect
to
the Company, the “Financial Statements”).
The
Financial Statements have been prepared in accordance with GAAP on a consistent
basis during the respective periods, fairly and accurately present in all
material respects the financial condition of the Company to which it relates
at
the respective dates thereof and the results of operations of the Company
to
which it relates for the respective periods covered by the statements of
income
contained therein,
and
are
correct and complete in all material respects.
3.9.2 Accounting
Controls.
The
Company
has
maintained a system of internal accounting controls sufficient to provide
reasonable assurance that transactions have been executed with management's
authorizations, and transactions have been recorded as necessary to permit
preparation of the Financial Statements in accordance with GAAP. As
of the
date of the Most Recent Balance Sheet, there were no changes in the Company’s
accounting procedures or internal controls.
3.9.3 Indebtedness.
As of
the Closing Date, the Company has no outstanding Indebtedness except as shown
on
Schedule 3.9.3.
3.9.4 Undisclosed
Liabilities.
Except
as set forth on Schedule 3.9.4,
the
Company has no liabilities or obligations (known, unknown, asserted, unasserted,
absolute, contingent, accrued, unaccrued, liquidated, unliquidated, due,
to
become due, or otherwise, including any liability for Taxes) except (i)
liabilities which are reflected and properly reserved against in the Most
Recent
Balance Sheet of the Company
and
(ii)
liabilities incurred in the ordinary course since the Most Recent Balance
Sheet
in an aggregate amount not exceeding $15,000 arising under any of the
Contracts
listed
on Schedule 3.12.1.
3.9.5 Inter-company
Assets and Liabilities.
Except
as set forth on Schedule 3.9.5,
as of
the Closing Date, all payable inter-company accounts receivable, accounts
payable and accrued inter-company expenses between or among the inter-company
group consisting of the Company, the Sellers and their respective affiliates,
shall have been paid or otherwise extinguished and there will be no
inter-company assets or liabilities.
3.10 Absence
of Certain Changes.
Since
the Most Recent Balance Sheet, there has been no Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
Schedule 3.10, since the Most Recent Balance Sheet the Company has
not:
3.10.1 sold,
assigned, licensed, leased, transferred, disposed of, or agreed to sell,
assign,
license, lease, transfer or dispose of, any asset other than in the Ordinary
Course;
3.10.2 acquired
any equity interests in any other Person, acquired any material assets, except
in the Ordinary Course, nor acquired or merged with any other business or
Person;
3.10.3 incurred
or created any material Encumbrances on any of its assets;
3.10.4 suffered
the destruction, damage or other loss (whether or not covered by insurance)
of
any assets or property material to the conduct of the Business;
3.10.5 increased
the salary or other compensation payable or to become payable to any employee
of
the Company (“Employees”)
or
obligated itself to pay any bonus or other additional salary or compensation
to
any Employee in each case other
than in the Ordinary Course;
3.10.6 other
than with respect to at-will Employees, entered into any employment Contract
or
collective bargaining Contract, or modified the terms of any existing such
Contract, or made any other change in employment terms for any Employees
outside
of the Ordinary Course;
3.10.7 terminated
any Employees whose responsibilities are material to any of the
Company.
3.10.8 adopted,
amended, modified, or terminated any Employee Benefit Plan;
3.10.9 made
any
loan to, or entered into any other transaction with, any Employees, other
than
the hiring of at-will Employees in the Ordinary Course;
3.10.10 entered
into any new Contract not in the Ordinary Course;
3.10.11 waived,
amended, modified, terminated or canceled any Material Contract
or
material right,
nor has
any third party taken any such action with respect to any Material
Contracts;
3.10.12 suffered
any disposition or lapse of any Intellectual Property, including, without
limitation, the expiration of any applications for registration of any
Intellectual Property rights;
3.10.13 licensed
any Intellectual Property, other than to end users, customers or distributors
in
the Ordinary Course;
3.10.14 made
any
capital expenditures;
3.10.15 made
any
investment in, or any loan to, any other Person;
3.10.16 created,
incurred, assumed, or guaranteed any Indebtedness;
3.10.17 entered
into any Contract to take any action, or permit any occurrence, described
above;
3.10.18 satisfied
or discharged any Encumbrances or discharged or paid any Indebtedness or
other
Obligation to any party;
3.10.19 entered
into any other Obligation with any third party;
3.10.20 declared,
set aside or paid any dividends, or in respect of any shares of capital stock,
repurchased, redeemed or otherwise acquired shares of outstanding stock of
the
Company;
3.10.21 mortgaged,
pledged or transferred any security interest in, or lien, created by the
Company, with respect to any assets (except for tax liens for taxes not yet
due
and payable);
3.10.22 instituted
or settled any action or Proceeding against the Company;
3.10.23 issued
any new equity securities;
3.10.24 changed
accounting methods or internal controls; or
3.10.25 failed
to
pay any obligation due in the ordinary course.
3.11 Real
Property.
Schedule 3.11 sets forth a complete and correct list of all real
property leased by the Company (“Leased Real Property”).
Except
as set forth in Schedule 3.11, the Company has not subleased or otherwise
granted any other Person a right to use any real property. The Company owns
no
fee interest in any real property.
3.11.1 To
Company’s knowledge, no Proceedings are pending which would affect or pertain to
the zoning, use or environmental condition of any of the Leased Real
Property.
3.12 Material
Contracts.
3.12.1 Schedule
3.12.1
sets
forth a complete list of the following Contracts (the “Material Contracts”):
all
(i) agreements for Indebtedness to which the Company is a party; (ii) agreements
or commitments to make material capital expenditures; (iii) agreements to
sell,
lease or otherwise dispose of any material assets or properties of the Company
,
other than in the Ordinary Course; (iv) agreements limiting the freedom of
the
Company to compete in any line of business or in any geographic area or with
any
Person; (v) Leases; (vi) joint venture agreements and partnership agreements
to
which the Company is a party; (vii) any license from a third party to the
Company for Intellectual Property, other than shrink wrapped software that
is
generally available in the commercial markets, such as word processing programs;
(viii) Contracts involving any Company investment in, or any loan to, any
other
Person; (ix) other than with respect to at-will Employees, employment agreements
or loan agreements with any Employees; (x) Contracts that involve payments
or
receipts of either (A) more than $20,000
annually
or (B) $50,000
in the
aggregate in future payments or receipts over the life of such
Contract;
(xi)
Contracts of value which default could have a Material Adverse Effect; (xii)
Contracts outside of the Ordinary Course and (xiii) Contracts that require
consent or notice of assignment or will accelerate or terminate on change
of
control; (xiv) manufacturing
or joint development agreements; (xv) confidentiality and non-disclosure
agreements (whether the Company is the beneficiary or the obligated party
thereunder); (xvi) contracts or commitments relating to commission arrangements
with others; (xvii) consulting contracts and severance agreements, (xviii)
indemnification agreements; (xix) any Contract with the federal, state or
local
government or any agency or department thereof; (xx) any Contract or other
arrangement or understanding with a Related Party; (xxi) Contracts that are
in
the nature of offset or barter agreements.
3.12.2 Each
Material Contract is valid, binding and enforceable against the Company in
accordance with its term, except that (i) such enforcement may be subject
to
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other
laws, now or hereafter in effect, relating to or limiting creditors’ rights
generally, and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). To the
knowledge of the Company, each Material Contract is valid, binding and
enforceable against the other parties thereto, in accordance with its terms.
TheCompany is not in default, violation or breach in any material respect
under
any Material Contract,
and no
event
has occurred which with notice or lapse of time would constitute a material
breach or default, or permit termination, modification, or acceleration,
under
such Material Contract. Except as disclosed on Schedule 3.12.2,
each
Material Contract shall be in full force and effect without penalty in
accordance with its terms immediately following the consummation of the
transaction contemplated hereby. The Company has not committed any act, and
there has been no omission by the Company, which may result in, and there
has
been no occurrence which may give rise to, material product liability or
liability for breach of warranty (whether covered by insurance or not) on
the
part of the Company, with respect to products designed, manufactured, assembled,
sold, repaired, maintained, delivered or installed or services rendered prior
to
or on the Closing Date.
