EXHIBIT 2.1
EXECUTION COPY
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STOCK PURCHASE AGREEMENT
BY AND AMONG
XXXXX X. XXXXXX,
XXXX X. XXXXXX, AS TRUSTEE OF THE
XXXXX X. XXXXXX FAMILY TRUST
AND
XXXXX X. XXXXXX, AS TRUSTEE OF THE XXXXX X. XXXXXX
CHARITABLE REMAINDER UNITRUST
AS SHAREHOLDERS OF
RE:MEMBER DATA SERVICES, INC.,
AND
RD ACQUISITION CORP.
CLOSING DATE AS OF JULY 8, 2004
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TABLE OF CONTENTS
PAGE
1 DEFINITIONS......................................................... 1
2 SALE OF STOCK; CLOSING.............................................. 6
2.1. Sale of Stock................................................. 6
2.2. Consideration................................................. 6
2.3. Net Current Assets Adjustment to Purchase Price............... 7
2.4. Accounts Receivable Adjustment to Purchase Price.............. 9
2.5. Capped Liabilities............................................ 9
2.6. Lease Amount.................................................. 10
2.7. Closing....................................................... 11
2.8. Deliveries by Sellers at Closing.............................. 11
2.9. Deliveries by Buyer at Closing................................ 12
3 REPRESENTATIONS AND WARRANTIES OF SELLER............................ 13
3.1. Organization.................................................. 13
3.2. Power and Authorization....................................... 13
3.3. No Conflict................................................... 13
3.4. Title to Assets............................................... 13
3.5. Condition of Assets........................................... 14
3.6. Financial Statements.......................................... 14
3.7. Accounts Receivable; Credits.................................. 14
3.8. Pre-Xxxx...................................................... 14
3.9. Litigation.................................................... 14
3.10. Compliance with Law........................................... 14
3.11. Absence of Undisclosed Liabilities............................ 15
3.12. Absence of Certain Changes.................................... 15
3.13. Contracts..................................................... 16
3.14. Intellectual Property......................................... 16
3.15. Real Property................................................. 18
3.16. Environmental Matters......................................... 19
3.17. Labor; ERISA.................................................. 19
3.18. Taxes......................................................... 21
3.19. Capitalization; Relationships with Related Persons............ 22
3.20. Brokers....................................................... 22
3.21. Insurance..................................................... 22
3.22. Powers of Attorney............................................ 23
3.23. Debt.......................................................... 23
3.24. Certain Payments.............................................. 23
3.25. Statements not Misleading..................................... 24
4 REPRESENTATIONS AND WARRANTIES OF BUYER............................. 24
4.1. Organization and Power of Buyer............................... 24
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4.2. Authorization................................................. 24
4.3. No Conflict................................................... 24
4.4. Investment Intent............................................. 24
5 COVENANTS........................................................... 25
5.1. Further Assurances; Cooperation............................... 25
5.2. Covenants not to Compete...................................... 25
5.3. Expenses; Transfer Taxes...................................... 27
5.4. Taxes......................................................... 27
5.5. Employment Matters............................................ 29
5.6. Transfer of Domain Name....................................... 30
6 INDEMNIFICATION..................................................... 30
6.1. Indemnified Losses............................................ 30
6.2. Indemnification by Sellers.................................... 31
6.3. Indemnification By Buyer...................................... 31
6.4. Third Party Claims Against The Indemnified Parties............ 31
6.5 Third Party Claims Against Seller............................. 32
6.6. Procedures; No Waiver; Exclusivity............................ 32
6.7. Set-Off....................................................... 33
6.8. Survival...................................................... 33
6.9. Limitations on Indemnification by the Seller Parties.......... 33
6.10. Exclusive Remedy.............................................. 34
7 MISCELLANEOUS....................................................... 34
7.1. Notices....................................................... 34
7.2. Entire Agreement.............................................. 34
7.3. Counterparts.................................................. 35
7.4. Parties in Interest; Assignment............................... 35
7.5. Governing Law................................................. 35
7.6. Schedules and Headings........................................ 35
7.7. Amendment..................................................... 35
7.8. Waiver........................................................ 35
7.9. Joint and Several Liability................................... 35
7.10 Press Release................................................. 35
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EXHIBITS AND SCHEDULES
Exhibit A -- Escrow Agreement
Exhibit B -- Opinion of Counsel to Seller
Exhibit C -- Buyer's standard NDA/Invention Assignment Agreement
Exhibit D -- Stock Power
Schedule 1A -- Leases
Schedule 2.2 -- Bank Debt
Schedule 2.3 -- Closing Balance Sheet
Schedule 2.8(e) -- Liens to be Released
Schedule 3.1 -- Foreign Qualification Jurisdictions
Schedule 3.3 -- Consents, Etc.
Schedule 3.4 -- Title to Assets
Schedule 3.6 -- Reference Date Balance Sheet
Schedule 3.12(c) -- Absence of Certain Changes
Schedule 3.13 -- Contracts
Schedule 3.14 -- Intellectual Property
Schedule 3.15 -- Real Property
Schedule 3.16 -- Permits
Schedule 3.17 -- Labor; ERISA
Schedule 3.18 -- Tax Returns
Schedule 3.19 -- Related Party Transactions
Schedule 3.20 -- Brokers
Schedule 3.21 -- Insurance Matters
Schedule 3.23 -- Debt
Schedule 5.5(b) -- Options
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is executed as of July 8,
2004, by and between Xxxxx X. Xxxxxx, Xxxx X. Xxxxxx, as Trustee of The Xxxxx X.
Xxxxxx Family Trust and Xxxxx X. Xxxxxx, as Trustee of The Xxxxx X. Xxxxxx
Charitable Remainder Unitrust (each a "Seller", collectively "Sellers"), as the
sole shareholders of RE:MEMBER DATA SERVICES, INC., a corporation incorporated
under the laws of the State of Indiana (the "Company") and RD ACQUISITION CORP.,
a corporation incorporated under the laws of the State of Delaware ("Buyer")
(collectively, the "parties").
RECITALS
WHEREAS, Buyer wishes to purchase from Sellers, and Sellers wish to sell
to Buyer, all of the outstanding capital stock of the Company (the "Stock") upon
the terms and conditions of this Agreement;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
"Accountants" shall have the meaning assigned to it in Section 2.3.
"Accounts Receivable" shall mean (a) all trade accounts receivable and
other rights to payment from customers of the Company and the full benefit of
all security for such accounts or rights to payment, including all trade
accounts receivable representing amounts receivable in respect of goods shipped
or products sold or services rendered to customers of the Company, (b) all other
accounts or notes receivable of the Company and the full benefit of all security
for such accounts or notes, and (c) any claim, remedy or other right related to
any of the foregoing.
"Adjustment Liabilities" shall mean the Capped Liabilities, customer
deposits, the current portion of unearned maintenance revenues and all other
liabilities classified as current liabilities in accordance with GAAP, without
giving effect to the repayment of the Shareholder Debt and Bank Debt by Buyer
pursuant to Section 2.2. For purposes of determining the Adjustment Liabilities
as of June 30, 2004 and as of the Closing, no amount shall be included for
accrued self insurance claims, as the Company will not be responsible for such
claims after Closing (as further provided in Section 5.5(c)). In addition, the
Adjustment Liabilities shall not include any accrual for Sellers' Legal Fees or
Sellers' Accounting Fees for which the Company is not be responsible.
"Bank Debt" shall have the meaning assigned to it in Section 2.2.
"Business" shall mean the business of developing, marketing and providing
data processing services to banks and/or credit unions, including, without
limitation, the licensing or provision of the Company's Products.
"Buyer" shall mean RD Acquisition Corp., a Delaware corporation.
"Cap" shall have the meaning assigned to it in Section 6.9.
"Capped Liabilities" shall mean all trade accounts payable, the current
portion of capital lease obligations, that certain Debt shown as "line of credit
payable to bank" on the Reference Date Balance Sheet, the long term portion of
capital lease obligations and the Shareholder Debt, without giving effect to the
repayment of the Bank Debt and the Shareholder Debt by Buyer pursuant to Section
2.2.
"Claimed Set-Off" shall have the meaning assigned to it in Section 6.7.
"Closing" shall mean the consummation of the purchase and sale transaction
described herein.
"Closing Date" shall mean the date on which the Closing occurs, as
specified in Section 2.7.
"Code" shall mean the Internal Revenue Code of 1986 or any successor law,
and regulations issued pursuant thereto.
"Collection Period" shall have the meaning assigned to it in Section 2.4.
"Company" shall mean re:Member Data Services, Inc., an Indiana
corporation.
"Company Software" shall have the meaning assigned to it in
Section 3.14.
"Company Tax-Related Assets" shall mean all attributes (including, but not
limited to, amount, character and availability), rights and claims of any kind
relating to Taxes, of, relating to, or made by or for the benefit of the
Company, whenever arising, whether xxxxxx or inchoate, and whether or not
asserted, including, but not limited to, Tax reserves, deposits, payments,
estimated payments, credits, allowances, carryover and carryback amounts
(including, among other things, losses, credits, deductions and similar items),
refunds, claims and all rights with respect to any of the foregoing, including
any interest thereon, together with any other Tax-related items which may be
reflected in or may otherwise affect or be affected by the computation of any of
the foregoing or by the computation of the amount of the Company's liability for
any Taxes.
"Competitive Activities" shall have the meaning assigned to it in Section
5.2.
"Contracts" shall have the meaning assigned to it in Section 3.13.
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"Current Assets" shall mean all assets classified as current assets in
accordance with GAAP.
"Debt", as applied to any Person, means: (a) indebtedness or liability of
such Person for borrowed money, or with respect to deposits or advances of any
kind, or for the deferred purchase price of property or services; (b) all
obligations of such Person evidenced by notes bonds, debentures or similar
instruments, (c) all obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person, (d) all obligations of such Person for the deferred purchase price of
property or services; (e) all obligations of such Person as lessee under capital
leases; (f) current liabilities of such Person in respect of the present value
of unfunded vested benefits under any employee benefit plan; (g) obligations of
such Person under letters of credit, bankers acceptances, or comparable
arrangements; (h) obligations of such Person arising under acceptance
facilities; (i) guaranties; endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent obligations of such
Person to purchase, to provide funds for payment, to supply funds to invest in
any Persons, or otherwise to assure a creditor against loss; (j) all obligations
of such Person secured by any Lien on any of such Person's assets or property,
whether or not the obligations have assumed, and (k) all obligations of such
Person in respect of interest rate protection agreements, foreign currency
exchange agreements or other interest or exchange rate hedging arrangements.
"DOL" shall mean the United States Department of Labor or any successor
agency thereto.
"Environmental Laws" shall have the meaning assigned to it in Section
3.16.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 or
any successor law and any rules and regulations issued pursuant thereto.
"Escrow Agent" shall have the meaning assigned to it in Section 2.2(b).
"Escrow Agreement" shall have the meaning assigned to it in Section
2.2(b).
"Escrow Claim" shall have the meaning assigned to it in Section 6.7.
"Escrow Funds" shall have the meaning assigned to it in Section 2.2(b).
"Estimated Excess Capped Liability Adjustment" shall have the meaning
assigned to it in Section 2.5.
"Estimated Net Current Asset Adjustment" shall have the meaning assigned
to it in Section 2.3.
"Excess Capped Liability Amount" shall have the meaning assigned to it in
Section 2.5.
"Final Net Current Assets" shall have the meaning assigned to it in
Section 2.3.
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"Financial Statements" shall have the meaning assigned to it in Section
3.6.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"Governmental Entity" shall mean any court, administrative agency,
commission, state, municipality or other governmental authority or
instrumentality, domestic or foreign, national or international.
"Hazardous Materials" shall have the meaning assigned to it in Section
3.16.
