Exhibit 10.24
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement dated as of the 14th day of September,
2001 (this "Agreement"), by and among Xxxx Xxxxxxx & Xxxx, Ltd., a New York
corporation, having its principal offices at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx,
Xxx Xxxx 00000 (the "Buyer"), 5B Technologies Corporation, a Delaware
corporation, having its principal offices at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx,
Xxx Xxxx 00000 ("Parent"), Galt Corporation, a Delaware corporation, having its
principal offices at 1660 Xxxx Xxxxxxx Road, Melville, New York 11747 (the
"Company"), Xxxx Xxxxxxxxx, an individual residing at 000 Xxxxxxxxx Xxxxx,
Xxxxxx, XX 00000 ("Sheinwald"), Xxxxxxx Xxxxxx, an individual residing at 0 Xxx
Xxxxxx Xxxx, Xxxxx Xxxxxx, XX 00000 ("Xxxxxx" together with Sheinwald, the
"Principals").
W I T N E S S E T H:
WHEREAS, the Principals control entities which own the majority of all
of the issued and outstanding equity capital of the Company;
WHEREAS, the Company is the owner of the Acquired Assets;
WHEREAS, the Buyer is a wholly-owned subsidiary of the Parent; and
WHEREAS, the Company wishes to sell to the Buyer, and the Buyer wishes
to purchase from the Company, the Acquired Assets, and assume the Assumed
Liabilities upon the terms and subject to the exclusions and conditions set
forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual premises,
representations, warranties and covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
The following terms shall have the following meanings for the
purposes of this Agreement:
"Acquired Assets" shall have the meaning provided in Section
2.1.
"Affiliate" shall mean, with respect to any specified Person,
any other Person which, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person. For purposes of this definition "controls", "is controlled by" and
"under common control with" means the possession of the power to direct or
cause the direction of the management and policies of a specified Person through
the ownership of voting securities or otherwise.
"Agreement" shall mean this Purchase Agreement , including all
exhibits and schedules hereto, as it may be amended from time to time in
accordance with its terms.
"Assumed Contracts" shall have the meaning provided in Section
2.1(f).
"Assumed Liabilities" shall have the meaning provided in
Section 2.3.
"Audited Financials" shall have the meaning provided in
Section 5.5(a).
"Xxxx of Sale" shall mean the xxxx of sale, dated the Closing
Date, between the Buyer and the Company, the form of which is attached hereto as
Exhibit A.
"Books and Records" shall have the meaning provided in Section
5.4.
"Bulk Sales Laws" shall mean the Bulk Sales Laws of any state,
city or municipality, or any federal or state laws governing fraudulent
conveyances.
"Business" shall mean the business of the Company as currently
conducted.
"Buyer Parties" shall have the meaning provided in Section
9.1(a).
"Buyer" shall have the meaning provided in the preamble to
this Agreement.
"Buyer Disclosure Schedule" shall have the meaning provided in
Section 6.5(a).
"Claim Notice" shall have the meaning provided in Section
9.1(c)(i).
"Closing" shall have the meaning provided in Section 4.1.
"Closing Date" shall have the meaning provided in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended,
modified or supplemented from time to time.
"Company" shall have the meaning provided in the preamble to
this Agreement.
"Company Common Stock" shall mean the Common Stock of the
Company, par value $.01 per share.
"Company Preferred Stock" shall mean the preferred stock of
the Company, par value $.01 per share.
"Common Stock" shall mean the common stock, $.04 par value per
share, of Parent.
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"Confidential Information" shall mean the proprietary and
confidential information of either party, including, without limitation, all
information, know-how, marketing and development plans, techniques and
materials, client names and other information related to clients, price lists,
pricing policies and financial information, and methods of production, vendor
agreements, use, operation and application: (i) which are not generally known to
the public; and (ii) in which such Person has rights.
"Contaminant" shall have the meaning provided in Section
5.16(a).
"Contracts" shall have the meaning provided in Section 5.11.