3.13 Intellectual
Property.
3.13.1 Schedule
3.13.1
sets
forth a complete and correct list of all patents, patent applications,
registered trademarks, registered service marks, mask works, trade
names,
registered copyrights, Software owned or licensed, under development or held
for
use the Company, and, in the case of Software developed by the Company, if
any,
a product description, the language in which it is written and the type of
hardware platform(s) on which it runs,
and all
applications for registration included in the registered Intellectual Property
filed by or held in the name of the Company.
3.13.2 (i)
Without expansion of the representations and warranties made in this
subsection
3.13.2(ii)
and
3.13.2(iii),
all right, title and interest in and to the Intellectual Property is either
owned by the Company
free and
clear of all Encumbrances, other than Permitted Encumbrances, or is licensed
by
the
Company
from a
third party unaffiliated with any Seller pursuant to a valid and enforceable
written license,
and the
Company
has
good
and marketable title to such Intellectual Property,
(ii) no
claims have been made or, to the knowledge of the Company, threatened (including
by way of a demand letter or offer to license), to the Sellers or the Company
by
any Person, and there are no grounds for any Person to claim that (A) the
Companydoes not own or have the right to use, as applicable, any material
Intellectual Property used in its Business, (B) the operation of the Business
of
the Company as presently conducted is infringing, misappropriating or otherwise
violating the intellectual property rights of any Person, or (C) the
Intellectual Property purported to be owned by the Company infringes,
misappropriates or otherwise violates the intellectual property rights of
any
third party or is invalid or unenforceable, and (iii) to the knowledge of
the
Company,the Company is not infringing, misappropriating or otherwise violating,
or has infringed, misappropriated or otherwise violated any intellectual
property rights of any other Person. The Company has taken all steps customary
and reasonable in the industry (including, entering into appropriate
confidentiality and nondisclosure agreements and work product agreements
with
all current and former officers, directors, subcontractors, employees, licensees
and customers) in connection with the Business to safeguard and maintain
the
secrecy and confidentiality of, and the proprietary rights in, the Intellectual
Property. Without limiting the foregoing, all Intellectual Property rights
that
were created by consultants, independent contractors or other third parties
for
or on behalf of the Company are subject to written agreements pursuant to
which
all right, title and interest therein, including without limitation the
copyrights thereto, have been duly and properly assigned to the Company.
No
current or former owners, equity owners, partners, directors, executives,
officers, employees, independent contractors or any other parties has any
interest in or right to any Intellectual Property, including, but not limited
to, the right to royalty payments.
3.13.3 Except
as
set forth on Schedule 3.13.3,
to the
knowledge of the Company, no Person is currently infringing or otherwise
violating any Company rights in any owned Intellectual Property.
3.13.4 No
rights
or permission of the Company or any other party are necessary to use, make,
manufacture, reproduce, distribute, display, perform, market, license, sell,
offer to sell, modify, adapt, translate, enhance, improve, update, or create
derivative works based upon any Intellectual Property, except as provided
under
any licenses relating thereto.
3.13.5 Set
forth
on Schedule 3.13.5 are all Internet domain names related to or used or held
for
use in connection with, related to, pursuant to, in the conduct of, or as
part
of the Business, or licensed to or used, owned, or registered by the
Company.
3.13.6 The
registrations with respect to the registered Intellectual Property owned
by the
Company set forth on Schedule 3.13.1
(other
than those trademarks designated “Inactive Marks” or “Trademark Applications”)
are complete
and accurate and are in
full
force and effect.
3.13.7 The
Company maintains in connection with their operations, activity, conduct
and
business on the World Wide Web (“Web”) and any and all other applicable Internet
operations, activity, conduct, and business, a written privacy statement
or
policy governing the collection, maintenance, and use of data and information
collected from users of Web sites owned, operated, or maintained by, on behalf
of, or for the benefit of the Company in connection with, related to, pursuant
to, in the conduct of, or as part the Business. The privacy statement is
attached on Schedule 3.13.7.
3.14 Employee
Matters.
3.14.1 There
is
no labor strike, dispute, slowdown, or stoppage pending or, to the knowledge
of
the Company, threatened against the Company. The Company is not a party to
or
bound by any collective bargaining agreement with respect to any Employees.
To
the knowledge of the Sellers and the Company, no certification question or
organizational drive exists or has existed within the past two (2) years
with
respect to Employees. Except as set forth on Schedule 3.8, there is no unfair
labor practice, charge or complaint of discrimination (including discrimination
based upon sex, age, marital status, race, national origin, sexual preference,
handicap or veteran status) or any other matter against or involving the
Company
pending or, to the knowledge of the Company, threatened before the National
Labor Relations Board, the Equal Employment Opportunity Commission or any
other
Governmental Authority pertaining to or involving Employees. Except as set
forth
on Schedule 3.14.1
and
except as required by any Law, the Company has not entered into any severance
Contract or similar arrangement in respect of any Employee that will result
in
any obligation (absolute or contingent) of the Company to make any payment
to
any Employee following termination of employment or upon consummation of
the
transactions contemplated by this Agreement.
3.14.2 Schedule
3.14.2
lists
the names, current base salary or hourly wage rate and the 2004 bonuses and
commissions of all Employees,
consultants and third party agents of the Company.
3.14.3 The
Company is in compliance in all material respects with all applicable Laws
relating to employment practices. The Company has delivered to Purchaser
accurate and complete copies of all current employee manuals and handbooks,
disclosure materials, policy statements and other materials relating to the
employment of its employees.
3.14.4 Schedule
3.14.4
sets
forth a complete and correct list of all Employee Benefit Plans of the Company.
Each such Employee Benefit Plan complies in all material respects with the
provisions of and has been administered in compliance with the provisions
of
ERISA and all other applicable Laws. Without limiting the generality of the
foregoing, no “prohibited transaction” (as such term is defined in Section 4975
of the Code, or in Part 4 of Subtitle B of Title I of ERISA) has occurred
with
respect to any such Employee Benefit Plan that could result in the imposition
of
material Taxes or penalties on the Company, and neither any Seller nor the
Company has failed to make any contribution to, or to make any payment under,
any such Employee Benefit Plan that it was required to make prior to Closing
pursuant to the terms of such Employee Benefit Plan or pursuant to applicable
Law that could result in any material liability to the Company. Further,
the
Company maintains a non-qualified deferred compensation plan designated as
“NQDC” on Schedule 3.14.4 whereby employees may elect to exclude a portion of
their compensation to purchase life insurance. The Company shall terminate
the
"Plan" prior to Closing.
3.15 Taxes.
Except
as set forth on Schedule 3.15, (i) all Tax Returns relating to the Company
that
are required by Law to be filed have been duly filed on a timely basis, (ii)
all
amounts set forth thereon have been paid in full and all such Tax Returns
are
correct and complete in all material respects, (iii) the Company has not
waived
nor has been requested to waive any statute of limitations in respect of
Taxes,
(iv) there are no pending or threatened Actions for the assessment or collection
of Taxes that relate to the activities or income of the Company, (v) there
are
no liens for Taxes upon the assets of the Company other than liens for Taxes
not
yet due and payable or being contested in good faith, (vi) all material Taxes
which the Company is required by Law to withhold or to collect for payment
have
been duly withheld and collected, and have been paid or accrued, reserved
against and entered on their respective Books and Records in accordance with
GAAP and (vii) all Tax deficiencies of the Company determined as a result
of any
past completed audit have been satisfied. There are no Tax-sharing agreements
or
similar arrangements (including indemnity arrangements) with respect to or
involving the Company. The Sellers have properly requested, received and
retained all necessary exemption certificates and other documentation supporting
any claimed exemption or waiver of Taxes on sales or other transactions for
which Purchaser would have been obligated to collect or withhold
Taxes.