"Increase in Capped Liabilities" shall have the meaning assigned to it in
Section 2.5.
"Indemnified Parties" shall have the meaning assigned to it in Section
6.2.
"Indemnified Person" shall have the meaning assigned to it in Section 6.6.
"Indemnifying Person" shall have the meaning assigned to it in Section
6.6.
"IRS" shall mean the Internal Revenue Service or any successor agency, and
to the extent relevant, the United States Department of Treasury.
"June 30 Balance Sheet" shall have the meaning assigned to it in Section
2.3.
"Lease Amount" mean $326,000.
"Leases" shall mean those certain Leases set forth on Schedule 1A.
"Liens" shall mean all liabilities, claims, liens, charges, pledges,
security interests, options, restrictions or other encumbrances of any kind.
"Losses" shall have the meaning assigned to it in Section 6.1.
"Material Adverse Effect" means any circumstance, change in, or effect on,
the Business or the Company that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the Company or the Business: (a)
is, or could be, materially adverse to the operations, assets or liabilities
(including, without limitation, contingent liabilities), employee relationships,
customer or supplier relationships, results of operations or the condition
(financial or otherwise) of the Company or the Business, or (b) could materially
adversely affect the ability of Buyer to operate or conduct the Company or the
Business in the manner in which it is currently operated or conducted, by the
Company, or (c) could impair the ability of Sellers to consummate the
transactions contemplated by this Agreement.
"Net Current Assets" shall mean the Current Assets, plus any Excess Capped
Liabilities Amount, minus the Adjustment Liabilities.
"Non-Compete Period" shall have the meaning assigned to it in Section 5.2.
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"Options" shall have the meaning assigned to it in Section 5.5.
"Permits" shall have the meaning assigned to it in Section 3.16.
"Permitted Liens" shall have the meaning assigned to it in Section 3.4.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
Governmental Entity (or any department, agency or political subdivision
thereof).
"Plans" shall have the meaning assigned to it in Section 3.17.
"Products" shall have the meaning assigned to it in Section 3.14.
"Proprietary Rights" shall have the meaning assigned to it in Section
3.14.
"Proprietary Rights Agreements" shall have the meaning assigned to it in
Section 3.14.
"Purchase Price" shall mean the aggregate amount to be paid by Buyer to
Sellers for the Stock and includes the cash consideration payable pursuant to
Section 2.2(a) and the Escrow Funds payable pursuant to Section 2.2(b).
"Receivable Shortfall" shall have the meaning assigned to it in Section
2.4.
"Records" shall mean all books of account, general, financial and
accounting records, files, invoices, payment authorizations, correspondence to
and from customers, suppliers and payors, and other data and information owned
by Seller.
"Reduction in Net Current Assets" shall have the meaning assigned to it in
Section 2.3.
"Reference Date" shall mean March 31, 2004.
"Reference Date Balance Sheet" shall mean the audited balance sheet for
the Company as of the Reference Date.
"Related Person" shall mean any officer, director, shareholder, employee
or consultant of the Company or any holder of five percent (5%) or more of any
class of stock of the Company or any member of the immediate family of any such
officer, director, shareholder, employee or consultant or any entity controlled
by any such officer, director, shareholder, employee or consultant or by a
family member of any such officer, director, shareholder, employee or
consultant.
"Returns" shall have the meaning assigned to it in Section 3.8.
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"Sellers" shall mean Xxxxx X. Xxxxxx, Xxxx X. Xxxxxx, as Trustee of the
Xxxxx X. Xxxxxx Family Trust and Xxxxx X. Xxxxxx, as Trustee of the Xxxxx X.
Xxxxxx Charitable Unitrust.
"Sellers' Legal Fees" shall mean all legal costs and expenses incurred by
the Company or Sellers in connection with this Agreement and the transactions
contemplated hereby, which costs and expenses total $100,000.
"Sellers' Accounting Fees" shall mean all accounting costs and expenses
incurred by the Company or Sellers in connection with this Agreement and the
transactions contemplated hereby, which costs and expenses total $2,350.
"Shareholder Debt" shall mean all Debt owing by the Company to Sellers
(which amounts are shown as "amounts due shareholder" on the Reference Date
Balance Sheet).
"Stock" shall mean 2,878,180 shares of common stock issued and
outstanding, which constitutes all of the issued and outstanding capital stock
of the Company. For convenience, all share numbers set forth in this Agreement
are without giving effect to the reverse stock split effected with respect to
the Company's common stock on June 29, 2004.
"Tax Audit" shall mean any Tax audit, investigation, inquiry or proposed
assessment, adjustment or imposition of Taxes by any Governmental Entity.
"Taxes" (or "Tax" where the context requires) shall mean all federal,
state, county, city, local, foreign and other taxes (including, without
limitation, premium, excise, value added, sales, use, occupancy, gross receipts,
franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll-related and property
taxes, import duties and other governmental charges and assessments), whether or
not measured in whole or in part by net income, including deficiencies,
interest, additions to tax or interest or penalties with respect thereto.
"Termination of Employment Agreement Payments" shall have the meaning
assigned to it in Section 5.5.
"Territory" shall have the meaning assigned to it in Section 5.2.
"Threshold" shall have the meaning assigned to it in Section 6.9.
ARTICLE 2
SALE OF STOCK; CLOSING
SECTION 2.1. SALE OF STOCK. At the Closing, Sellers shall sell, assign,
transfer, convey and deliver to Buyer, free and clear of all Liens, good and
marketable title to the Stock.
SECTION 2.2. CONSIDERATION. The Purchase Price shall be $20,000,000,
subject to the adjustments set forth in this Agreement, including without
limitation in Sections 2.3, 2.4, 2.5 and 2.6 hereof. Buyer shall pay the
Purchase Price by delivery in the following manner:
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(a) $14,829,355, calculated as follows: $18,000,000 less the Termination
of Employment Agreement Payments, less the Estimated Net Current Asset
Adjustment, less the Estimated Excess Capped Liability Adjustment, less Sellers'
Legal Fees, less Sellers' Accounting Fees and less the Lease Amount, in cash by
wire transfer at Closing to Sellers in proportion to their ownership of the
Stock; and
(b) $2,326,000 (the "Escrow Funds") in cash by wire transfer at Closing
to U.S. Bank National Association (the "Escrow Agent"), to be held under an
escrow agreement in substantially the form of Exhibit A (the "Escrow
Agreement"), said Escrow Funds to be paid to Sellers on the one year anniversary
of the Closing Date in accordance with the Escrow Agreement but subject to the
terms and conditions described in this Agreement, including, without limitation,
in Sections 2.3, 2.4, 2.5, 2.6 and 6.7 hereof; and
(d) $482,152 in cash by wire transfer at Closing as payment by the
Company to Xxx X. Xxxxxxxxxxx of the portion of the Termination of Employment
Agreement Payments payable to him, net of applicable payroll deductions;
(e) $82,070 in cash by wire transfer at Closing as payment by the
Company to Xxxxx X. Xxxxxxxx of the portion of the Termination of Employment
Agreement Payments payable to him, net of applicable payroll deductions;
(f) $226,073 cash by wire transfer at Closing to the Company to fund the
payroll deductions from the Termination of Employment Agreement Payments made
pursuant to Sections 2.2(c) and (d);
(g) $100,000 in cash by wire transfer to Xxxxxx Xxxxxxx Xxxxxxxx for
Seller's Legal Fees; and
(h) $2,350 in cash by wire transfer to Xxxxx Xxxxxx for Seller's
Accounting Fees.
In addition, Buyer shall pay the following amounts at Closing, in
satisfaction of certain obligations included in the Capped Liabilities: (1)
$1,926,330.82 in the aggregate by wire transfer to the parties listed on
Schedule 2.2 in payment of the Debt owing to them (the "Bank Debt"), pursuant to
pay-off letter(s) provided by Sellers to Buyer, and (2) $1,894,594.83 in cash by
wire transfer at Closing to Xxxxx X. Xxxxxx as payment in full of the
Shareholder Debt, pursuant to a pay-off letter provided by Sellers to Buyer.
SECTION 2.3. NET CURRENT ASSETS ADJUSTMENT TO PURCHASE PRICE.
(a) Estimated Net Current Asset Adjustment for Closing. Buyer and
Sellers agree that the Purchase Price payable to Sellers shall be reduced to the
extent that the Net Current Assets as of Closing represent a net liability of
greater than $3,322,000. For purposes of estimating the Purchase Price
adjustment to be made pursuant to this Section 2.3 (and pursuant to Section
2.5), Seller has prepared and provided to Buyer prior to Closing a balance sheet
of the Company as of June 30, 2004 (a copy of which is attached hereto as
Schedule 2.3) (the "June 30 Balance Sheet"), together with a statement of the
Net Current Assets and Capped Liabilities of the Company as of June 30, 2004.
The Net Current Assets as shown on the June 30 Balance
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Sheet reflect a net liability of $3,864,000 which is greater than the base line
net liability amount of $3,322,000. The difference, in the amount of $542,000
(the "Estimated Net Current Asset Adjustment") shall be deducted from the
Purchase Price at Closing, as provided in Section 2.2.
(b) Final Balance Sheet, Final Net Current Assets and Final Capped
Liability Amount. Within sixty (60) days following the Closing Date, Buyer will
prepare, or cause to have prepared, and deliver to Seller a balance sheet of the
Company, with a statement of the Net Current Assets and Capped Liabilities of
the Company as of the Closing. In the event that such Net Current Assets as of
the Closing represent a net liability of greater than $3,322,000, minus the
Estimated Net Current Asset Adjustment (the difference is referred to as a
"Reduction in Net Current Assets"), Sellers shall be jointly and severally
liable for such difference as an additional reduction in the cash portion of the
Purchase Price. Buyer shall be entitled to set-off the amount of such Reduction
in Net Current Assets from the Escrow Funds in accordance with Section 6.7 of
this Agreement, and, to the extent the Reduction in Net Current Assets exceeds
the amount of the Escrow Funds then available under the Escrow Agreement,
Sellers shall pay the difference to Buyer within (10) days after receipt of
written demand therefor. No demand shall be made by Buyer for payment of any
Reduction in Net Current Assets after the Closing Date until a final
determination of such amount is made in accordance with Section 2.3(c).
(c) Objection. Buyer's statement of the Net Current Assets and the
Capped Liabilities as of Closing shall be deemed accepted by Sellers and binding
unless at least one of the Sellers sends Buyer a written objection thereto
within fifteen (15) days following Sellers' receipt thereof. In the event that
Sellers deliver a timely written objection as aforesaid, and Buyer and Sellers
are unable to resolve such objection within fifteen (15) days after Buyer is
notified of Sellers' objection then, within five (5) business days after such
failure to resolve the matters in dispute, the matters in dispute shall be
submitted for final and binding determination to independent certified public
accountants of national recognition and standing jointly selected by Buyer and
Sellers (the "Accountants"). The Accountants shall prepare their resolution
statement within forty-five (45) days of appointment. In the event that the
parties are required to agree on the identity of the Accountants but are unable
to do so, then the firm to be used shall be selected by lot from among the "Big
4" accounting firms, other than those firms which have had any relationship with
Buyer or Sellers. The Net Current Assets and/or Capped Liabilities as of Closing
proposed by Buyer, as adjusted by agreement of Sellers and Buyer or finally
determined by the Accountants, as applicable, to reflect the resolution of any
timely objections made thereto by Seller in accordance with this paragraph,
shall constitute the "Final Net Current Assets" and/or the "Final Capped
Liability Amount", as applicable, and shall be binding on the parties hereto.
Buyer and Sellers shall each pay their own expenses of preparing and analyzing
the Final Net Current Assets, Final Capped Liability Amount and resolving
objections thereto. The fees and expenses of the Accountants used to resolve
objections will be borne equally by Buyer, on the one hand, and Sellers, on the
other hand.