"Core Software Products" shall have the meaning provided in
Section 5.10(f).
"Credit Agreement" shall mean that certain Credit Agreement
dated May 24, 2001, between Connecticut Bank of Commerce and 5B Technologies
Group, Inc., as amended and supplemented from time to time and all other
documents, instruments, schedules, and exhibits related thereto.
"Dispute Period" shall have the meaning provided in Section
9.1(c)(i).
"DOL" shall mean the Department of Labor, as provided in
Section 5.14(d).
"Environmental Laws" shall have the meaning provided in
Section 5.16(a).
"ERISA" shall have the meaning provided in Section 5.14(b).
"ERISA Affiliate" shall have the meaning provided in Section
5.16(a).
"Escrow Agent" shall have the meaning provided in Section 3.2.
"Escrow Agreement" shall mean the Escrow Agreement between
Parent, Buyer, Company, and Escrow Agent, in the form attached hereto as Exhibit
B.
"Escrow Amount" shall have the meaning provided in Section
3.2.
"Excluded Assets" shall have the meaning provided in Section
2.2.
"Financial Statements" shall have the meaning provided in
Section 5.5(a).
"GAAP" means U.S. generally accepted accounting principles,
consistently applied.
"Governmental Permits" shall have the meaning provided in
Section 5.19.
"Indebtedness" shall mean any debt, loan, lease, guaranty or
any other commitment to lend or borrow funds.
"Indemnified Party" shall have the meaning provided in Section
9.1(c).
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"Indemnifying Party" shall have the meaning provided in
Section 9.1(c)(i).
"Indemnity Notice" shall have the meaning provided in Section
9.1(c)(v).
"Intellectual Property Rights" shall have the meaning provided
in Section 5.10.
"Interim Balance Sheet" shall have the meaning provided in
Section 5.5(a).
"Interim Financial Statements" shall have the meaning provided
in Section 5.5(a).
"Inventory" shall have the meaning provided in Section 2.1(c).
"IRS" shall have the meaning provided in Section 5.14(b).
"Laws" shall have the meaning provided in Section 5.18.
"Leased Real Property" shall have the meaning provided in
Section 5.10(a).
"Lien" shall mean any mortgage, lien, charge, restriction,
pledge, security interest, option, lease or sublease, claim, right of any third
party, easement, encroachment or encumbrance of any kind or any agreement or
arrangement, whether oral or written, having similar effect.
"Material Adverse Effect" shall have the meaning provided in
Section 5.6(b).
"Office Action" shall mean any official action by the United
States Patent and Trademark Office reporting that a particular trademark or
service xxxx application is not entitled to federal registration for any reason
and advising of the reasons therefor and of any formal requirements or
objections with respect thereto.
"Order" shall have the meaning provided in Section 5.3.
"Parent" shall have the meaning provided in the preamble to
this Agreement.
"Parent Shares" shall mean (i) 300,000 shares of Common Stock
referred to in Secton 3.1(i) hereof, (ii) the shares of Common Stock to be
issued upon conversion of the Preferred Series F Stock and (iii) the Common
Stock to be issued upon exercise of the Parent Warrant.
"Parent's SEC Reports" shall have the meaning provided in
Section 6.7.
"Parent Warrant" shall mean a warrant or warrants to purchase
300,000 shares of Common Stock, in the form attached hereto as Exhibit C.
"Person" shall mean any individual, corporation,
proprietorship, firm, partnership, limited liability company, limited
partnership, trust, association or other entity.
"Plan" shall have the meaning provided in Section 5.14(a).
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"Preferred Stock" shall mean the preferred stock of the
Company, par value $.01 per share.
"Preferred Series F Stock" shall mean 300,000 shares of Series
F Convertible Preferred Stock, par value $.01 per share, of Parent with the
rights, preferences, restrictions and limitations as set forth in the
Certificate of Designation attached hereto as Exhibit D.
"Prepaid Expenses" shall have the meaning provided in Section
2.1(d).