3.16 Compliance
with Law.
Except
as set forth on Schedule 3.16, the Company currently conducts its Business
in
compliance in all material respects with all Laws applicable to the conduct
of
its Business. No Seller or the Company has received any written notice from,
nor
does any Seller have any knowledge that, any Governmental Authority or other
Person is claiming or threatening to claim any violation or potential violation
of any Law with respect to the Company.
3.17 Permits.
The
Company holds all material Permits necessary for the lawful operation of
its
Business as presently conducted, and all such Permits are in full force and
effect.
3.18 Insurance.
Schedule 3.18
contains
an accurate list of all policies of insurance in effect on the date hereof
relating to the Company. All such policies are valid, outstanding and
enforceable. The Company has not received notice of any actual or threatened
modification or cancellation of any such insurance.
Except
as set forth on Schedule 3.18, there are no pending claims under any insurance
policies.
3.19 Brokers
and Finders.
All
negotiations relating to this Agreement and the transactions contemplated
hereby
have been carried on without the intervention of any Person acting on behalf
of
any Seller or the Company in such manner as to give rise to any claim for
any
brokerage or finders’ commission, fee or similar compensation.
3.20 Accounts
Receivable; Expenses.
3.20.1 The
accounts and notes receivable reflected in
the Most
Recent Balance Sheet of the Company are recorded in accordance with
GAAP.
The
accounts
and notes receivable on
the date
of the Most Recent Balance Sheet arose from bona fide transactions, including
sales of goods or services rendered,
and
represent bona fide claims against debtors for sales, services performed
or
other charges and all of the goods delivered and services performed which
give
rise to such accounts were delivered or performed in accordance with applicable
orders, contract or customer requirements. All such accounts and notes are
collectible except to the extent of any reserves.
All
reserves for bad debt shown on the Most Recent Balance Sheet of the Company
are
reflected properly in accordance with GAAP.
3.20.2 The
collection practices employed by the Company have not changed from the Ordinary
Course since the date of the Most Recent Balance Sheet.
3.20.3 There
has
been no unusual discounts or accelerations in connection with any accounts
or
notes receivable after the date of the Most Recent Balance Sheet of the
Company.
3.20.4 As
of the
Closing Date, the Company shall have paid all expenses currently due and
owing,
consistent with past practices.
3.21 Customers.
Schedule 3.21
sets
forth a complete and accurate list of the names of all of the customers of
the
Company, showing the approximate total billings in United States dollars
to each
such customer during the last fiscal year and the present year to date. The
Company has not received any written communication from any customer named
on
Schedule 3.21
of any
intention to return, terminate or materially reduce purchases from the
Company.
3.22 Bank
Accounts.
Set
forth on Schedule 3.22
is a
complete list of all
bank,
brokerage or similar account of the Company and
the
names of all officers or employees who are authorized to make withdrawals
therefrom or dispositions thereof.
3.23 Books
and Records.
Except
as set forth on Schedule 3.23,
the
Books and Records of the Company have been maintained in accordance with
generally accepted industry practice.
The
Books and Records are true, accurate and complete in all material respects
and
fairly reflect the activities of the Company.
3.24 Questionable
Payments.
None of
the partners, members, owners, directors, managers, executives, officers,
representatives, agents or employees of the Company (when acting in such
capacity or otherwise on behalf of the Company): (i) has used or is using
any
corporate funds for illegal contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (ii) has used or is using
any
corporate funds for any direct or indirect unlawful payments to any foreign
or
domestic government officials or employees; (iii) has violated or is violating
any provision of the Foreign Corrupt Practices Act of 1977; (iv) has established
or maintained, or is maintaining, any unlawful or unrecorded fund of corporate
monies or other corporate properties; (v) has made at any time since the
date of
formation any false or fictitious entries on the books and records of the
Company; or (vi) has made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment of any nature using corporate funds or otherwise
on
behalf of the Company.
3.25 Environmental
Matters.
The
Company has at all times been in compliance in all material respects with
applicable Environmental Laws in respect to the Leased Real Properties. The
Company has not received any notice from any governmental agency in connection
with environmental issues arising out of or relating to the Leased Real
Property. There are no pending civil, criminal or administrative proceedings
against the Company under any Environmental Laws arising out of relating
to the
condition of any of the Leased Properties or the Company’s activities thereon.
Except as set forth on Schedule 3.25, to the Company’s knowledge, no underground
or above ground storage tanks, active or abandoned, are present at any Leased
Real Property.
3.26 Financial
Projections: Operating Plan.
The
Sellers
have
made available to Purchaser certain financial projections with respect to
the
Company which projections were prepared for internal use only. These projections
were prepared in good faith and are based on assumptions believed by the
Sellers
to be reasonable as of the date the projections were prepared and the Sellers
have disclosed any material changes since their delivery to the
Purchaser.
3.27 Investment
Intent.
Sellers
are
acquiring the Purchaser Shares for their own account for investment and not
with
a view to, or for sale in connection with, any distribution thereof. Sellers
are
“accredited investors” as defined in Rule 501(a) of Regulation D of the
Securities Act of 1933, as amended. Sellers understand and agree that they
may
not sell, dispose, transfer, pledge, hypothecate or otherwise dispose of
any of
the Purchaser Shares (i) without registration under the Securities Act of
1933,
as amended, except pursuant to an exemption from such registration available
under such Act and (ii) except in accordance with any applicable provisions
of
state and local securities Laws.
3.28 No
Other Agreements to Sell the Company or the Equity Interests.
The
Sellers do not have any legal obligation, absolute or contingent, to any
other
Person to sell the Equity Interests or the assets of the Company or to effect
any merger, consolidation or other reorganization of the Company or to enter
into any agreement with respect thereto, except pursuant to this
Agreement
3.29 Full
Disclosure.
No
representation or warranty of any of the Sellers in this Agreement and no
statement contained in any written material or certificates furnished or
to be
furnished to Purchaser (including the information provided in the Schedules
hereto) pursuant hereto (i) contains any untrue statement of any material
fact
or (ii) omits to state any fact that is necessary to make the statements
made,
in the context in which made, not false or misleading in any material respects.
3.30 Tax
Status. Effective
for years beginning on or after January 1, 1997, the Company, with consent
of
the Sellers, has elected under the Internal Revenue Code to be an "S"
Corporation. In lieu of corporation income taxes, the stockholders of an
S
corporation are taxed on their proportionate share of the Company's taxable
income. The Company presently operates on a calendar year basis for financial
and income tax reporting purposes.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to Sellers as follows:
4.1 Organization.
Purchaser is a corporation
duly
organized, validly existing and in good standing under the Laws of Nevada.
The
MergerSub is a corporation
duly
organized, validly existing and in good standing under the Laws of Maryland.
4.2 Authorization.
Each of
Purchaser and MergerSub has the requisite power and authority to enter into
this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by
Purchaser and MergerSub of this Agreement has been duly authorized by all
necessary action on the part of Purchaser and/or MergerSub.
4.3 Due
Execution and Delivery; Binding Obligations.
This
Agreement has been duly executed and delivered by Purchaser and MergerSub
and
constitutes a legal, valid and binding agreement of each of Purchaser and
MergerSub, enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, arrangement,
moratorium or similar Laws relating to or limiting creditors’ rights generally
or by equitable principles relating to enforceability.
4.4 No
Conflict or Violation.
Neither
the execution and delivery of this Agreement by Purchaser and MergerSub nor
the
consummation of the transactions contemplated hereby, will result in (i)
a
violation of, or a conflict with, Purchaser’s or MergerSub’s organizational
documents or any subscription, members’ or similar agreements or understandings
to which any of them is a party; (ii) a violation by Purchaser or MergerSub
of
any applicable Law or (iii) a violation by Purchaser or MergerSub of any
order,
judgment, writ, injunction, decree or award to which any of them is a party
or
by which any of them is bound or affected.