(d) Access to Information. Solely in connection with the preparation of
the statements of Net Current Assets, the Receivable Shortfall and statements of
Capped Liabilities:
(i) Buyer shall give Sellers and their accountants reasonable
access to the books and records of the Company, and shall cause employees
of the Company to
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cooperate with them and provide them with all information reasonably
requested, all after receiving reasonable notice from them of their
requirements and reaching agreement as to mutually convenient times for
review; and
(ii) Buyer and Sellers, to the extent within their respective
control, shall give to each other and their agents access to the books,
financial records, work papers and other materials and documents used or
produced in connection with the preparation or determination of the Net
Current Assets, the Receivable Shortfall and the Capped Liabilities.
SECTION 2.4. ACCOUNTS RECEIVABLE ADJUSTMENT TO PURCHASE PRICE.
(a) Receivable Shortfall. Buyer and Sellers agree that the Purchase
Price payable to Sellers shall be reduced to the extent that the Accounts
Receivable have not been collected by the Company or Buyer within ninety (90)
days following the Closing Date (the "Collection Period").
(b) Adjustment to Purchase Price. Within sixty (60) days following the
end of the Collection Period, Buyer shall prepare and furnish to Sellers a
statement setting forth the Accounts Receivable and all payments made thereon,
calculated as of the end of the Collection Period, and the amount, if any, owing
from Sellers to Buyer pursuant to Section 2.4(a) (a "Receivable Shortfall").
Sellers shall be jointly and severally liable for the Receivable Shortfall.
Buyer shall set-off the Receivable Shortfall from the Escrow Funds in accordance
with Section 6.7 and, to the extent the amount of the Receivable Shortfall
exceeds the amount of the Escrow Funds then available under the Escrow
Agreement, Sellers shall pay the difference to Buyer within (10) days after
receipt of written demand therefor. Upon payment of any Accounts Receivable that
resulted in a Receivable Shortfall, Buyer shall remit those funds to the Escrow
Agent to be included as Escrow Funds.
(c) Collection of Accounts Receivable. Between the Closing Date and the
end of the Collection Period, Buyer shall use reasonable efforts consistent with
the Company's usual and customary collection practices to cause the Company to
collect the Accounts Receivable, provided that neither Buyer nor the Company
shall be obligated to resort to litigation.
SECTION 2.5. CAPPED LIABILITIES.
(a) Buyer and Sellers agree that the Purchase Price payable to Sellers
shall be reduced to the extent that the Capped Liabilities as of Closing exceed
$3,000,000 (an "Excess Capped Liability Amount"). For purposes of estimating the
Purchase Price adjustment to be made pursuant to this Section 2.5, Seller has
prepared and provided to Buyer the June 30 Balance Sheet, together with a
statement of the Net Current Assets and Capped Liabilities of the Company as of
June 30, 2004, as provided in Section 2.3. The Capped Liabilities as shown on
the June 30 Balance Sheet reflect an estimated Excess Capped Liability Amount of
$1,410,000 (the "Estimated Capped Liability Amount"), which amount shall be
deducted from the Purchase Price at Closing, as provided in Section 2.2
(b) Within sixty (60) days following the Closing Date, the statement of
Capped Liabilities as of the Closing shall be delivered to Seller by Buyer, as
set forth in 2.3(b). If the
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Final Excess Capped Liability Amount exceeds $3,000,000, minus the Estimated
Excess Capped Liability Adjustment (the difference is referred to as an
"Increase in Capped Liabilities"), Sellers shall be jointly and severally liable
for such difference as a reduction in the cash portion of the Purchase Price.
Buyer shall be entitled to set-off the amount of such Increase in Capped
Liabilities from the Escrow Funds in accordance with Section 6.7 of this
Agreement, and, to the extent the Increase in Capped Liabilities exceeds the
amount of the Escrow Funds then available under the Escrow Agreement, Sellers
shall pay the difference to Buyer within (10) days after receipt of written
demand therefor. The provisions of Section 2.3(c) shall apply for purposes of
Sellers' objections to Buyer's statement of the Excess Capped Liability Amount
and the resolution of any disputes with respect thereto. No demand shall be made
by Buyer for payment of any Increase in Capped Liabilities after the Closing
Date until a final determination of such amount is made in accordance with
Section 2.3(c).
SECTION 2.6. LEASE AMOUNT. Sellers and Buyer intended that the lease
described in item 5 of Schedule 1A and all related subleases (the "Leases to be
Assigned") be assigned to and assumed by an affiliate of Sellers prior to
Closing, and that the Company be relieved of all future obligations under the
Leases to be Assigned (the "Assignment and Assumption"). Sellers have been
unable to obtain the written consent of the Company's landlord to the Assignment
and Assumption. Sellers represent and warrant that no consent is required for
the assignment of all related subleases. Buyer is willing to consummate the
transactions contemplated by this Agreement without the signed Assignment and
Assumption, subject to the following:
(a) The Lease Amount shall be deducted from the Purchase Price payable
to Sellers at Closing and shall be included in the Escrow Funds and paid to the
escrow agent as provided in Section 2.2;
(b) Xxxxx X. Xxxxxx agrees to use reasonable best efforts to obtain the
consent of the landlord to the Assignment and Assumption within 30 days of
Closing, on terms that provide that it is effective as of Closing and that do
not require any payment, guaranty or continuing obligation of the Company, Buyer
or Buyer's affiliates with respect to periods after the Closing;
(c) The Company shall continue to collect and retain all payments made
by subtenants, and shall pay rent to the landlord, in each case until receipt of
an executed Assignment and Assumption, provided that if the Assignment and
Assumption is executed as provided above, the assignee shall pay to the Company
the difference between the rents collected by the Company from subtenants and
the rent paid by the Company to the landlord during the period between Closing
and the execution of the Assignment and Assumption; and
(d) In the event that Buyer has not received the Assignment and
Assumption complying with the requirements of this Section 2.6 within 30 days of
Closing, Buyer shall be entitled to a permanent reduction in the Purchase Price
in an amount equal to $451,000 (being the Lease Amount plus an additional
$125,000), and shall be entitled to recover such amount from the Escrow Funds in
accordance with Section 6.7 of this Agreement, and Sellers shall be jointly and
severally liable, and hereby agree to indemnify the Company and Buyer for any
costs, losses or damages incurred by the Company or Buyer in excess of $451,000
during the remaining term of the Leases to be Assigned (including any payments
of rent actually made in
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excess of amounts actually collected pursuant to subleases over the life of the
Leases to be Assigned).
(e) In the event that Buyer has received the Assignment and Assumption
in compliance with the requirements of this Section 2.6 within 30 days of
Closing, Sellers and Buyer shall jointly instruct the Escrow Agent, in
accordance with Section 2(c) of the Escrow Agreement to immediately disburse the
Lease Amount from the Escrow Funds as follows: (1) to Buyer, the amount payable
to Buyer pursuant to Section 2.6(c) for periods after Closing, unless previously
paid to Buyer, and (2) to Sellers, pro rata, the balance of the Lease Amount.
SECTION 2.7. CLOSING. The Closing shall take place (via facsimile,
telephone, mail and other mutually acceptable means of communication and
delivery) simultaneously at the offices of Buyer's counsel, Xxxxxxx & Xxxxxxx
LLP in Hartford, Connecticut and Sellers' counsel, Xxxxxx Xxxxxxx Xxxxxxxx, P.C.
in Indianapolis, Indiana on the date hereof or at such other time and location
as the parties hereto shall agree in writing.
SECTION 2.8. DELIVERIES BY SELLERS AT CLOSING. At the Closing, Sellers
shall convey, transfer, assign and deliver to Buyer the Stock, free and clear of
all Liens. Sellers shall deliver to Buyer:
(a) The Escrow Agreement fully executed by Sellers;
(b) An opinion of the Sellers' counsel, dated the Closing Date, to the
effect and substantially in the form of Exhibit B to this Agreement;
(c) The Certificates representing the Stock and duly executed Stock
Powers in the form of Exhibit D, and such assignments and other instruments of
transfer as may be reasonably satisfactory to Buyer's counsel, and with such
consents to the conveyance, transfer and assignment thereof as may be necessary
to effect the conveyance, transfer, assignment and delivery of the Stock;
(d) The consents listed on Schedule 3.3;
(e) Releases of the Liens listed on Schedule 2.8(e);
(f) Good Standing Certificates of recent date for Seller from the
Secretary of State of the States of Indiana and Texas;
(g) Written evidence satisfactory to Buyer that Sellers are the sole
shareholders of the Company, that there are no other holders of any capital
stock of the Company or of any options, warrants or other rights to purchase the
capital stock of the Company, other than the Options (which are to be treated as
provided in Section 2.8(i) and Section 5.5(b));
(h) Written evidence satisfactory to Buyer that the Company's 401(K)
plan, health plan(s), cafeteria plan, dental plan(s), disability and accidental
death and dismemberment plans, life insurance plans and other similar plans have
been modified to provide that (1) the Company is no longer a sponsor, employer,
member of the employer group or holder, as applicable, with
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respect to such plans, (2) that the employees of the Company are no longer
eligible participants or members with respect to such plans, and (3) that such
plans will continue to cover claims for covered services received prior to
Closing, such that the Company is not responsible after Closing to pay
deductibles, retentions or self-insured obligations with respect to pre-Closing
periods and events;
(i) Employment letters or other documents related to the post-Closing
employment of Xxxxx X. Xxxxxxxx by the Company (or Buyer, or an affiliate of
Buyer), in form and substance satisfactory to Buyer;
(j) A Transition Services Agreement in a form mutually agreeable to
Sellers and Buyer with respect to the temporary, continued use of certain of the
Company systems or other assets by affiliates of Sellers;
(k) Evidence satisfactory to Buyer that no Person other than the Company
is continuing to use, or has access or rights to the Company's payroll and
accounting systems and databases;
(l) A new Lease Agreement, or a lease amendment, between the Company and
Duke-Weeks Realty Limited Partnership with regard to office space located at
Woodland Corporate Park IV, 7820 Innovation Boulevard, Indianapolis, Indiana, in
form and substance satisfactory to Buyer, which lease or amendment shall
re-define the space leased by the Company as the first and third floors of such
building;
(m) Written evidence, satisfactory to Buyer, that all customer
agreements and other accounts currently in the name of re:Member Data Services
International, Inc. have been assigned and transferred to the Company, together
with evidence of any required third party consents to such assignment and
transfer;
(n) Written evidence that any agreements that relate to the Business but
that were entered into by Americard Services, Inc. rather than the Company have
been properly assigned to the Company;
(o) Evidence of the termination of existing employment agreements with
Xxxxx X. Xxxxxxxx and Xxx X. Xxxxxxxxxxx, as further provided in Section 5.5(a);
and
(p) A Secretary's Certificate in form and substance satisfactory to
Buyer.
SECTION 2.9. DELIVERIES BY BUYER AT CLOSING. At the Closing, Buyer shall
deliver to Seller the Escrow Agreement fully executed by Buyer and Escrow Agent,
and shall make the payments required by Section 2.2.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Sellers hereby jointly and severally represent and warrant to Buyer as
follows:
SECTION 3.1. ORGANIZATION. The Company is a corporation duly organized,
and validly existing under the laws of the State of Indiana and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or the use of its properties or the
nature of the Business requires such qualification, which jurisdictions are
listed on Schedule 3.1. The Company has full power and authority to own its
properties and conduct the business presently being conducted by it. The Company
has no subsidiaries and has no equity interest in any other Person.
SECTION 3.2. POWER AND AUTHORIZATION. Each Seller has full legal power,
authority and capacity to execute this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and binding obligation of each Seller and is enforceable against each
Seller in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, and other similar
laws relating to or limiting creditors' rights generally and by equitable
principles.