"Principals" shall have the meaning provided in the preamble
to this Agreement.
"Proceeding" shall have the meaning provided in Section 5.12.
"Purchase Price" shall have the meaning provided in Section
3.1.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated the Closing Date, with respect to the Parent Shares in
the form attached hereto as Exhibit E.
"Related Agreements" shall mean any contract or agreement
which is or is to be entered into at the Closing or otherwise pursuant to this
Agreement, including, without limitation, the Xxxx of Sale, Escrow Agreement and
Registration Rights Agreement. The Related Agreements executed by a specified
Person shall be referred to as "such Person's Related Agreements," "its Related
Agreements" or another similar expression.
"Release" shall have the meaning provided in Section 5.18(a).
"Resolution Period" shall have the meaning provided in Section
9.1(c)(iv).
"Return" means any report, return, statement, estimate,
declaration, form, or other information required to be supplied to a taxing
authority in connection with Taxes.
"Retained Liabilites" shall have the meaning provided in
Section 2.3(b)
"Disclosure Schedule" shall have the meaning provided in
Article V.
"Sheinwald" shall have the meaning provided in the preamble to
this Agreement.
"Tax" or "Taxes" means taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or, including, without
limitation, income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes or
other governmental taxes imposed or payable to the United States, or any state,
county, local, or foreign government or subdivision or agency thereof, and in
each instance such term shall include any interest, penalties, or additions to
tax attributable to any such Tax.
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"Software Products" shall have the meaning provided in Section
5.10(a)(i).
"Third Party Claim" shall have the meaning provided in Section
9.1(c)(i).
"Trademarks" shall have the meaning provided in Section
2.1(a).
"WARN Act" shall have the meaning provided in Section 5.16(c).
ARTICLE II
SALE AND PURCHASE
2.1 SALE AND PURCHASE OF ACQUIRED ASSETS.
Subject to the terms and conditions of this Agreement, at the
Closing, the Company shall sell, transfer, assign, convey and deliver to the
Buyer, and the Buyer shall purchase, acquire and take assignment and delivery of
all right, title and interest in, to and under all of the assets owned by the
Company, other than the Excluded Assets (all of the assets sold, assigned,
transferred and delivered to the Buyer hereunder being referred to collectively
herein as the "Acquired Assets" and are set forth below and include, without
limitation, the assets set forth on Schedule 2.1 attached hereto):
(a) all of the following intangible assets which are owned by
the Company and used in connection with the operation of or relating to the
Business throughout the world: (a) registered and unregistered trademarks and
service marks (including common law rights) and applications for trademark and
service xxxx registrations, in each case which are related to the Business; (b)
trade names related to the Business (all assets in subparagraph (a) and (b)
which shall include those items identified on Schedule 2.1 hereto including,
without limitation, subject to Section 7.2(b) the trade name "Galt Corporation"
collectively referred to as the "Trademarks"); (c) registered and unregistered
copyrights and applications for copyright registrations related to the Business;
(d) proprietary concept information, including, without limitation, business and
marketing plans, marketing materials (including without limitation, brochures,
folders, special event planning guides and collateral materials) a reproducible
copy of the Companys' web page, advertising concepts, designs and slogans, in
each case which are related to the Business, including audio and video and other
production products utilized to create any of the foregoing; and (e) all
enhancements, improvements and derivative works of each of the foregoing, in
each case, which are used in connection with the Business;
(b) all machinery, fixtures, equipment, vehicles,
transportation and storage facilities, furniture, tools, stores, spare parts and
other tangible personal property utilized in the Business owned by the Company
and the Company's rights in any of the foregoing items leased or licensed by the
Company and used in the Business;
(c) all inventory (including raw materials, work-in-process,
and finished goods), and supplies (including office, packaging, shop and other
supplies) on hand and used in connection with the Business (the "Inventory");