4.5 Consents
and Approvals.
No
consent, permit, approval or authorization of, or declaration, filing,
application, transfer or registration with, any Governmental Authority, or
any
other Person is required to be made or obtained by Purchaser or MergerSub
by
virtue of the execution, delivery or performance of this Agreement.
4.6 Brokers
and Finders.
All
negotiations relating to this Agreement and the transactions contemplated
hereby
have been carried on without the intervention of any Person acting on behalf
of
Purchaser in such manner as to give rise to any claim for any brokerage or
finders’ commission, fee or similar compensation.
4.7 Investment
Intent.
Purchaser is acquiring the Equity Interests for its own account for investment
and not with a view to, or for sale in connection with, any distribution
thereof. Purchaser is an “accredited investor” as defined in Rule 501(a) of
Regulation D of the Securities Act of 1933, as amended. Purchaser understands
and agrees that it may not sell, dispose, transfer, pledge, hypothecate or
otherwise dispose of any of the Equity Interests (i) without registration
under
the Securities Act of 1933, as amended, except pursuant to an exemption from
such registration available under such Act and (ii) except in accordance
with
any applicable provisions of state and local securities Laws.
4.8 Capital
Structure.
As of
June 30, 2005, the authorized capital stock of Purchaser consists only
of: 150,000,000 shares of Common Stock, of which 3,110,800 shares
were issued and outstanding; 16,000,000 shares of Series C Preferred
Stock, 14,193,095 shares of which are issued and outstanding; 8,863,636
shares of Series D Preferred Stock, 6,136,136 of which are issued and
outstanding; and outstanding options and warrants to purchase 22,285,971
shares
of Common Stock and there are no other authorized shares of any class
authorized, issued or outstanding. In addition, outstanding convertible
subordinated notes are convertible into 2,500,000 shares of Common Stock
and
warrants to purchase 2,065,505 shares of Common Stock were issued in connection
with the Purchaser’s senior credit facility. Other than the convertible
instruments described above, no person has any phantom rights, options, warrants
or other equity interest or instrument convertible into any equity interest
in
Purchaser or otherwise has any right to acquire any equity interest or any
instrument convertible into any equity interest in Purchaser. All of the
issued and outstanding shares of Purchaser’s capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free
of
preemptive rights and were issued in full compliance with applicable state
and
Federal securities law and any rights of third parties.
4.9
SEC Documents/Purchaser Financial Statements.
Purchaser has furnished or made available to the Sellers true and complete
copies of all reports or registration statements filed by it with the U.S.
Securities and Exchange Commission (the “SEC”)
since
January 1, 2004, all in the form so filed (all of the foregoing being
collectively referred to herein as the “SEC
Documents”).
As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act
as the
case may be, and none of the SEC Documents contained any untrue statement
of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
in
which they were made, not misleading, except to the extent corrected by a
document subsequently filed with the SEC. The consolidated financial statements
of Purchaser, including the notes thereto, included in the SEC Documents
(the
“Purchaser
Financial Statements”)
have
been prepared in accordance with GAAP consistently applied (except as may
be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by SEC rule) and present fairly, in all material respects, the
consolidated financial position of Purchaser at the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
ARTICLE
5
CLOSING
5.1.1 Closing.
The
Closing shall
take place on
or
about February __, 2006 or such later date as all of
the
conditions in Articles 7 and 8 are fulfilled
or waived,
but in
no event shall the Closing be later than February 28, 2006 (the “Drop Dead
Date”).
5.1.2 General
Procedure.
At the
Closing, each party shall deliver to the party entitled to receipt thereof
the
documents required to be delivered pursuant to Article VIII hereof and
such
other documents, instruments and materials (or complete and accurate copies
thereof, where appropriate) as may be reasonably required in order to effectuate
the intent and provisions of this Agreement, and all such documents, instruments
and materials shall be satisfactory in form and substance to counsel for
the
receiving party.
ARTICLE
6
COVENANTS
6.1 Access
to Information.
6.1.1 The
Company and Sellers have given and shall continue to give Purchaser and
its
designated representatives, upon reasonable notice and at mutually agreeable
times, access to all of the properties and assets and customers of the
Company
and to all of the Company’s documents, Books and Records relating to its current
and past operations and Business and to make copies thereof and permit
such
representatives to interview
and question the Customer’s employees. Purchaser will not reveal any
confidential data and/or
information supplied by the Company except to its management, counsel,
accountants, insurance representatives, investment and commercial bankers
and
like agents, for purposes relating
to the evaluation and consummation of the transactions contemplated by
this
Agreement,
and in the event the transactions contemplated by this Agreement are not
consummated,
such data and information will be returned to the Company and will be held
confidential
by those to whom it is disclosed.
6.1.2 Provided
Purchaser and Purchaser’s representatives have signed reasonable confidentiality
agreements protecting the confidential information of Sellers, each Seller
shall
give Purchaser access to such Seller’s Books and Records as they relate to the
Company or any Subsidiary after the Closing, during regular business hours
upon
not less than two (2) business days’ notice, as necessary, in order for
Purchaser to prepare tax filings and audits and in connection with debt
or
equity financings.
6.2 Conduct
of the Business Pending Closing. Between
the date hereof
and the Closing hereunder, the Company will:
6.2.1 not
take
any action which would render untrue any of
the
representations or warranties of the Company and the Sellers herein contained,
and not omit to take any action within its power, the omission of which
would
render untrue any such
representation or warranty;
6.2.2 conduct
its Business in the Ordinary Course;
6.2.3 not
enter
into any Contract with any party, other than Contracts entered into
in
the Ordinary Course, and not amend, modify or terminate any Contract other
than
in the Ordinary Course without the prior written consent of
Purchaser;
6.2.4 use
commercially reasonable efforts to preserve its business intact, to keep
available the services of its Employees, and to preserve its relationships
with
its customers and others with whom it deals consistent with past
practice;
6.2.5 not
reveal, orally or in writing, to any party, other than Purchaser and
Purchaser’s
authorized agents, any of the business procedures and practices followed
by it
in the conduct of its Business or any technology used in the conduct of
its
Business;
6.2.6 maintain
in full force and effect all of the insurance policies listed on Schedule
3.18
and make
no change in any insurance coverage without the prior written consent
of Purchaser;
6.2.7 keep
the
premises occupied by it and all of its equipment and other tangible
personal property in good order and repair and perform all necessary repairs
and
maintenance
within normal time frames of scheduled maintenance;
6.2.8 continue
to maintain all of its usual Books and Records in accordance
with its past practices and not to make any material Tax elections;
6.2.9 not
amend
its articles or incorporation, bylaws or other organizational
documents;
6.2.10 not
declare or make any dividend or other payment on or with respect to the
Equity
Interests, redeem or otherwise acquire any securities or issue any securities
or
any, option,
warrant or right relating thereto;
6.2.11 not
pay
any bonuses to any of its Employees, other than in the Ordinary Course;
6.2.12 not
waive
any right or cancel any claim;
6.2.13 not
increase the compensation or the rate of compensation payable to any
of
its Employees without the prior written approval of the Purchaser;
6.2.14 maintain
its entity existence and not merge or consolidate with any other
entity;
6.2.15 comply
with all provisions of any Contract applicable to it and all applicable
Laws consistent with past practices;
6.2.16 except
with Purchaser’s consent, not make any capital expenditures in excess
of
$5,000 per expenditure and/or $10,000 in
the
aggregate;
6.2.17 neither
discuss nor negotiate with any other Person or entity the sale or other
transfer, or Encumbrance, of the assets or the Equity Interests of the
Company;
6.2.18 deposit
all funds received into the Company’s principal bank accounts and will pay all
expenses of the Company from such accounts; and
6.2.19 use
commercially reasonable efforts to effectuate the transactions contemplated
by this Agreement, and to do all things whatsoever necessary and proper
to
effect
the transactions and agreements contemplated herein.