SECTION 3.3. NO CONFLICT. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and the
compliance with the terms hereof will not (a) violate any law, judgment, order,
decree, statute, ordinance, rule or regulation applicable to either Seller or
the Company, or any permit, license or approval of any Governmental Entity, (b)
conflict with any provision of the Company's Articles of Incorporation or
By-laws or any resolution of the board of directors or shareholders of the
Company, (c) except as set forth on Schedule 3.3(c), result in any violation of,
and will not conflict with, or result in a breach of any terms of, or constitute
a default under, any mortgage, license, instrument or agreement to which either
Seller or the Company is a party or by which either Seller or the Company is
bound or create any Lien upon any of the assets of the Company, or (d) except as
set forth on Schedule 3.3, require any notice to, or consent, approval, order or
authorization of, or the registration, declaration or filing with, any
Governmental Entity or other Person, including, without limitation, under any
Contract.
SECTION 3.4. TITLE TO ASSETS. The Company has good, valid and marketable
title to all of its assets, free and clear of all Liens, except those Liens set
forth on Schedule 3.4 ("Permitted Liens"). No other party has any rights or
claims to possession of any of the Company's assets. The assets of the Company
constitute all assets, rights and properties used by the Company to operate, or
necessary to operate the Business as operated by the Company prior to Closing.
Except as disclosed on Schedule 3.4, neither Sellers nor any other Related
Person of the Company owns, leases or licenses assets, properties or other
rights used in the conduct of the Business. All employees engaged in conducting
the Business are employees of the Company.
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SECTION 3.5. CONDITION OF ASSETS. All of the tangible property of the
Company is in good operating condition and repair, ordinary wear and tear
excepted, and in the state of maintenance, repair and operating condition
required for the proper operation and use thereof in the ordinary and usual
course of business by the Company.
SECTION 3.6. FINANCIAL STATEMENTS. Sellers have delivered to Buyer
financial information respecting the Company (the "Financial Statements"), as
follows: (i) the Reference Date Balance Sheet, a copy of which is attached
hereto as Schedule 3.6; (ii) audited statements of income, cash flows and
changes in shareholders' equity of the Company for the fiscal year ended as of
the Reference Date; (iii) unaudited balance sheet for the Company as of May 31,
2004; and (iv) unaudited statements of income, cash flows and changes in
shareholders' equity for the Company for the two (2) months ended May 31, 2004.
The Financial Statements fairly present the financial position and results of
operations of the Company for the periods then ended and the financial position
of the Company at the dates thereof and were prepared in accordance with GAAP;
provided, however, the unaudited Financial Statements (i) are subject to normal
recurring year-end adjustments and (ii) do not contain all footnote disclosures
required by GAAP. The Company's books of account are and, during the period
covered by the Financial Statements were, correct and complete in all material
respects, fairly and accurately reflect or reflected the income, expenses,
assets and liabilities of the Company, including the nature thereof and the
transactions giving rise thereto, and provide or provided a fair and accurate
basis for the preparation of the Financial Statements and have been maintained
in accordance with sound business practice.
SECTION 3.7. ACCOUNTS RECEIVABLE; CREDITS. The Accounts Receivable
recorded on the books of the Company, less a bad debt reserve in the amount of
$0.00 (which was determined by the Company in accordance with GAAP applied on a
basis consistent with the Company's prior accounting practices) are bona fide
and good, and are collectible in the amounts shown on the books of account of
the Company. No Account Receivable has been released by the Company, in whole or
in part, so as to reduce its value. There are no outstanding customer credits or
allowances (including allowances for bad debts) which have been authorized by
the Company prior to the Closing Date.
SECTION 3.8. PRE-XXXX. The Company has not pre-billed or received
prepayment for products to be sold, services to be rendered, or expenses to be
incurred subsequent to the Closing Date, except in the ordinary course of
business and consistent with the Company's prior practices, with a corresponding
current liability included on the Reference Date Balance Sheet.
SECTION 3.9. LITIGATION. There is no suit, action or proceeding pending
against or affecting either Seller or the Company or to the knowledge of Sellers
the employees of the Company relating to the Business or the transactions or the
transactions contemplated hereby, nor to the knowledge of Sellers is there any
such suit, action or proceeding threatened against either Seller or the Company
or any of the employees of the Company. Neither Seller nor the Company is
subject to any order of a Governmental Entity.
SECTION 3.10. COMPLIANCE WITH LAW. The Company has all necessary licenses,
permits and other approvals of Governmental Entities necessary to operate the
Business as now
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conducted, each of which is in good standing, and the Company has conducted the
Business and properly filed all necessary reports in accordance with applicable
laws and regulations.
SECTION 3.11. ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not
have any liabilities or obligations, either accrued, contingent or otherwise,
which are not reflected in (i) the Reference Date Balance Sheet or (ii) this
Agreement or the Schedules hereto, except as have been incurred in the ordinary
course of business consistent with past practice since the Reference Date.
SECTION 3.12. ABSENCE OF CERTAIN CHANGES. Since the Reference Date, the
Company has not and will not have as of the Closing:
(a) suffered any adverse change in its financial condition, assets,
liabilities, net worth or business from that shown on the Reference Date Balance
Sheet that, either individually or in the aggregate, has had a Material Adverse
Effect;
(b) suffered any damage, destruction or loss, whether or not covered by
insurance, adversely affecting its properties or the Business;
(c) except as disclosed on Schedule 3.12(c), declared or paid or agreed
to declare or pay any dividends or distributions of any cash or other assets of
any kind whatsoever or issued or agreed to issue any capital stock or rights,
options or warrants to acquire any capital stock of the Company;
(d) mortgaged, pledged, hypothecated or otherwise encumbered any of its
material assets, tangible or intangible;
(e) sold or transferred any of its assets, property or rights, or
canceled or agreed to cancel any of its debts or claims, except for fair value,
in the ordinary course of business;
(f) suffered any Material Adverse Effect with respect to its
relationships with customers or employees, or with respect to its contracts with
customers;
(g) incurred any commitment (through negotiations or otherwise) or any
liability to any labor organization, or been involved in any labor dispute;
(h) entered or agreed to enter into any agreement or arrangement
granting any preferential rights to purchase a material part of its assets,
property or rights;
(i) placed any orders for materials, merchandise or supplies in
exceptional or unusual quantities based upon past operating practices or
accepted orders from customers under conditions relating to price, terms or
payment, time or delivery, or like matters materially different from the
conditions regularly and usually specified on acceptance of orders for similar
merchandise from customers similarly situated;
(j) made any change in the accounting practices or methods followed by
it;
(k) engaged in any restructuring or changed its constitutive documents;
or
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(l) entered into any other transaction, or been involved in any event or
experienced any condition of any character, that, either individually or in the
aggregate, has had a Material Adverse Effect on the Company or the Business.
SECTION 3.13. CONTRACTS. Schedule 3.13 lists all of the contracts, leases,
arrangements and understandings including, without limitation, sales orders,
purchase orders and distribution agreements, which relate to the Business as it
is conducted by the Company, other than the Proprietary Rights Agreements (which
are listed on Schedule 3.14(c) (the "Contracts"), each of which was entered
into, arrived at or conducted on behalf of the Company with appropriate
authority and in accordance with the Company's customary practices. Neither the
Company nor, to Sellers' knowledge, the other parties to such Contracts are in
default thereof and all Contracts are valid and in effect. Except as described
on Schedule 3.13, no customer, supplier or vendor of the Company has given any
notice or, to the knowledge of Sellers, made any threat or otherwise revealed an
intent to cancel or otherwise terminate its relationship with the Company, to
materially and adversely change the relationship, to substantially reduce the
volume of business it currently does with the Company or to refuse to renew any
Contract when it expires. The Contracts (along with the Proprietary Rights
Agreements) constitute all contracts, leases, arrangements and understandings
including, without limitation, sales orders, purchase orders and distribution
agreements, which relate to the Business.
SECTION 3.14. INTELLECTUAL PROPERTY.
(a) Except as set forth on Schedule 3.14(a), the Company either owns or
possesses the perpetual, royalty-free license and other rights to use the
Proprietary Rights (as defined in Section 3.14(h) below) used by the Company in
connection with the Business, including, without limitation, the proprietary
computer software and programs known as CuStar, RDSNet, cuStar(21), Cyber, Image
Capture, Report Manager, Enterprise Manager, Streamline, Internet Banking,
DocMan, Collections(21) and Credit Card Module (collectively, the "Products")
and any Proprietary Rights necessary to develop, manufacture, publish, market,
license and sell the Products, reference manuals, CD-ROMs and other materials
and products published, marketed or licensed by the Company relating to the
Products all of which are free and clear of any liens or any deposit
arrangements and none of the same are owned or licensed or held by any Related
Person.
(b) Except as set forth on Schedule 3.14(b), the Company is not
infringing upon or, otherwise acting adversely to, any Proprietary Rights,
including trade secrets, owned by any other Person or Persons. Except as set
forth on Schedule 3.14(b), no claim, suit, demand, proceeding or, investigation
is pending or has been asserted and, to the best knowledge of Sellers, no claim,
suit, demand, proceeding or investigation is threatened with respect to, based
on or alleging infringement of, any such rights of any third party, or
challenging the validity or effectiveness of any license for such rights, and
there is no basis for any such claim, suit, demand, proceeding or investigation.
Except as set forth on Schedule 3.14(b), no such Proprietary Rights infringe or
violate any Proprietary Rights of any Person. The Company has taken all actions
reasonably necessary to maintain and protect those Proprietary Rights which it
owns or uses or have been licensed to the Company.
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(c) Schedule 3.14(c) contains a list of all contracts, agreements,
commitments or licenses relating to the Company Software and other Proprietary
Rights to which the Company is a party or by which it is bound, including,
without limitation, all license agreements (including, without limitation, all
forms of "shrink wrap" or "click wrap" and other license agreements), agreements
for software acquisition, development agreements, author agreements, publishing
agreements and OEM, VAR and other distribution agreements (the "Proprietary
Rights Agreements"). The Proprietary Rights Agreements include all such
contracts, agreements, commitments or licenses to which the Company is a party
or by which it is bound related to the Company's Proprietary Rights, and
constitute all contracts, agreements, commitments or licenses related to the
Company's Proprietary Rights. Sellers have delivered to Buyer true and complete
copies of all of the Proprietary Rights Agreements (other than end user
agreements on a form provided to Buyer in accordance with Section 3.14(f) below)
prior to the execution of this Agreement. To Sellers' knowledge, all of the
Proprietary Rights Agreements are in full force and effect and enforceable in
accordance with their terms and there is no violation or default under the
Proprietary Rights Agreements. To Sellers' knowledge, no event has occurred or
circumstance exists which with notice or lapse of time or both would constitute
an event of default, or give rise to a right of termination or cancellation, or
result in the loss or adverse modification of any right or benefit under any of
the Proprietary Rights Agreements. No party to any Proprietary Rights Agreement
has given the Company written notice of or made a claim with respect to, and
Seller is not otherwise aware of, any material breach or default under any
thereof. There have been no oral or written modifications to the terms or
provisions of any of the Proprietary Rights Agreements. No amount payable to the
Company or reserved under any Proprietary Rights Agreement has been assigned by
the Company and no amount payable to the Company under any Proprietary Rights
Agreement is in arrears or has been collected in advance and to Sellers'
knowledge, there exists no offset or defense to payment of any amount under a
Proprietary Rights Agreement.
(d) The Company has the exclusive right to manufacture, develop,
publish, market, license or sell the Products (all of which are listed on
Schedule 3.14(d)) in any and all media and by print or electronic means. No
Person other than the Company may manufacture, develop, publish, market, license
or sell the Products without the prior consent of the Company and the Company
has not given any such consent and the Company owns, or is the exclusive
licensee of, all right, title and interest in and to the Products and the
exclusive right to apply for copyright protection therefor. None of the
individuals or entities who have performed services in connection with the
development of any of the Products, as employees or as independent contractors
of the Company, holds any proprietary rights with respect to such Products. Each
of such employees and independent contractors has signed a nondisclosure and
invention assignment agreement with or for the benefit of the Company.