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(d) all items of pre-paid expenses relating to the Business,
if any ("Pre-paid Expenses");
(e) all licenses with respect to patents, inventions, trade
secrets, trademarks, technology, know-how, specifications, designs, drawings,
processes, quality control data, and other technical and proprietary information
relating to the Business;
(f) the Company's rights and interests in and to (subject to
the Buyer's assumption of the obligations thereunder arising on and after the
Closing) all contracts, sales orders, purchase orders, equipment leases,
personal property leases, licenses, forward commitments for supplies or
materials and other contracts, arrangements and agreements, whether written or
oral, which were entered into in the ordinary course of business with customers,
suppliers, sales representatives, distributors, agents, lessors, lessees,
licensors, licensees, consignors, consignees and other third parties, including,
without limitation, all material contracts listed on Schedule 2.1 (f) hereto,
all of which relate to the Acquired Assets and the operation of the Business
(the "Assumed Contracts");
(g) the Company's rights, to the extent assignable, under all
third party warranties and guarantees, whether express or implied, as they
relate to the Business;
(h) all claims, rights, setoffs and credits of Company
relating to the Assumed Contracts or the Acquired Assets;
(i) all separately maintained (as well as relevant portions of
those which are not separately maintained) books, records and files relating to
the ownership, occupancy, use or operation of, the Business or the Acquired
Assets, including, without limitation, customer lists, vendor lists, catalogs
and accounting and tax records;
(j) all licenses, approvals, registrations, authorizations and
permits pertaining to the ownership, occupancy, use or operation of the Business
or the Acquired Assets; and
(k) all accounts receivables (whether or not invoiced) with
respect to goods sold or services rendered within the 90 day period prior to the
Closing Date, including, without limitation, those set forth on Schedule 2.1(k)
hereof.
2.2 EXCLUDED ASSETS.
Notwithstanding anything to the contrary set forth in this
Agreement, there shall be excluded from the Acquired Assets (the "Excluded
Assets"): (i) any accounts receivable due, owing, accrued or payable to the
Company (whether or not invoiced) with respect to goods sold or services
rendered during the period up to the Closing Date which accounts receivable are
in excess of 90 days past due on the Closing Date; (ii) any assets as set forth
on Schedule 2.2 hereto and (iii) any and all assets of the Company not utilized
in or relating to the Business.
2.3 ASSUMPTION OF LIABILITIES.
(a) On and after the Closing Date, the Buyer shall assume, and
agrees and undertakes to pay, perform and discharge, as and when due, each of
the obligations, responsibilities, liabilities and debts with respect to the
Business which are specifically described
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in Schedule 2.3 hereto and the obligations under the Assumed Contracts being
assigned to Buyer referred to in Schedule 2.1 hereof (all of which are
hereinafter referred to collectively as the "Assumed Liabilities").
(b) Notwithstanding anything to the contrary contained herein,
Assumed Liabilities shall not include any liability which is not identified as
an Assumed Liablity in Schedule 2.3, including, without limitation, the
following liabilities which shall be retained by the Company (the "Retained
Liabilities"):
(i) legal, accounting, brokerage, finder's fee, taxes
or other expenses incurred by the Company in connection with
this Agreement or the consummation of the transactions
contemplated hereby;
(ii)liabilities or obligations incurred by the
Company after the Closing;
(iii) any obligations or liability relating to any
litigation, actions, grievances, arbitrations, suits,
proceedings, investigations or claims arising out of or
relating to any of the Company's activities or any of the
Company's operation of the Business or ownership or use of the
Acquired Assets or arising out of any of the Assumed
Liabilities or Retained Liabilities prior to the Closing Date,
or any dispute, the material elements of which accrued prior
to the Closing, whether or not listed on any Schedule hereto;
(iv) any liability for any foreign, federal, state or
local taxes accrued to (or which should have been accrued
pursuant to GAAP) or incurred by any of the Company prior to
the Closing, or as a consequence of the transactions