6.3 Payment
on Account of Contract.
Between
the date hereof and up until and after the Closing hereunder, each Seller
shall
immediately remit any payment it receives (if any) on account of a Contract
to
the Company.
6.4 Product
Development; Competition.
Sellers
shall not directly or indirectly sell or develop products that are functionally
similar or that would compete with the current products of the
Company.
6.5 Governmental
Permits and Approvals.
The
Company and the Sellers shall use
their
commercially reasonable efforts to obtain all
Permits and approvals from any Governmental
Authority required to be obtained by the Sellers and/or the Company and/or
the
Purchaser
for the lawful consummation of the transactions contemplated hereby, and
to take
all steps necessary to transfer or have reissued to Purchaser any governmental
licenses, approvals or permits
by Closing.
6.6 Reasonable
Efforts.
Purchaser shall use commercially reasonable efforts to effectuate the
transactions contemplated
by this Agreement, and to do all things whatsoever necessary and proper
to
effect
the transactions and agreements contemplated herein.
6.7 Confidentiality.
No
party shall use any information or data obtained in connection with the
negotiation of the transactions contemplated by this Agreement for any
purpose
other than to pursue and further the consummation of such
transactions.
6.8 Health
Insurance. In
addition to the payments specified herein the Purchaser agrees that the
Company
shall continue health insurance coverage for Xxx Xxxxxxx, Xxxx Xxxxxxx
and
Xxxxxxx Xxxxxxx under the same terms as exist as of the date of the Agreement
(including where applicable family coverage) at no cost to the Sellers
until the
end of the month in which a date ninety (90) days after the Closing Date
occurs.
ARTICLE
7
CONDITIONS
PRECEDENT TO CLOSING
7.1 Conditions
Precedent to Closing of Purchaser.
Each
and every obligation
of Purchaser
to enter into the transactions contemplated by this Agreement and complete
the
Merger is subject, at Purchaser’s option, to the fulfillment and satisfaction of
each of the following conditions:
7.1.1 The
representations and warranties of the Company and Sellers contained in
this
Agreement will be true and correct in all material respects on and as
of the
Closing Date with the same force and effect as though made on and as of
the
Closing Date.
The
Schedules to this Agreement will be complete, accurate and current on and
as of
the
Closing Date. Each Seller and the Company will have performed and complied
with
all covenants and agreements required by this Agreement to be performed
or
complied with by them
on
or prior to the Closing Date. Each Seller and the Company will have delivered
to Purchaser a certificate, dated the Closing Date, to
the
foregoing effect;
7.1.2 No
action, suit or proceeding will have been instituted before any court
or
Governmental Authority or instituted or threatened by any Person which
could
materially affect
the assets, Obligations, financial condition or prospects of the Company
or
restrain or prevent the carrying out of the transactions contemplated hereby
or
seek damages in connection
with such transactions;
7.1.3 All
necessary approvals and/or filings for the transactions
contemplated hereby to be obtained and/or made by the Company and any Seller
will have been obtained
and/or made, as the case may be, and shall be in full force and effect;
and
7.1.4 The
deliveries set forth in Section 8.1 shall have occurred.
7.2 Conditions
Precedent to Closing of the Company and Sellers.
Each
and
every
obligation of the Company and Sellers to enter into the transactions
contemplated by this Agreement and complete the Closing is subject,
at their option, to the fulfillment and satisfaction of each of the following
conditions:
7.2.1 The
representations and warranties of Purchaser contained in this Agreement
will be
true and correct on and as of the Closing Date with the same force and
effect as
though made on and as of the Closing Date. Purchaser will have performed
and
complied with all covenants and agreements required by this Agreement to
be
performed or complied
with by it on or prior to the Closing Date. Purchaser
will have delivered
to Seller a certificate, dated the Closing Date, to
the
foregoing effect;
7.2.2 All
necessary approvals and/or filings for the transactions contemplated
hereby to be obtained and/or made by Purchaser will have been obtained
and/or
made,
as
the case may be, and shall be in full force and effect;
7.2.3 No
action, suit or proceeding will have been instituted before any court
or
government body or restricted or threatened by any person which could materially
prevent
the carrying out of the transactions contemplated hereby; and
7.2.4 The
deliveries set forth in Section 8.2 shall have occurred.
ARTICLE
8
DELIVERIES
AT CLOSING
8.1 The
Company and Sellers Deliveries at Closing. The
Company and the Sellers,
as
applicable, shall deliver to Purchaser at Closing:
8.1.1 Good
standing certificate or the equivalent for the Company, dated no earlier
than ten (10) days before the Closing Date, from the jurisdiction of
incorporation.
8.1.2 A
certified copy of the articles of incorporation or organization, and
each
amendment thereto, of the Company, from the secretary of state of the
jurisdiction
in which such Company is incorporated.
8.1.3 A
true
and correct copy of the Company’ bylaws or operating or similar agreement,
and
each
amendment thereto.
8.1.4 Duly
executed resignations of each member of the board of directors
of the Company.
8.1.5 The
minute books, equity transfer books or similar books and records and seal
of the
Company.
8.1.6 All
keys
to safe deposit boxes of the Company and authorized forms to change (i)
the
permitted users of the safe deposit boxes and (ii) permitted users and
authorized persons for banking relationships.
8.1.7 All
other
agreements, certificates, instruments, financial statement certifications
and documents reasonably requested by Purchaser in order to fully consummate
the
transactions contemplated by this Agreement and carry out the purposes
and
intent of this Agreement.
8.2 Purchaser’s
Deliveries at Closing. Purchaser
shall deliver to the Sellers at Closing:
8.2.1 .All
other agreements, certificates, instruments and documents reasonably requested
by any Seller in order to fully consummate the transactions
contemplated by this Agreement and carry out
the
purposes and intent of this Agreement.
8.3 Exchange
of Equity Interests for Purchase Price. The
Purchaser shall deliver to each Seller such Seller’s portion of the Purchase
Price as set forth on Exhibit 2.9 at such time as each Seller delivers
to the
Purchaser (i) the certificate representing the Equity Interest held by
such
Company Stockholder and (ii) for any Seller receiving Purchaser Shares,
an
executed signature page to the Registration Rights Agreement.
ARTICLE
9
INDEMNIFICATION
9.1 Survival
of Representations and Warranties.
All
representations and warranties made hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the
Closing
for a period of one year following the Closing Date, except all representations
and warranties made by Sellers under Sections 3.4,
3.5,
and
3.15,
which
shall survive the Closing through the date of the applicable statute of
limitations.
9.2 Indemnification
Obligations.
9.2.1 Indemnification
by Seller.
Sellers
shall jointly and severally indemnify, defend and hold harmless Purchaser,
the
Company and their respective affiliates, and Representatives, and shall
reimburse each such Person on demand for any Damages resulting from any
of the
following: (i) any breach or default in the performance by any
of
the Sellers
of any covenant or agreement contained herein, in any agreement contemplated
hereby or executed in connection herewith, or in any certificate or other
instrument delivered or to be delivered by or on behalf of any
of
the Sellers
pursuant hereto or thereto; (ii) any breach of warranty or inaccurate
representation made by
any of
the
Sellers
herein; and (iii) the operation of the Business of the Company prior to
the
Closing Date provided, however, that:
9.2.1.1 None
of
the Sellers shall be required to pay any Damages to Purchaser unless the
aggregate amount of all Damages exceeds $10,000, in which case all Damages
shall
be paid, and (ii) in no event shall the aggregate amount of Damages payable
by
the Sellers exceed $100,000, provided, however, that this limit on Damages
shall
not apply to Damages for breaches of warranty or inaccurate representation
made
by Sellers under Sections 3.2, 3.4, 3.5, 3.9.5, 3.15 and 3.19; and
9.2.2 Indemnification
by Purchaser.