(e) Schedule 3.14(e) contains a true and complete list of all material
software owned, developed, published or currently sold by the Company,
including, without limitation, the Products, with all such software owned by the
Company designated by an asterisk (*) (the "Company Software"), as well as a
list of any instructions or sequences of instructions, in whatever form
embodied, which are included in any of the Company Software and which requires
the consent (whether subject to royalty or otherwise) of a party other than the
Company in order for any such Company Software to be sold, licensed, updated,
enhanced or modified or
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integrated with the software by the Company, together with true and correct
copies of all contracts between or among the Company, on the one hand, and any
author or licensor of the software, on the other hand.
(f) Except as set forth on Schedule 3.14(f), here has been no
publication or public distribution by the Company of any of the source codes of
any of the Company Software that would in any way affect the right of the
Company to seek copyright protection for the Company Software. Schedule 3.14(f)
contains true and correct copies of each form of license agreement which has
been used by the Company, in connection with the marketing, license and
distribution of the Company Software. Each end user of the Company Software has
either signed a license agreement or has acquired the Company Software pursuant
to a so-called "shrink wrap" or "click wrap" license with the Company. With
respect to any contracts pertaining to the Company Software entered into by the
Company, the Company has licensed the Company Software and not sold it, thus
retaining ownership of the Company Software. To the knowledge of Sellers, there
are no claims actually or purporting to be within the scope of the warranty
coverage afforded to purchasers of any of the Company Software, or of any
efforts, omissions or failures to perform. There are no bugs in any of the
Company Software reasonably detectable with normal use, and the Products
function in accordance with the specifications provided to Buyer and attached as
part of Schedule 3.14(f).
(g) Schedule 3.14(g) contains a true and complete list of all
trademarks, including trademark registrations, common law trademarks and
applications therefor, still in use service marks, service names, trade names,
domain names, patents and patent applications, copyright registrations, and
applications therefor, wholly or partially owned, licensed held or used by the
Company or in the conduct of the Business.
(h) For purposes hereof, "Proprietary Rights" shall mean know-how,
technology or other intellectual property, including, without limitation, all
trade secrets, customer and vendor information, lists and databases, including,
without limitation, customer, mailing and subscription lists, proprietary
processes, methods and apparatus, information not known to the general public,
any literary work, whether or not copyrightable, ideas, concepts, designs,
discoveries, formulae, patents, patent applications, product and service
developments, inventions, improvements, processes, disclosures, trademarks,
trademark applications, trade names, fictional business names, service marks,
copyrights, copyright applications, logos, all rights in internet web sites and
internet domain names, software, source codes and materials, object codes and
materials, algorithms, techniques, architecture, mask work rights, prototypes,
engineering and design models, information with respect to firmware and
hardware, and any information relating to any product or program which has
either been developed, acquired or licensed for or by the Company, including the
maintenance, modification or enhancement thereof and all publishing and
manufacturing information (including with respect to custom chips, boards and
other components) and all license agreements (whether as licensor or licensee)
relating thereto.
SECTION 3.15. REAL PROPERTY. Sellers have delivered to Buyer a true,
correct and complete copy of the Leases and any and all ancillary documents
pertaining thereto (including, but not limited to, all amendments, consents for
alterations and documents recording variations and evidence of commencement
dates and expiration dates). Each Lease is legal, valid, binding,
-18-
enforceable against the Company and in full force and effect and represents the
entire agreement between the landlord thereunder and the Company with respect to
the property subject thereto. To Seller's knowledge, nothing impairs the
Company's ability to enforce its rights under each Lease against the landlord.
The Company has not received any notice of a breach or default under any Lease,
and the Company has not granted to any other Person any rights, adverse or
otherwise, under any Lease, except as set forth on Schedule 3.15. Neither the
Company nor (to the knowledge of Seller) any other party to any Lease, is in
breach or default in any material respect, and, to the knowledge of Sellers, no
event has occurred that, with notice or lapse of time would constitute such a
breach or default or permit termination, modification or acceleration under the
Lease. The rental set forth in each Lease is the actual rental being paid, and
there are no separate agreements or understandings with respect to the same.
Other than the leasehold interests created by each Lease, the Company holds no
interests in real property of any kind. The premises subject to each Lease are
not subject to any zoning ordinance, Lien, or other restriction or encumbrance
which would have a Material Adverse Effect on the Business or the use and
enjoyment of such property in the manner in which such property is currently
used and enjoyed. To Sellers' knowledge, there is no planned or threatened
taking or condemnation of all or any part of such premises.
SECTION 3.16. ENVIRONMENTAL MATTERS. The Company is not now and has not
been in the past in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety ("Environmental
Laws"). No material expenditures are or will be required in order to comply with
any Environmental Laws. Schedule 3.16 sets forth all permits, licenses,
registrations and certificates (the "Permits") the Company currently holds under
any Environmental Laws, which are the only ones the Company needs to comply with
the Environmental Laws. No Hazardous Materials (as defined below) are used or
have been used, stored, or disposed of by the Company or, to the knowledge of
Sellers, by any other Person on any real property owned or occupied by the
Company. For the purposes of the preceding sentence, "Hazardous Materials" shall
mean (a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials or (b) any petroleum products or nuclear materials.
SECTION 3.17. LABOR; ERISA.
(a) Except as set forth on Schedule 3.17, the Company is not, and, as of
the Closing Date will not be, a party to any employment, severance or consulting
agreement or to any collective bargaining agreement, nor are its employees
members of a collective bargaining unit or union, nor has there been any
unionization activity. The Company has complied with all laws relating to the
employment of labor, including provisions relating to wages, hours, collective
bargaining, immigration, and the payment of unemployment, workers' compensation,
Social Security, payroll, withholding and similar Taxes, and is not liable for
any arrears of wages, compensation fund contributions or any Taxes or penalties
for failure to comply with such laws. Schedule 3.17 attached hereto contains a
list of all persons employed by the Company at the Closing Date with their
respective current salaries, any commission compensation received
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during the last twelve (12) months and a description of all benefits provided by
the Company to its employees. No employee of the Company has given any notice or
made any threat, or otherwise revealed an intent, to cancel or otherwise
terminate his or her relationship with the Company or indicated an intention not
to accept employment with Buyer or continue employment by the Company, if
employment is offered. At the Closing Date, all employees are terminable at will
by the Company and will be free of all employment obligations to the Company and
all non-competition and confidentiality covenants in favor of the Company and
will be free to become employees of Buyer or continue employment by the Company,
if Buyer so desires.
(b) Set forth in Schedule 3.17 is a list of (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), and (ii) all profit sharing, stock bonus,
pension, 401(k), ESOP, savings, medical, dental, disability, life or accident
insurance, bonus, incentive, stock option, deferred compensation and other
similar compensation or employee benefit plans, funds, programs or arrangements,
which are maintained for the benefit of, or relate to any or all employees of
the Company (the plans referred to in clauses (i) and (ii) being collectively
referred to as the "Plans"). A complete and correct copy, as of the date hereof,
of each Plan has been furnished to Buyer.
(c) None of the Plans is a multiemployer plan within the meaning of
Section 4001 of ERISA.
(d) Each of the Plans is in compliance in all material respects with the
requirements of all applicable statutes, orders and governmental rules and
regulations currently in effect, including, but not limited to, the Code and
ERISA.
(e) There are no audits, inquiries or proceedings pending or, to the
knowledge of Company, threatened by the Internal Revenue Service (the "IRS") or
Department of Labor (the "DOL") with respect to any Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Plans have been timely made or accrued. Any Plan intended to be
qualified under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code still is within its remedial amendment period
under applicable Treasury Regulations or IRS pronouncements to apply for a GUST
determination letter and to make any amendment necessary to obtain a favorable
determination. Company has no commitment to establish any new Plan or to modify
any Plan (except to the extent required by law or to conform any such Plan to
the requirements of any applicable law or as set forth in Schedule 3.17). Each
Plan can be amended, terminated or otherwise discontinued after the Closing Date
in accordance with its terms.
(f) Neither the Company nor any of its affiliates has at any time ever
maintained, established, sponsored, participated in, or contributed to any plan
subject to Title IV of ERISA or Section 412 of the Code and at no time has the
Company contributed to or been requested to contribute to any "multiemployer
plan," as such term is defined in ERISA or to any plan described in Section
413(c) of the Code. Neither the Company nor any officer or director of the
Company is subject to any material liability or penalty under Sections 4975
through 4980B of the Code or Title I of ERISA. No "prohibited transaction,"
within the meaning of Section 4975
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of the Code or Sections 406 and 407 of ERISA, not otherwise exempt under Section
408 of ERISA, has occurred with respect to any Plan.
(g) None of the Plans promises or provides medical or other welfare
benefits to any former employee of the Company except as required by COBRA or
other applicable law or by the terms of a written agreement with such former
employee, and the Company has not represented, promised or contracted (whether
in oral or written form) to provide welfare retiree benefits to any employee,
former employee, director, consultant or other person, except to the extent
required by statute.
(h) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any shareholder, director or employee of the
Company under any Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any Plan, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
SECTION 3.18. TAXES.
(a) The Company has prepared and filed or caused to be prepared and
filed, all federal, state, local and foreign returns, estimates, information
statements and reports, including without limitation, all informational returns
("Returns") relating to any and all Taxes concerning or attributable to the
Company or the Business which the Company is required to file on or before the
Closing and such Returns were true and accurate and were completed in accordance
with applicable law when filed. The Company has provided the Returns listed on
Schedule 3.18.
(b) The Company has (i) paid all Taxes it is required to pay and (ii)
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and the Company has not been
delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against the Company. There is no tax sharing
agreement that will require any payment by the Company after the date of this
Agreement. No consent to the application of Section 341(f)(2) of the Code has
been filed with respect to any property or assets held, acquired or to be
acquired by the Company.
(c) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(d) The Company does not have any liabilities for unpaid Taxes which
have not been accrued or reserved against on the Reference Date Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and no Seller has any
knowledge of any basis for the assertion of any such liability attributable to
the Company or the Business.
(e) The transactions contemplated herein are not subject to the tax
withholding provisions of Code Section 3406 or Subchapter A of Chapter 3 of
Subtitle A of the Code or any other provision of law.
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(f) The Company is not and has not been during the five-year period
preceding the Closing Date an S corporation.
SECTION 3.19. CAPITALIZATION; RELATIONSHIPS WITH RELATED PERSONS.
(a) The authorized capital stock of the Company consists of 450,000,000
shares of common stock, no par value, and 50,000,000 shares of common preferred
stock, of which 2,878,180 shares of common stock are issued and outstanding and
constitute the Stock. There are no shares of preferred stock outstanding.
Sellers are the sole beneficial and record owners of the Stock, free and clear
of all Liens. Except as set forth on Schedule 3.19(a), no Person has rights,
options or warrants to purchase the capital stock of the Company or any
securities convertible into or exchangeable or exercisable for capital stock of
the Company, or any right or claim based on prior ownership or holdings of any
such security. All of the shares of Stock have been duly authorized and validly
issued and are fully paid and nonassessable. All shares of capital stock of the
Company have been issued in compliance with all applicable federal and state
security laws.
(b) Except as set forth on Schedule 3.19(b) no Related Person
(including, without limitation, any Seller) has any interest in any property
(whether real, personal, or mixed and whether tangible or intangible) used in or
pertaining to the Business. Except as set forth on Schedule 3.19(b), neither the
Company nor any Related Person (including, without limitation, any Seller), is,
or has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (a) had business
dealings or a material financial interest in any transaction with the Business,
or (b) engaged in competition with the Company with respect to any line of the
products or services of the Company in any market presently served by the
Company. No Related Person of the Company (including, without limitation,
Seller) is a party to any Proprietary Rights Agreement or Contract.