contemplated hereby;
(v) all liabilities to employees of the Company with
respect to any claims, whether contingent or otherwise,
relating to labor relations and compliance with fair
employment practices prior to the Closing or any salary,
bonuses, commissions, benefits or other amounts payable from,
or contributions to, any benefit plans or arrangements,
payments of insurance premiums or other compensation matters
for or with respect to the period prior to the Closing Date;
(vi) all liabilities, costs or obligations under or
which relate to or are associated with any employee benefit
plans or arrangements, including the Employee Plans sponsored
by any of the Company or a Common Control Entity (as
determined under Section 414(b) or (c) of the Code) either
before or after the Closing;
(vii) all liabilities to the extent they are
associated with or relate to any of the Excluded Assets,
whether arising from events occurring prior to or after the
Closing Date;
(viii) all liabilities or obligations to any
Affiliates of Company arising prior to or after the Closing
Date;
(ix) all liabilities for severance obligations, if
any, to any employee of the Company who does not become an
employee of the Buyer;
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(x) all accounts payable for goods and services,
including customer and third party credits, trade accounts
payable and accrued expenses and other debts or sums due,
owing, accrued or payable with respect to any of the Company's
activities and the operation of the Business prior to the
Closing Date, except those accounts payable specifically
assumed by the Buyer as set forth in Schedule 2.3 hereto; and
(xi)any liabilities or obligations of the Company or
relating to the Business or the Acquired Assets not expressly
assumed by the Buyer as set forth in Schedule 2.3 hereto.
2.4 INFORMATION AND RECORDS.
Following the Closing, the Company shall also provide to the
Buyer, copies of, or access to, all technical information, confidential
information, price lists, marketing information, sales records, customer lists,
documents related to the Business and the Acquired Assets, agreements with
vendors, suppliers and manufacturers and any other entities which do business
with the Company with respect to the Business, and any other business records of
the Company that would be useful to the Buyer.
ARTICLE III
CONSIDERATION
3.1 PAYMENT OF PURCHASE PRICE.
At the Closing, in consideration for the Acquired Assets, the
Company shall be issued: (i) 300,000 shares of Common Stock, (ii) 300,000 shares
of Preferred Series F Stock and (iii) the Parent Warrant (collectively, the
"Purchase Price").
3.2 ESCROW.
Notwithstanding anything to the contrary contained herein,
Parent shall withhold from the Purchase Price otherwise deliverable at the
Closing to the Company and the Principals and place into escrow a Parent Warrant
to purchase an aggregate of 150,000 shares of Common Stock the "Escrow
Warrants") in connection with the indemnification obligations of the Company and
the Principals under this Agreement and related documents and the transactions
contemplated hereby and thereby. The terms and conditions of such escrow are
more fully set forth in the Escrow Agreement. Parent shall deliver to Xxxxxxx X.
Xxxxxx, as Escrow Agent (the "Escrow Agent"), pursuant to the terms of the
Escrow Agreement, warrant certificates representing the Escrow Warrants.
3.3 ALLOCATION OF THE PURCHASE PRICE.
Subject to the provisions of this Section 3.3, the parties
will mutually agree upon the fair market value of the Acquired Assets in order
to establish a Purchase Price allocation for all foreign, federal, state and
local tax purposes. The Purchase Price for the Acquired Assets, consisting of
the Purchase Price under Section 3.1 and the Assumed Liabilities under Section
2.3(a), shall be allocated in accordance with Section 1060 of the Code. Neither
party will
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voluntarily take a position inconsistent therewith upon examination of any such
tax return or report, in any refund claim, in any litigation or otherwise with
respect to such tax returns. Each party agrees to prepare and timely file
Internal Revenue Service Form 8594 (Asset Acquisition Statement) detailing the
agreed upon allocation and any supplemental filing, if necessary, upon
determination of any adjustment to the Purchase Price hereunder, to cooperate in
every reasonable way with the other party in the preparation of such form(s) and
to furnish the other party with a copy of such form(s) prepared in draft within
a reasonable period before the due date for filing.