Purchaser and MergerSub shall indemnify, defend and hold harmless Sellers
and
any of their affiliates and Representatives, and shall reimburse each such
Person on demand for any Damages resulting from any of the following: (i)
any
breach or default in the performance by Purchaser of any covenant or agreement
of Purchaser contained herein, in any agreement contemplated hereby or
executed
in connection herewith, or in any certificate or other instrument delivered
or
to be delivered by or on behalf of Purchaser pursuant hereto or thereto;
(ii)
any breach of warranty or inaccurate representation made by Purchaser herein;
and (iii) the operation of the Business of each of the Company after the
Closing
Date (including tax liabilities arising after the Closing Date for periods
commencing after the Closing Date) provided, however, that, (A) Purchaser
shall
not be required to pay any Damages to Sellers or any such Persons with
respect
to the breach of any representation or warranty pursuant to the foregoing
clause
(ii) unless the aggregate amount of all Damages exceeds $10,000, in which
case
all Damages shall be paid, and (B) in no event shall the aggregate amount
of
Damages payable by Purchaser exceed $100,000.
9.2.3 Claims
for Indemnity.
Whenever a claim for Damages shall arise for which one party (“Indemnitee”)
shall
be entitled to indemnification hereunder, Indemnitee shall notify the other
party(s) (“Indemnitor”)
in
writing within thirty (30) days of the first receipt of notice of such
claim,
and in any event within such shorter period as may be necessary for Indemnitor
to take appropriate action to resist such claim; provided that the failure
to
give notice as herein provided shall not relieve Indemnitor of its obligation
to
indemnify Indemnitee except to the extent that Indemnitor shall have been
prejudiced in its ability to defend such claim. Notwithstanding anything
in this
Agreement to the contrary, written notice of any Indemnitee’s claim for
indemnification for breach of representations and warranties must be given
within the survival period for such representations and warranties set
forth in
Section 9.1, and any indemnity claim for breaches of representations and
warranties which has not been noticed in writing by such date shall be
time-barred, irrespective of whether such claim was known or unknown by
such
date to the party seeking indemnification. Each notice shall specify all
facts
known to Indemnitee giving rise to such indemnity rights and shall estimate
the
amount of the liability arising therefrom. If Indemnitee is duly notified
of a
dispute, the parties shall attempt to settle and compromise the same, or
if
unable to do so within thirty (30) days (or such longer period as they
may
agree) of Indemnitor’s delivery of notice of a dispute, either party may seek
judicial resolution of the dispute. Any rights of indemnification established
by
reason of such settlement, compromise or arbitration shall promptly thereafter
be paid and satisfied by Indemnitor.
9.2.4 Defense
of Third Party Claims.
Upon
receipt by Indemnitor of a notice from an Indemnitee with respect to any
claim
of a third party against Indemnitee, Indemnitor may assume the defense
of such
claim with counsel reasonably satisfactory to Indemnitee, and Indemnitee
shall
cooperate to the extent reasonably requested by Indemnitor in defense or
prosecution thereof and shall furnish such records, information and testimony
and attend all such conferences, discovery proceedings, hearings, trials
and
appeals as may be reasonably requested by Indemnitor in connection therewith.
If
Indemnitor assumes the defense of such claim, Indemnitee shall have the
right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of Indemnitee. If Indemnitor has assumed
the
defense of any claim against Indemnitee, Indemnitor shall have the right
to
settle any claim for which indemnification has been sought and is available
hereunder involving only cash payment and/or a release it from liability;
provided that, to the extent that such settlement requires Indemnitee to
take,
or prohibits Indemnitee from taking, any action or purports to obligate
Indemnitee, then Indemnitor shall not settle such claim without the prior
written consent of Indemnitee. If Indemnitor does not assume the defense
of a
third party claim and disputes Indemnitee'’s
right
to indemnification, Indemnitee shall have the right to participate in the
defense of such claim through counsel of its choice, at Indemnitor'’s
expense
(subject to the validity of the Indemnitee’s claim), and Indemnitee shall have
control over the litigation and authority to resolve such claim with the
prior
consent of Indemnitor, which consent shall not be unreasonably
withheld.
9.3 No
Double Recovery.
Notwithstanding the fact that any Indemnitee may have the right to assert
claims
for indemnification under or in respect of more than one provision of this
Agreement or another agreement entered into in connection herewith in respect
of
any fact, event, condition or circumstance, no Indemnitee shall be entitled
to
recover the amount of any Damages suffered by such Indemnitee more than
once
under all such agreements in respect of such fact, event, condition or
circumstance, and an Indemnitor shall not be liable for indemnification
to the
extent the Indemnitee has otherwise been fully compensated on a
dollar-for-dollar basis for such Damages pursuant to the procedures set
forth in
Section 9.2.
9.4 Cooperation.
Notwithstanding anything to the contrary contained in this Article 6, the
parties shall cooperate with each other in connection with any claim for
indemnification hereunder, including to obtain the benefits of any insurance
coverage for third party claims that may be in effect at the time a third
party
claim is asserted.
9.5 Mitigation.
The
amount of any Damages of any Indemnitee under this Article 6 shall be net
of (a)
the amount, if any, receivable by the Indemnitee from any third party
(including, without limitation, any insurance company or other insurance
provider) and (b) the amount, if any, equal to the Tax benefit (such amounts
being collectively referred to herein as a “Third
Party Reimbursement”),
in
respect of or attributable to the Damages suffered thereby. If, after receipt
by
the Indemnitee of any indemnification payment hereunder, such Person receives
or
becomes entitled to receive a Third Party Reimbursement in respect of the
same
Damages for which indemnification was made and such Third Party Reimbursement
was not taken into account in assessing the amount of indemnification,
then the
Indemnitee shall turn over all of such Third Party Reimbursement to the
Indemnitor up to the amount of the indemnification paid pursuant
hereto.
9.6 Exclusive
Remedy.
Except
in the case of fraud, the indemnification provided in this Article 9 will
constitute the exclusive remedy of the Purchaser, the MergerSub, the Company,
or
Sellers and their affiliates and Representatives, as the case may be, and
their
respective assigns from and against any and all Damages asserted against,
resulting to, imposed upon or incurred or suffered by, any of them, directly
or
indirectly, as a result of, or based upon or arising from the breach of
any
representation or warranty or the non-fulfillment of any agreement or covenant
in or pursuant to this Agreement or any other agreement, document, or instrument
required hereunder. Purchaser and Sellers each hereby waive, to the fullest
extent permitted under applicable Law, any and all rights, claims, and
causes of
action it may have against any other party, or any of such other party’s
affiliates, to the contrary.
9.7 Adjustments
to Purchase Price.
Any
payments made pursuant to this Article 9 shall be consistently treated
as
adjustments to Purchase Price for all Tax purposes by Sellers and
Purchaser.
9.8 Intentional
Misrepresentation.
Notwithstanding any other provision hereof to the contrary, any claims
of fraud
shall not be limited by any survival period contained in this Agreement
or any
limit on indemnification or remedy contained in this Agreement.
9.9 Damages.
Notwithstanding anything to the contrary elsewhere in this Agreement, no
party
or its affiliates will be liable to the other party(s) or its affiliates
for any
Damages other than compensatory Damages. Each party agrees that it is not
entitled to recover and agrees to waive any claim with respect to, and
will not
seek, consequential, punitive or any other special Damages as to any matter
under, relating to or arising out of the transactions contemplated by this
Agreement; provided, however that the foregoing shall not limit any
indemnification obligations of either party with respect to third party
claims.
ARTICLE
10
TAX
MATTERS
10.1 Payment
of Taxes.