SECTION 3.20. BROKERS. Except as set forth on Schedule 3.20, there are no
claims for brokerage commissions, finder's fees or similar compensation arising
out of or due to any act of or on behalf of any Seller or the Company in
connection with the transactions contemplated by this Agreement.
SECTION 3.21. INSURANCE.
(a) Sellers have delivered to Buyer (i) true and complete copies of all
policies of insurance to which the Company is a party or under which the
Company, or any director of the Company, is or has been covered at any time
within the three years preceding the date of this Agreement; (ii) true and
complete copies of all pending applications for policies of insurance; and (iii)
any statement by the auditor of the Company's financial statements with regard
to the adequacy of such entity's coverage or of the reserves for claims.
(b) Schedule 3.21 lists (i) any self-insurance arrangement by or
affecting the Company, including any reserves established thereunder; (ii) any
contract or arrangement, other than a policy of insurance, for the transfer or
sharing of any risk by the Company; and (iii) all obligations of the Company to
third parties with respect to insurance (including such obligations
-22-
under leases and service agreements) and identifies the policy under which such
coverage is provided.
(c) Schedule 3.21 sets forth, by year, for the current policy year and
each of the two preceding policy years (i) a summary of the loss experience
under each policy; (ii) a statement describing each claim under an insurance
policy for an amount in excess of $50,000, which sets forth (A) the name of the
claimant; (B) a description of the policy by insurer, type of insurance, and
period of coverage; and (C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were
self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 3.21 (i) all policies to which the
Company is a party or that provide coverage to either Seller, the Company, or
any director or officer of the Company (A) are valid, outstanding, and
enforceable; (B) are issued by an insurer that is financially sound and
reputable; (C) taken together, provide adequate insurance coverage for the
assets and the operations of the Company for all risks to which the Company is
normally exposed; (D) are sufficient for compliance with all legal requirements
and Contracts to which the Company is a party or by which it is bound; (E)will
continue in full force and effect following the consummation of this Agreement;
and (F) do not provide for any retrospective premium adjustment or other
experienced-based liability on the part of the Company; (ii) no Seller or the
Company has received (A) any refusal of coverage or any notice that a defense
will be afforded with reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not willing or
able to perform its obligations thereunder; (iii) the Company has paid all
premiums due, and have otherwise performed all of its obligations, under each
policy to which the Company is a party or that provides coverage to the Company
or director thereof; and (iv) the Company has given notice to the insurer of all
claims that may be insured thereby.
SECTION 3.22. POWERS OF ATTORNEY. No Person has any power of attorney to
act on behalf of the Company in connection with any of its properties or
business affairs other than such powers to so act as normally pertain to the
officers of the Company.
SECTION 3.23. DEBT. Set forth in Schedule 3.23 hereto is a complete and
correct list of all Debt of the Company other than trade debt incurred in the
ordinary course of business, none of which is overdue unless such trade debt is
being contested diligently and in good faith by appropriate proceedings and
appropriate cash reserves have been established therefor. The maximum principal
or face amounts of the obligations set forth, which are outstanding and which
can be outstanding, are correctly stated, and all Liens of any nature given or
agreed to be given as security therefor are correctly described or indicated in
such Schedule.
SECTION 3.24. CERTAIN PAYMENTS. Since January 1, 1999, neither the Company
nor director, officer, agent, or employee of the Company, or to Sellers'
knowledge any other Person associated with or acting for or on behalf of any the
Company, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business
-23-
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company, or
(iv) in violation of any statutes, laws or regulations, or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
SECTION 3.25. STATEMENTS NOT MISLEADING. Sellers have disclosed all facts,
events or transactions which are material to the Company and the Business. No
representation or warranty of any Seller or document furnished by any Seller
hereunder is false or inaccurate in any material respect or contains or will
contain any untrue statement of a material fact or omits or will omit to state
any fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
SECTION 4.1. ORGANIZATION AND POWER OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has full corporate power and authority to own its properties and
conduct the business presently being conducted by it, to execute this Agreement,
and to consummate the transactions contemplated by this Agreement.
SECTION 4.2. AUTHORIZATION. The execution, delivery and performance of
this Agreement by Buyer have been duly authorized and approved by all requisite
action on the part of Buyer, and this Agreement constitutes the valid and
binding obligation of Buyer and is enforceable against Buyer in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, and other similar laws relating to or
limiting creditors' rights generally and by equitable principles.
SECTION 4.3. NO CONFLICT. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and the
compliance with the terms hereof will not, (a) violate any law, judgment, order,
decree, statute, ordinance, rule or regulation applicable to Buyer, or any
permit, license or approval of any Governmental Entity, (b) conflict with any
provision of Buyer's certificate of incorporation or by-laws, (c) result in any
violation of, and will not conflict with, or result in a breach of any terms of,
or constitute a default under, any mortgage, instrument or agreement to which
Buyer is a party or by which Buyer is bound, or (d) require any notice to, or
consent, approval, order or authorization of, or the registration, declaration
or filing with, any Governmental Entity or other third party, which, in the case
of clause (c) or (d), would have a material adverse effect on Buyer's ability to
consummate the transactions contemplated by this Agreement.
SECTION 4.4. INVESTMENT INTENT. Buyer is acquiring the Stock for its own
account and not with a view to the distribution thereof.
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ARTICLE 5
COVENANTS
SECTION 5.1. FURTHER ASSURANCES; COOPERATION. Sellers will provide such
other information, and execute and deliver all such other and additional
instruments, notices, releases, undertakings, consents and other documents, and
will do all such other acts and things, as may be reasonably requested by Buyer
as necessary to assure to Buyer all the rights and interests granted or intended
to be granted under this Agreement. Sellers shall take or shall cause to be
taken such other reasonable actions as Buyer may require more effectively to
transfer, convey and assign to, and vest in, Buyer, and put Buyer in possession
of, the Stock as contemplated by this Agreement.
SECTION 5.2. COVENANTS NOT TO COMPETE.
(a) Non-Competition. For the applicable Non-Compete Period (as that term
is defined below), no Seller and no affiliate of a Seller shall, directly or
indirectly, anywhere in the United States (and its territories and possessions)
(the "Territory") engage in any activity which is, or participate or invest in,
provide or facilitate the provision of financing to, or assist in any manner
(whether as owner, part-owner, shareholder, partner, director, officer, trustee,
employee, agent or consultant, or in any other capacity) any entity whose
business, activities, products or services are competitive with the business,
activities, products, services or systems of Buyer or the Company (or any
affiliate of Buyer) as of the date hereof (together, the "Competitive
Activities"); provided, however, that AmeriCard, an affiliate of Seller, may
continue to engage in the credit card processing business as currently conducted
by it and the same shall not be deemed a violation of this Section 5.2(a).
(b) Limitation on Covenant. Ownership by a Seller, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in the over-the-counter market shall not constitute a breach of this
Section 5.2.
(c) Customers. For a period of five (5) years from the Closing Date, no
Seller and no affiliate of any Seller shall, directly or indirectly, either on
such party's own account or in conjunction with or on behalf of any other
Person, firm or company, solicit any Person, firm or company who was a customer
or client of the Company, Buyer or an affiliate of Buyer as of the Closing, for
business which is competitive with the business, activities, products, services
or systems provided by the Company, Buyer or any affiliate of Buyer as of the
Closing Date; provided, however, that the solicitation of such customers by or
on behalf of AmeriCard, an affiliate of Seller, for the provision of credit card
processing services shall not be deemed a violation of this Section 5.2(c). .
(d) Employees. Except with respect to employees of the Company who are
terminated by the Company within 7 days of Closing, for a period of two (2)
years from the Closing Date, no Seller shall, either on such party's own account
or in conjunction with or on
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behalf of any other Person, firm or company, and no affiliate of any Seller
shall, hire, employ, solicit, entice away or attempt to hire, employ, solicit or
entice away from Buyer, the Company or any other affiliate of Buyer any person
who at the date hereof is, or at the date of or within the year preceding such
employment, solicitation, enticement or attempt shall have been, an officer,
manager, consultant or employee of Buyer, the Company or any affiliate of Buyer.
(e) Confidentiality. No Seller will at any time hereafter make use of or
disclose or divulge to any Person (other than to officers or employees of Buyer
whose province it is to know the same) any information (other than any
information properly available to the public or disclosed or divulged pursuant
to an order of a court of competent jurisdiction) relating to the Company, Buyer
or the Business, the identity of the customers and suppliers of the Company,
Buyer or the Business, or the products, finances, contractual arrangements,
business or methods of business of the Company, Buyer or the Business and shall
use its best endeavors to prevent the publication or disclosure of any such
information. Each Seller acknowledges that many of the assets of the Company are
trade secrets which Sellers are forever restricted from using or disclosing. If,
in connection with the business or affairs of the Company, any Seller shall have
obtained trade secrets or other confidential information belonging to any third
party under an agreement which contained restrictions on disclosure by any
Seller, then the Sellers will not at any time infringe such restrictions.
(f) Injunctive Relief. Each Seller acknowledges that any violation of
any provision of this Section 5.2 will cause irreparable harm to Buyer, that
damages for such harm will be incapable of precise measurement and that, as a
result, Buyer will not have an adequate remedy at law to redress the harm caused
by such violations. Therefore, in the event of a violation of Section 5.2 by any
Seller, each Seller agrees that, in addition to its other remedies, Buyer shall
be entitled, without the necessity of either proof of actual damage or the
posting of a bond, to injunctive relief, including but not limited to an
immediate temporary injunction, temporary restraining order and/or preliminary
or permanent injunction to restrain or enjoin any such violation. Each Seller
acknowledges that any violation of this Section 5.2 will cause Buyer irreparable
harm and that such irreparable harm will affect Buyer at its principal place of
business in Glastonbury, Connecticut, and, therefore, each Seller does hereby
submit to jurisdiction before any state or federal court sitting in the State of
Connecticut, at Buyer's election, and each Seller hereby waives any right to
raise the question of jurisdiction and venue in any action that Buyer may bring
in any such court against any Seller.
(g) Severability. The parties understand and agree that the covenant set
forth in this Section 5.2 shall be construed as a series of separate covenants
not to compete, one covenant for each country, state and province within the
Territory, one for each separate line of the Competitive Activities, and one for
each month of the Non-Compete Period. Should any clause, portion or paragraph of
this Section 5.2 be unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the enforceability or validity
of the remainder of this Section 5.2. Should any particular covenant or
restriction, including but not limited to the covenants and restrictions of
Section 5.2(a), 5.2(c), 5.2(d) and 5.2(e), be held to be unreasonable or
unenforceable for any reason, including without limitation the time period,
geographical area and scope of activity covered by such covenant, then a court
may modify any such covenant or
-26-
restriction in order to give it effect and allow it to be enforced to the
greatest extent that would be reasonable and enforceable.
(g) Acknowledgment. Each Seller acknowledges that this covenant not to
compete is a mandatory condition precedent to the Closing of the transactions
contemplated by this Agreement, and that, in the absence of the preceding
covenant not to compete, Buyer would not have consented to the Closing.
(h) Sellers' Non-Compete Period.
(i) With respect to each Seller, the Non-Compete Period shall be
two (2) years after the Closing Date or, if ordered by a court of
competent jurisdiction, one of the periods of time listed in clause (ii).
(ii) If ordered by a court of competent jurisdiction, the
Non-Compete Period for each Seller shall be one of the following periods
of time:
(A) one (1) year and six (6) months from the Closing Date;
(B) one (1) year from the Closing Date; or
(C) six (6) months from the Closing Date.