Sellers
shall pay, and indemnify, defend and hold the Purchaser and the Company
harmless
against, any and all Taxes of the Company (including without limitation,
any
Taxes due from Sellers) allocable to any taxable periods ending on or before
the
Closing Date and the portion through the end of the Closing Date for any
taxable
period that includes (but does not end on) the Closing Date, including
Taxes due
after the Closing Date relating to deferred revenue for which the underlying
license or maintenance payments were collected prior to the Closing Date
(the
“Pre-Closing Tax Period”). In the case of any taxable period that includes (but
does not end on) the Closing Date, the amount of any Taxes based on or
measured
by income or receipts of the Company allocable to the Pre-Closing Tax Period
shall be determined based on an interim closing of the books as of the
close of
business on the Closing Date, and the amount of other Taxes of the Company
allocable to the Pre-Closing Tax Period shall be deemed to be the amount
of such
Tax for the entire taxable period multiplied by a fraction the numerator
of
which is the number of days in the taxable period ending on the Closing
Date and
the denominator of which is the number of days in such taxable
period.
10.2 Preparation
of Tax Returns.
Sellers
shall prepare and file all income Tax Returns for the Company for any tax
periods ending on or prior to the Closing Date, except for any Tax Returns
due
after the Closing Date in which case Purchaser shall prepare such Tax Returns
and Sellers shall have the right to review and approve such Tax Returns
at least
10 business days prior to filing, which approval shall not be unreasonably
withheld. Except as otherwise provided in the preceding sentence, Purchaser
shall prepare all Tax Returns for the Company. Sellers shall reimburse
Purchaser
for Taxes of the Company which are allocable to the Pre-Closing Period
(in
accordance with Section 10.1) within 15 days after payment by Purchaser
or the
applicable Company of such Taxes. Purchaser shall not file, or cause the
Company
to file, any amended Tax Returns for the Company for tax periods that include
a
period prior to the Closing Date without prior written consent of Sellers,
such
consent not to be unreasonably withheld or delayed.
10.3 Payment
Over of Refunds.
The
Company shall promptly pay, and Purchaser shall cause the Company to pay,
to
Sellers any refund, overpayment, or credit (including any interest paid
or
credited with respect thereto) of Taxes attributable to Tax periods (or
portions
thereof) ending on or before the Closing Date.
10.4 Control
of Tax Audits.
Sellers
shall have the right, at their own expense, to control any audit or examination
by any Governmental Authority (a “Tax
Audit”),
initiate any claim for refund, contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment
relating to any and all Taxes for any taxable period ending on or before
the
Closing Date with respect to the Company; provided that Sellers shall not
resolve any such contest without the consent of Purchaser, such consent
not to
be unreasonably withheld or delayed. Purchaser shall have the right, at
its own
expense, to control, or have the Company control, any other Tax Audit,
initiate
any other claim for refund, and contest, resolve and defend against any
other
assessment, notice of deficiency, or other adjustment for tax years beginning
after the Closing Date.
10.5 Cooperation.
Purchaser and the Company, on the one hand, and Sellers, on the other hand,
shall cooperate fully, as and to the extent reasonably requested by the
other
party, in connection with the filing of Tax Returns pursuant to this Article
10,
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party’s
request) the provision of records and information which are reasonably
relevant
to any such audit, litigation or other proceeding and making employees
available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Purchaser, the Company and Sellers
shall (i)
retain all books and records with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before the Closing Date
until
the expiration of the statute of limitations (and, to the extent notified
by
Purchaser or Sellers, any extensions thereof) of the respective taxable
periods,
and to abide by all record retention agreements entered into with any
Governmental Authority and (ii) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers as
the case
may be, shall allow the other party to take possession of such books and
records. Upon request, Purchaser and Sellers further agree to use their
reasonable commercial efforts to obtain any certificate or other document
from
any Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including but not limited
to
with respect to the transactions contemplated hereby).
10.6
Payment
of Taxes.
Not
withstanding anything to the contrary contained herein the Sellers and
Purchaser
agree to elect the "specifc accounting" method of allocation under Section
1377(a)(2) of the Internal Revenue Code, whereby the Company is treated
as if it
has two tax years for allocating income and losses. Such allocation will
be
calculated "as if" the Company had elected to be taxed on the accrual basis
of
accounting whereby income will be recognized when earned, irrespective
of when
the payment is received; and expenses are recognized in the period benefited,
and not when payment is made for such services.
10.7 Transfer
Taxes.
Purchaser and Sellers shall each bear one half of all sales, transfer,
stamp,
real property transfer or gains or similar Taxes incurred, whether direct
or
indirect, as a result of the purchase of the Equity Interests by the
Purchaser.
ARTICLE
11
TERMINATION
11.1 Right
to Terminate. Notwithstanding
anything to the contrary set forth in this Agreement,
this Agreement may be terminated and the transactions contemplated herein
abandoned
at any time prior to the Closing:
(i) by
mutual
consent of Purchaser, on the one hand, and Sellers
on the
other;
(ii) by
Purchaser, on the one hand, or Sellers, on the
other
hand, if the Closing shall not have occurred by the Drop Dead Date, provided,
however, that the right to terminate this Agreement under this Section
11.1
shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause
of, or resulted
in, the failure of the Closing to occur on or before such date;
(iii)
by
Purchaser, on the one hand, or Sellers on the other hand, if a court of
competent jurisdiction shall have issued an order, decree or ruling permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by
this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) by
Sellers if Purchaser (x) breaches its representations
and warranties in any material respect or (y) fails to comply in any material
respect
with any of its covenants or agreements contained herein; or
(v) by
Purchaser if Sellers and/or the Company (x) breach their representations
and warranties in any material respect or (y) fail to comply in any material
respect with any of its covenants or agreements contained herein.
11.2 Effect
of Termination.
In the
event of termination of this Agreement by either Purchaser or Sellers as
provided above, the provisions of this Agreement shall immediately become
void
and of no further force and effect (other than this Section 11.2 and Sections
6.7 (Confidentiality), the limitations on indemnity set forth in Article
9,
Section 12.3 (Expenses) and 12.5 (Controlling Law), which shall each survive
the
termination of this Agreement), and there shall be no liability on the
part of
any of Purchaser or Seller to one another, except for knowing or willful
breaches of this Agreement prior to the time of such termination.
ARTICLE
12
MISCELLANEOUS
PROVISIONS
12.1 Further
Assurances.
Each
party to this Agreement shall execute, acknowledge and deliver any further
documents and instruments and take any other action consistent with the
terms of
this Agreement that may reasonably be requested by the other party for
the
purpose of giving effect to the transactions contemplated by this Agreement,
whether before, concurrent with or after the consummation of the transactions
contemplated hereby.
12.2 Publicity.
Any
press release or similar announcement concerning the consummation of the
transactions contemplated hereby by any party shall be provided to the
other
parties for review and approval prior to its release, which approval shall
not
be unreasonably withheld; provided, however, Sellers or Purchaser or their
affiliates may, without the consent of the other, publish and use standard
tombstone announcements regarding the consummation of the transactions
contemplated by this Agreement; provided further, that in no event shall
any
party publicly disclose the Purchase Price or the approximate amount thereof,
without the consent of the other parties. Following the issuance of the
initial
announcement, either party may, without the consent of the other, publish
additional announcements that contain substantially similar material as
the
initial announcement. This Section 12.2 shall not prevent announcements
provided
by law or securities regulations, provided that the other parties hereto
shall
have the opportunity to read and comments on such announcements prior to
the
release thereof.
12.3 Expenses.
Each of
the parties shall pay all costs and expenses incurred by it or on its behalf
in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, fees and expenses of its own financial
consultants, accountants and counsel.
12.4 Entire
Agreement.
This
Agreement, together with the agreements referred to herein and the Schedules
hereto and thereto, set forth the entire agreement between the parties
with
regard to the subject matter hereof and thereof.
12.5 Governing
Law; Jurisdiction.