SECTION 5.3. EXPENSES; TRANSFER TAXES. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense, and Sellers shall reimburse the
Company for any expenses it has paid in connection with the transactions
contemplated hereby. Any sales, use, franchise, conveyance or other transfer Tax
which becomes payable by any of the parties to this Agreement as a result of the
conveyance and transfer from Seller to Buyer of the Stock or otherwise as a
result of the transactions contemplated hereby and any other transfer or
documentary Taxes or any filing or recording fees applicable to such conveyance
and transfer shall be paid by Sellers, and Sellers shall promptly provide Buyer
with proof of payment of such Taxes.
SECTION 5.4. TAXES.
(a) At Closing, Sellers shall have caused the Company to (i) pay all
Taxes it is required to pay as of such time, and (ii) withhold with respect to
its employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld as of such time, if any.
(b) Buyer shall prepare and file, or cause to be prepared and filed, all
Returns required to be filed after the Closing Date with respect to any Tax
period beginning before the Closing Date and ending before, on or after the
Closing Date and for any Tax period commencing with the first day of the
Company's fiscal year and ending on the Closing Date, if such period is less
than twelve months (the "2004 Short Period"). All Taxes shown as due on such
Returns shall be paid first by the Company, but only to the extent such Taxes
have been accrued or reserved against and are included in the Adjustment
Liabilities as of the Closing Date, and second by the Sellers. Buyer shall
prepare or have prepared such Returns in a manner
-27-
consistent with the past practices of the Company to the extent not inconsistent
with applicable law, and Buyer shall provide the Sellers and their authorized
representatives with a copy of all such completed Returns, together with
appropriate supporting information and schedules, at least twenty (20) Business
Days prior to the due date (including any extension thereof) for the filing of
each such Return, and the Sellers and their authorized representatives shall
have the right to review and comment on each such Return. Buyer shall, in good
faith, consider the Sellers' revisions to such Returns and shall be required to
make the Sellers' revisions to those initial Returns (or portions thereof) filed
after the Closing Date where such initial Return provides for the payment of an
amount for such Tax which is in excess of the amount reserved for such Tax in
the Adjustment Liabilities, and where such revisions are in accordance with
applicable law and do not increase the current or future Tax liability of Buyer,
the Company or any of its or their affiliates.
(c) Sellers jointly and severally hereby covenant and agree that Sellers
shall be liable for, and shall hold Buyer and the Company harmless from and
against, (i) any and all Taxes due or payable by the Company for, or loss of a
Company Tax-Related Asset attributable to, any taxable year or Tax period ending
on or before the Closing Date, (ii) any and all Taxes due or payable by the
Company for, or loss of a Company Tax-Related Asset attributable to, any taxable
year or Tax period beginning before and ending after the Closing Date (provided
that liability for such Taxes will be apportioned between Sellers, for the
period before and including the Closing Date, and to the Company, for
post-Closing periods as follows: (A) in the cases of Taxes other than income
Taxes and sales and use Taxes, on a per diem basis, and (B) in the case of
income Taxes and sales and use Taxes, as determined from the books and records
of the Company between such pre-Closing and post-Closing periods as though the
taxable year of the Company terminated at the close of business on the Closing
Date, and based on accounting methods, elections and conventions that do not
have the effect of distorting income and expenses), and (iii) any and all Taxes
due or payable by the Company resulting from or arising out of the transfer of
the Stock as contemplated by this Agreement, less, however, with respect to
taxes described in clauses (i) and (ii), any Tax accruals included in the
Adjustment Liabilities as of the Closing Date. Buyer shall afford to Sellers,
their counsel, accountants and other representatives, at all reasonable times
during normal business hours and upon reasonable notice, full access to all
information required for inclusion in any Return required to be filed after the
Closing Date that includes the operations of the Company for any period ending
on or prior to the Closing Date (including, without limitation, the Return for
federal income tax for the 2004 Short Period), and shall continue, or cause the
Company to continue, to provide such access to such information for a period
coterminous with the time remaining under the statute of limitations for the
relevant Tax period. To the extent they proceed in good faith and there is no
material risk of a Tax lien being placed on any of the assets of Buyer, the
Company or any of their affiliates, Sellers shall have the sole obligation and
right to exercise, at their own expense, control at any time over the handling,
disposition and/or settlement of any issue raised in any Tax Audit regarding any
Return of the Company filed prior to the Closing Date for fiscal periods ending
prior to April 1, 2004 (the "Prior Year Returns") and the 2004 Short Period
Return, provided, however, that Sellers shall advise and consult with Buyer
regarding the status of any such Tax Audit and provided further that, without
the prior written consent of Buyer, Sellers shall not (A) make any election,
change any annual accounting period or adopt or change any accounting method if
any such election, adoption or change would have the effect of increasing
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the Tax liability of Buyer, the Company or any of its or their affiliates in any
Tax period ending after the Closing Date (including, without limitation, the
loss of a Company Tax-Related Asset); or (B) file any amended return, enter into
any closing agreement, settle any Tax claim or assessment relating to the
Company, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or take any action, if any such amendment,
agreement, settlement, surrender, consent or other action would have the effect
of increasing the Tax liability of Buyer, the Company or any of its or their
affiliates in any Tax period ending after the Closing Date (including, without
limitation, the loss of a Company Tax-Related Asset).
(d) Buyer, the Company and/or its or their affiliates shall be entitled
to use any net operating loss, credit, or other carryovers, or other Company
Tax-Related Asset, that relate to any Tax period ending on or before the Closing
Date and, provided further, that Buyer shall be entitled to elect, in its sole
discretion, to forego any net operating loss, credit or other carryback, or
other Company Tax-Related Asset, that relates to any Tax period beginning after
the Closing Date. Buyer shall have the sole right to exercise, at its own
expense, control at any time over the handling, disposition and/or settlement of
any issue raised in any Tax Audit (including the right to settle or otherwise
terminate any contest with respect thereto) regarding any Tax return relating to
the Company for any taxable period commencing on or after the Closing Date.
(e) Sellers and the Buyer agree to treat all payments made by either to
or for the benefit of the other under this Article 5 or under other indemnity
provisions of this Agreement as adjustments to the Purchase Price for Tax
purposes and that such treatment shall govern for purposes hereof except to the
extent that the laws of a particular jurisdiction provide otherwise, in which
case such payments shall be made in an amount sufficient to indemnify the
relevant party on an after-Tax basis.
SECTION 5.5. EMPLOYMENT MATTERS.
(a) Buyers and Sellers have agreed that the Company will not terminate
any employees (except for Xxx X. Xxxxxxxxxxx) prior to Closing, and if after
Closing the Company terminates any of its employees, the Company shall be
responsible for and shall pay all compensation or other money due to such
employees with respect to the termination of their employment with the Company.
In addition, Sellers will cause the Company to enter into agreements with Xxx X.
Xxxxxxxxxxx and Xxxxx X. Xxxxxxxx terminating their existing employment
agreements and upon Closing, the Company shall pay all amounts payable to Xxx X.
Xxxxxxxxxxx and Xxxxx X. Xxxxxxxx (to the extent that Xxxxx X. Xxxxxxxx'
agreement entered into pursuant to Section 2.8(o) does not supersede such
obligations) in connection with such termination of their existing employment
agreements (including, without limitation, amounts payable as or in lieu of
severance obligations, change in control payments or bonuses, incentive bonuses
triggered by the sale of the Company, etc.), as further provided in Section 2.2.
The amount of such payments, together with any employer-funded Social Security,
Medicare and other similar payroll obligations is referred to herein as the
"Termination of Employment Agreement Payments." Sellers shall cooperate with
Buyer in Buyer's efforts to retain employees.
-29-
(b) Sellers represent and warrant that (i) Schedule 5.5(b) sets forth
all holders of outstanding stock options issued by the Company (the "Options"),
the number of Options held by each such holder, and the exercise price of each
such Option, and (ii) prior to or as of the Closing, the vesting of all Options
shall have fully accelerated, such that all options are fully exercisable as of
the Closing. Promptly after Closing, Buyer shall cause its parent company, Open
Solutions Inc. ("OSI"), to issue substitute options (the "Substitute Options")
in exchange for the Options (which shall be deemed terminated as of the issuance
of the Substitute Options), on the terms set forth in this Section 5.5(b). Each
Substitute Option (A) shall be fully vested on grant, (B) shall be for a number
of shares of Common Stock of OSI equal to (X) the number of shares of the
Company's Common Stock covered by the Option for which it is substituted DIVIDED
BY (Y) 3.661 (as adjusted for any stock splits, combinations and other similar
events affecting the Company's Common Stock after May 31, 2004, the "Option
Exchange Ratio"), and (C) shall have a per share exercise price equal to the per
share exercise price of the Option for which it is substituted MULTIPLIED BY the
Option Exchange Ratio.
(c) Sellers agree that their affiliate(s) who continue as employers with
respect to the Company's plans as contemplated by Section 2.8(h) will, at not
cost or expense to the Company or Buyer, (1) provide all so-called COBRA notices
and benefits to employees of the Company who Buyer causes the Company to
terminate in connection with the acquisition of the Company, or who have been
terminated by the Company at or prior to Closing (including, without limitation,
any former employees and their dependents currently participating in such plans
pursuant to their COBRA rights), and (2) cover under such plans all claims for
covered services received pre-Closing, and claims otherwise arising under such
plans prior to Closing or on account of events or periods prior to Closing.
SECTION 5.6. TRANSFER OF DOMAIN NAME. Buyer agrees that at such time as
the domain name "xxxxxxxx.xxx" is no longer being used by the Company, or Buyer
or their successors and assigns in the continuing operation of the Business, but
in any event no later than promptly after the last customer of the Company to do
so converts off of the Company's software system, Buyer will convey and
transfer, or cause the Company or its successor or assign to convey and transfer
to Xxxxx X. Xxxxxx all rights that it holds to such domain name. Nothing set
forth in this Section 5.6 shall obligate Buyer or the Company or their successor
and assigns to expend money or resources or otherwise affirmatively defend or
maintain their rights to the domain name "xxxxxxxx.xxx," or prohibit them from
granting security interests in such domain name to their secured lenders in
connection with the grant of a general security interest in intangibles or
intellectual property rights.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1. INDEMNIFIED LOSSES. For the purpose of this Article 6 and
when used elsewhere in this Agreement, "Losses" shall mean and include any and
all liability, loss, damage, claim, expense, cost, fine, fee, penalty,
obligation or injury including those resulting from any and all actions, suits,
proceedings, demands, assessments or judgments, together with reasonable
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costs and expenses including the attorneys' fees and other legal costs and
expenses relating thereto.
SECTION 6.2. INDEMNIFICATION BY SELLERS. Sellers hereby jointly and
severally agree to indemnify and hold harmless Buyer, the Company and their
respective officers, directors, employees and agents (the "Indemnified Parties")
against and in respect of any Losses which arise out of or result from:
(a) any breach by Sellers of any representation or warranty of Sellers
made herein or in any certificate, document, writing or instrument delivered by
any Seller pursuant to this Agreement;
(b) any breach by any Seller of any covenant or obligation of any Seller
in this Agreement or in any certificate, document, writing or instrument
delivered by a Seller pursuant to this Agreement;
(c) any liability or obligation of the Company to any Person claiming an
equity interest in the Company or asserting a claim based on any previously held
equity interest in the Company (other than with respect to the Options);
(d) any liabilities related to failure to comply with Environmental Laws
or ERISA; and
(e) as provided in Section 6.4 hereof.
SECTION 6.3. INDEMNIFICATION BY BUYER. Subject to the limitations set
forth in this Article 6, Buyer agrees to indemnify and hold harmless Sellers
against and in respect of any Losses which arise out of or result from:
(a) any breach by Buyer of any representation or warranty of Buyer made
herein or in any certificate, document, writing or instrument delivered by Buyer
pursuant to this Agreement;
(b) any breach by Buyer of any covenant or obligation of Buyer in this
Agreement or in any other certificate, document, writing or instrument delivered
by Buyer pursuant to this Agreement; and
(c) as provided in Section 6.5 hereof.
SECTION 6.4. THIRD PARTY CLAIMS AGAINST THE INDEMNIFIED PARTIES. Sellers
further agree to jointly and severally indemnify and hold the Indemnified
Parties harmless from and against any and all Losses resulting from causes of
action or claims of any kind asserted by unrelated third parties arising from
any liability of any nature incurred in connection with any action, suit,
proceeding, claim or demand by any person or entity where any of the alleged or
actual breach, default, act, omission or other grounds therefore is attributable
to events occurring prior to the Closing and related to the Company or the
Business, including, without limitation, any and all Losses attributable to
goods, products and services provided by the Company prior to
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the Closing Date, whether or not such litigation, proceeding or claim is
pending, threatened, or asserted before, on or after the Closing Date.
SECTION 6.5. THIRD PARTY CLAIMS AGAINST SELLER. Subject to the limitations
set forth in this Article 6, Buyer further agrees to indemnify and hold Seller
harmless from and against any and all Losses resulting from causes of action or
claims of any kind asserted by unrelated third parties arising from any
liability of any nature incurred in connection with any action, suit,
proceeding, claim or demand by any person or entity where any of the alleged or
actual breach, default, act, omission or other grounds therefore is attributable
to events occurring after the Closing and related to Buyer or the Company,
whether or not such litigation, proceeding or claim is pending, threatened, or
asserted before, on or after the Closing Date.
SECTION 6.6. PROCEDURES; NO WAIVER; EXCLUSIVITY. All claims for
indemnification by a party pursuant to this Article 6 in connection with an
action, suit or proceeding shall be made in accordance with the provisions of
this Section 6.6. The party entitled to indemnification under this Article 6
(the "Indemnified Person") shall give prompt written notification to the Person
obligated to provide such indemnification (the "Indemnifying Person") of the
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Article 6 may be sought; provided,
however, that no delay on the part of the Indemnified Person in notifying the
Indemnifying Person shall relieve the Indemnifying Person from any liability or
obligation under this Article 6 except to the extent of any damage or liability
caused solely by or arising out of such delay. Within 20 days after delivery of
such notification, the Indemnifying Person may, upon written notice thereof to
the Indemnified Person, assume control of the defense of such action, suit or
proceeding with counsel reasonably satisfactory to the Indemnified Person,
provided (i) the Indemnifying Person acknowledges in writing to the Indemnified
Person that the Indemnifying Person shall indemnify the Indemnified Person with
respect to all elements of such action, suit or proceeding and any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Person in connection with such action, suit or proceeding, and (ii) the third
party seeks monetary damages only. If the Indemnifying Person does not so assume
control of such defense, the Indemnified Person shall control such defense. The
party not controlling such defense may participate therein at its own expense;
provided, that if the Indemnifying Person assumes control of such defense and
the Indemnified Person is advised by counsel in writing that the Indemnifying
Person and the Indemnified Person may have conflicting interests or different
defenses available with respect to such action, suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Person shall be
considered "Losses" for purposes of this Agreement. The party controlling such
defense shall keep the other party advised of the status of such action, suit or
proceeding and the defense thereof and shall consider in good faith
recommendations made by the other party with respect thereto. An Indemnified
Person shall not agree to any settlement of such action, suit or proceeding
without the prior written consent of the Indemnifying Person, which shall not be
unreasonably withheld or delayed. The Indemnifying Person shall not agree to any
settlement or the entry of a judgment in any action, suit or proceeding without
the prior written consent of the Indemnified Person, which shall not be
unreasonably withheld (it being understood that it is reasonable to withhold
such consent if, among other things, the settlement or the entry of a judgment
(A) lacks a complete release of the Indemnified Person for all liability with
respect thereto or (B) imposes any liability or obligation on the Indemnified
Person).
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SECTION 6.7. SET-OFF. (a) Except with respect to claims based on fraud
committed by the Sellers or as otherwise provided in Section 6.10, recourse of
any Indemnified Person to the Escrow Funds (which for all purposes of this
Article 6 shall be deemed to include earnings thereon) shall be the sole and
exclusive remedy of the Indemnified Person against the Sellers pursuant to this
Article 6. Buyer shall set-off against the Escrow Funds any amounts payable to
Buyer pursuant to this Article 6 or under Section 2.3, 2.4, 2.5 or 2.6 (a
"Claimed Set-Off").
(b) Buyer shall give Sellers written notice of any Claimed Set-Off,
including a description of the event underlying the right to set-off and the
data supporting such Claimed Set-Off. Except in the case of a Claimed Set-Off
made pursuant to Section 2.3, 2.4, 2.5 or 2.6 of this Agreement, Sellers shall
have fifteen (15) days from the date of Buyer's written notice to object to the
Claimed Set-Off. Sellers shall make any objection to a Claimed Set-Off in
writing and shall forward the same to both Buyer and the Escrow Agent in the
case of a claim against the Escrow Funds (an "Escrow Claim"). If Sellers do not
timely object to an Escrow Claim, or in the case of any Claimed Set-Off made
pursuant to Section 2.3, 2.4, 2.5 or 2.6 of this Agreement, Buyer may give
unilateral written notice to the Escrow Agent to release a portion of the Escrow
Funds equivalent to the Claimed Set-Off, which written notice Sellers hereby
acknowledge to be sufficient to authorize the Escrow Agent to release the Escrow
Funds as directed by Buyer.
(c) If Sellers do timely object to a Claimed Set-Off, except in the case
of a Claimed Set-Off made pursuant to Section 2.3, 2.4, 2.5 or 2.6 the Escrow
Agent shall not release any portion of the Escrow Funds to Buyer until the
Escrow Agent receives instructions which are signed by Buyer and Sellers, or
until the dispute has been definitively resolved by court proceedings. If
Sellers do timely object and Sellers and Buyer are unable to agree to the amount
of the Claimed Set-Off within thirty (30) days, either Sellers or Buyer may
institute court proceedings for a determination of the amount of the Claimed
Set-Off. If Sellers object to a Claimed Set-Off, or during the pendency of
Sellers' fifteen (15) day notice period, Buyer may require the Escrow Agent to
retain a portion of the Escrow Funds to cover an Escrow Claim by giving the
Escrow Agent unilateral written notice to retain said portion of the Escrow
Funds, which written notice Sellers hereby acknowledge to be sufficient to
authorize the Escrow Agent to retain said portion of the Escrow Funds as
directed by Buyer, and in which event the Escrow Agent shall not release that
portion of the Escrow Funds to Sellers in accordance with the Escrow Agreement
until the Escrow Agent receives instructions which are signed by both Buyer and
Sellers, or until the dispute has been definitively resolved by court
proceedings.
SECTION 6.8. SURVIVAL. All representations and warranties made by Sellers
and Buyer herein or in any certificate, document, writing or instrument
delivered pursuant to this Agreement, shall survive the Closing for a period of
one year following the Closing Date. No claim may be asserted by any party under
this Article 6 after the one year anniversary of the Closing Date, except for
claims based on fraud, and provided that claims as to which written notice is
given prior to such date may be prosecuted thereafter.
SECTION 6.9. LIMITATIONS ON INDEMNIFICATION BY THE SELLER PARTIES.
Notwithstanding any other provision of this Article 6, Sellers shall not be
liable to Buyer (a) under Section 6.2(a) for breach of representations and
warranties until the total of all Losses with respect to such matters exceeds
$50,000 ("Threshold"), after which Sellers shall be liable for the amount of all
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Losses back to dollar one; and (b) under Section 6.2 or 6.4 for Losses in excess
of the Escrow Funds, except for claims based on fraud.
SECTION 6.10. EXCLUSIVE REMEDY. The provisions of this Article 6 set forth
the sole and exclusive remedy of the parties hereto with respect to any matter
or event described in this Article 6, provided however that the provisions of
this Article 6 shall not limit the obligations, liabilities, rights or remedies
of the parties pursuant to any separate agreement entered into pursuant to this
Agreement, Section 2.3(d) (in the event that the Escrow Funds are not sufficient
to satisfy a Reduction in Net Current Assets), Section 2.4(b) (in the event that
the Escrow Funds are not sufficient to satisfy a Receivable Shortfall), Section
2.5 (in the event that the Escrow Funds are not sufficient to satisfy an
Increase in Capped Liabilities), Section 2.6 (in the event that Sellers have
obligations in excess of the Lease Amount withdrawn from the Escrow Funds),
Article 5 or Buyer's rights and remedies with respect to the breach of Section
5.2.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and delivered personally or sent by
overnight delivery, postage prepaid to the addresses set forth below:
To Buyer:
RD Acquisition Corp.
000 Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: Chief Financial Officer
With a copy to:
Xxxxxx X. Xxxxxxx, Esq.
Vice President & General Counsel
Open Solutions Inc.
000 Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
To any Seller:
Xxxxx X. Xxxxxx
00000 Xxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
SECTION 7.2. ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto) constitutes the sole understanding of the parties with respect
to the subject matter hereof.
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SECTION 7.3. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.4. PARTIES IN INTEREST; ASSIGNMENT. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
successors and assigns, provided that no Seller may assign or delegate this
Agreement or any right, liability or obligation hereunder without Buyer's prior
written consent and any assignment or delegation by any Seller without the prior
written consent of Buyer shall be void and of no force or effect.
SECTION 7.5. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Connecticut,
without regard to its conflicts of laws principles.
SECTION 7.6. SCHEDULES AND HEADINGS. All of the schedules and exhibits
attached hereto are a part of this Agreement and all of the matters contained
therein are incorporated herein by reference. The descriptive headings of the
several Articles and Sections of this Agreement are inserted for convenience
only and do not constitute part of this Agreement.
SECTION 7.7. AMENDMENT. This Agreement may be amended only by the parties
hereto by any instrument in writing signed by or on behalf of each of the
parties hereto.
SECTION 7.8. WAIVER. Any term or provision of this Agreement may be waived
only in writing by the party or parties who are entitled to the benefits being
waived.
SECTION 7.9. JOINT AND SEVERAL LIABILITY. All obligations and liabilities
of Sellers under this Agreement shall be the joint and several obligations and
liabilities of all of Sellers.
SECTION 7.10 PRESS RELEASE. No Seller shall make any public announcement
or issue any press release relating to this Agreement, or any related agreements
or transactions contemplated hereby or thereby, provided however, that nothing
herein shall prevent Sellers from making any disclosure required by law.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK; THE NEXT
SUCCEEDING PAGE IS A SIGNATURE PAGE.]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Stock
Purchase Agreement as of the date first above written.
SELLERS:
/s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx TRUSTEE
------------------------------------------
Xxxx X. Xxxxxx, as
Trustee for The Xxxxx X. Xxxxxx
Family Trust, u/a 10/27/2000
/s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, as Trustee for The
Xxxxx X. Xxxxxx Charitable Remainder
Unitrust, u/a 6/23/2004
BUYER:
RD ACQUISITION CORP.
By: /s/ Xxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Secretary, Treasurer
Omitted Schedules
Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, Open Solutions
Inc. (the "Company") has, with respect to the Stock Purchase Agreement, dated as
of July 8, 2004, among Xxxxx X. Xxxxxx, Xxxx X. Xxxxxx, as trustee of the Xxxxx
X. Xxxxxx Family Trust, Xxxxx X. Xxxxxx, as trustee of the Xxxxx X. Xxxxxx
Charitable Remainder Unitrust and RD Acquisition Corp., omitted to file the
schedules listed in the table of contents herewith. These schedules will be
supplementally furnished to the Commission upon request.
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