The
validity, construction and performance of this Agreement, and any Action
arising
out of or relating to this Agreement shall be governed by the Laws of the
State
of Maryland, without regard to the Laws of the State of Maryland as to
choice or
conflict of Laws.
12.6 Waiver
and Amendment.
This
Agreement may be amended, supplemented, modified and/or rescinded only
through
an express written instrument signed by the parties or their respective
successors and permitted assigns. Any party may specifically and expressly
waive
in writing any portion of this Agreement or any breach hereof, but only
to the
extent such provision is for the benefit of the waiving party, and no such
waiver shall constitute a other or continuing waiver of any preceding or
succeeding breach of the same or any other provision. The consent by one
party
to any act for which such consent was required shall not be deemed to imply
consent or waiver of the necessity of obtaining such consent for the same
or
similar acts in the future, and no forbearance by a party to seek a remedy
for
noncompliance or breach by another party shall be construed as a waiver
of any
right or remedy with respect to such noncompliance or breach.
12.7 Assignment.
Except
as specifically provided otherwise in this Agreement, neither this Agreement
nor
any interest herein shall be assignable (voluntarily, involuntarily, by
judicial
process, operation of Law, or otherwise), in whole or in part, by any party
without the prior written consent of the other party. Notwithstanding the
foregoing, each Seller may, without the consent of Purchaser, whether before
or
after the Closing, assign all of its rights and obligations under this
Agreement
to any Affiliate of such Seller, provided that such assignment shall not
relieve
any Seller of any of its obligations under this Agreement and Purchaser
may,
without the consent of Sellers, whether before or after the Closing, assign
all
of its rights under this Agreement to a wholly owned subsidiary of Purchaser,
provided that such assignment shall not relieve Purchaser of any of its
obligations under this Agreement prior to Closing.
12.8 Successors
and Assigns; No Third Party Beneficiary.
Each of
the terms, provisions, and obligations of this Agreement shall be binding
upon,
shall inure to the benefit of, and shall be enforceable by the parties
and their
respective legal representatives, successors and permitted assigns. Nothing
in
this Agreement will be construed as giving any Person, other than the parties
to
this Agreement and their successors and permitted assigns, any right, remedy
or
claim under, or in respect of, this Agreement or any provision
hereof.
12.9 Notices.
All
notices, requests, demands and other communications made under this Agreement
shall be in writing, correctly addressed to the recipient as
follows:
If
to Sellers:
Exeutive
Consultants, Inc.
00
Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxxx,
XX 00000
Attn:
Xxx
Xxxxxxx
Facsimile
No.: 000-000-0000
With
a copy to:
Xxxxxx
X.
Xxxxxx, Esquire
0
Xxxxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxxx,
XX 00000
Facsimile
No.: 301-590-9784
If
to Purchaser:
Warp
Technology Holdings, Inc.
000
Xxxxxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxxxxx,
XX 00000
Attn:
Xxxxxx Xxxxxxxxx
Facsimile
No.: (000) 000-0000
Notices,
requests, demands and other communications made under this Agreement shall
be
deemed to have been duly given (i) upon delivery, if served personally
on the
party to whom notice is to be given, (ii) on the date of receipt, refusal
or
non-delivery indicated on the receipt if mailed to the party to whom notice
is
to be given by first class mail, registered or certified, postage prepaid,
or by
air courier, or (iii) upon confirmation of satisfactory transmission of
a
facsimile if sent by facsimile. Any party may give written notice of a
change of
address in accordance with the provisions of this Section and after such
notice
of change has been received, any subsequent notice shall be given to such
party
in the manner described at such new address.
12.10 Severability.
Each
provision of this Agreement is intended to be severable. Should any provision
of
this Agreement or the application thereof be judicially declared to be
or become
illegal, invalid, unenforceable or void, the remainder of this Agreement
will
continue in full force and effect and the application of such provision
to other
Persons or circumstances will be interpreted so as reasonably to effect
the
intent of the parties.
12.11 Cumulative
Remedies.
No
remedy made available hereunder by any of the provisions of this Agreement
is
intended to be exclusive of any other remedy, and each and every remedy
shall be
cumulative and shall be in addition to every other remedy given hereunder
or now
or hereafter existing at Law or in equity or by statute or
otherwise.
12.12 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute a single
agreement.
12.13 Facsimile
Signatures.
This
Agreement and any other document or agreement executed in connection herewith
(other than any document for which an originally executed signature page
is
required by law) may be executed by delivery of a facsimile copy of an
executed
signature page with the same force and effect as the delivery of an originally
executed signature page. In the event any party delivers a facsimile copy
of a
signature page to this Agreement or any other document or agreement executed
in
connection herewith, such party shall deliver an originally executed signature
page upon request; provided, however, that the failure to deliver any such
originally executed signature page shall not affect the validity of the
signature page delivered by facsimile, which has and shall continue to
have the
same force and effect as the originally executed signature page.
12.14 Interpretation.
The
language in all parts of this Agreement shall be in all cases construed
simply
according to its fair meaning and not strictly for or against any party.
The
captions of the Sections and Subsections of this Agreement are for convenience
only and shall not affect the construction or interpretation of any of
the
provisions of this Agreement. Except as otherwise provided or if the context
otherwise requires, whenever used in this Agreement, (a) any noun or pronoun
shall be deemed to include the plural and the singular, (b) the terms “include”
and “including” shall be deemed to be followed by the phrase “without
limitation,” (c) the word “or” shall be inclusive and not exclusive, (d) unless
the context otherwise requires, all references to Articles and Sections
refer to
Articles and Sections of this Agreement and all references to Schedules
are to
Schedules attached to this Agreement, each of which is made a part of this
Agreement for all purposes, (e) the words “herein,” “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not
to any
particular Section or other subdivision, (f) any definition of or reference
to
any Law, agreement, instrument or other document herein will be construed
as
referring to such Law, agreement, instrument or other document as from
time to
time amended, supplemented or otherwise modified, and (g) any definition
of or
reference to any statute will be construed as referring also to any rules
and
regulations promulgated thereunder.
12.15 Warranty
of Authority.
Each of
the entities signing this Agreement warrants and represents that the individual
signing on behalf of such entity is duly authorized and empowered to enter
into
this Agreement and bind such entity hereto.
12.16 Attorney’s
Fees. In
furtherance and not limitation of Article 9, if any party should breach
any
term, condition or obligation created by this Agreement, then the non-breaching
party shall be entitled to be reimbursed for all of its reasonable attorneys'
fees, court costs, litigation fees, transcript costs, deposition costs,
and
other related litigation and non-litigation costs incurred by said non-breaching
party, with all of the same to be paid by the breaching party to the
non-breaching party
[REMAINDER
OF THIS PAGE LEFT INTENTIONALLY BLANK]
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date
first set forth above.
PURCHASER:
WARP
TECHNOLOGY HOLDINGS, INC.
By:
/s/
Xxxxxx Xxxxxxxxx
Name:
Xxxxxx Xxxxxxxxx
An
authorized officer
MERGERSUB:
ECI
ACQUISITION, INC.
By:
/s/
Xxxxxx Xxxxxxxxx
Name:
Xxxxxx Xxxxxxxxx
An
authorized officer
COMPANY:
EXECUTIVE
CONSULTANTS, INC.
By:
/s/
Xxxxx Xxxxxxx
Name:
Xxxxx Xxxxxxx
An
authorized officer
[SIGNATURE
PAGE TO MERGER AGREEMENT]
SELLERS:
/s/
Xxxxx Xxxxxxx
Name:
Xxxxx Xxxxxxx
/s/
Xxx Xxxxxxx
Name:
Xxx
Xxxxxxx
/s/
Xxxx Xxxxxxx
Name:
Xxxx Xxxxxxx
/s/
Xxxx Xxxxxxx
Name:
Xxxx Xxxxxxx