ARTICLE IV
CLOSING
4.1 CLOSING.
The closing of the transactions contemplated hereby (the
"Closing") shall be held at the offices of the Buyer or its counsel, or at such
other place as the parties may agree upon, at 10:00 a.m., E.S.T., on the next
business day following the date the conditions to Closing are satisfied or
waived, or as may be mutually agreed upon by the parties (the "Closing Date").
4.2 SELLER AT CLOSING.
At the Closing, the Company shall deliver to the Buyer:
(a) all of the Acquired Assets;
(b) a Xxxx of Sale duly executed by the Company;
(c) the following agreements duly executed by the Company and
Principals, as applicable: Registration Rights Agreement and Escrow Agreement,
in form and substance satisfactory to the parties thereto;
(d)an incumbency and specimen signature certificate with
respect to each of the officers of the Company executing this Agreement, the
other agreements required to be delivered pursuant to Sections 4.2(c) and (e)
hereof and any other documents, agreements, instruments and certificates
delivered hereunder, on behalf of the Company;
(e) the certificates required to be delivered pursuant to
Section 8.1(e) hereof;
(f) consent to assignment of all Intellectual Property Rights
and any other Material Contracts requiring consent in connection with
consummation of the transactions contemplated by this Agreement;
(g) all authorizations necessary for ownership, use and
operation the Acquired Assets; and
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(i) all such other documents, agreements, instruments,
consents, stock powers or certificates required to be delivered to Buyer under
the provisions of this Agreement or as Buyer may deem reasonably necessary or
appropriate to effect, evidence or facilitate the transactions contemplated by
this Agreement and vest in Buyer good and marketable title to the Acquired
Assets.
4.3 BUYER AT CLOSING.
At the Closing, Buyer shall:
(a) deliver the Purchase Price, which shall contain
appropriate restrictive legends;
(b) deliver to the Company or Principals, as applicable, the
following agreements duly executed by the Buyer: Registration Rights Agreement
and Escrow Agreement; and
(d) deliver to the Company or Principals, as applicable, all
such documents, agreements, instruments or certificates required to be delivered
to the Company and the Principals under the provisions of this Agreement or as
the Company and the Principals may deem reasonably necessary or appropriate to
effect, evidence or facilitate the transactions contemplated by this Agreement.
4.4 FURTHER ASSURANCES.
(a) From time to time, each of the Company and the Principals
shall, subject to the provisions of this Agreement, execute and deliver such
other good and sufficient instruments of sale, transfer, conveyance and
assignment as the Buyer may reasonably request in order to sell, convey,
transfer and assign to the Buyer, or to vest in the Buyer good and marketable
title to the Acquired Assets, or otherwise to carry out the purposes and intent
of this Agreement (including, without limitation, all Exhibits hereto). From
time to time Parent and the Buyer shall, at its expense, execute and deliver
such instruments and documents as the Company and the Principals may reasonably
request to cause the Buyer to assume the Assumed Liabilities or otherwise carry
out the purposes and intent of this Agreement (including, without limitation,
all Exhibits hereto).
(b) The Buyer, each of the Company and the Principals and
their respective Affiliates will cooperate with each other in connection with
any audit by the Internal Revenue Service or any other taxing authority
(including, without limitation, foreign, federal, state or local authorities) of
any tax return or report in connection with the Acquired Assets or the Business
(including the use, operation, or ownership thereof), the transferred employees
or the sale of the Acquired Assets hereunder. The party responsible for the
applicable tax liability shall have the sole right, at its sole expense, to
conduct any audit or any other proceeding before any such taxing authority, to
prepare and file any amended tax return, claim for refund or Tax Court petition,
to prosecute any such claim and to select counsel, to engage in litigation and
to consent to any settlement in connection therewith with respect to any taxes
for any such period, and the other party will execute and deliver, or cause to
be executed and delivered, to the responsible party or its designees, all
instruments (including, without limitation, powers of attorney)
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reasonably requested by the responsible party in order to implement the
provisions of this Section 4.4(b).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PRINCIPALS
Except as otherwise set forth in the Disclosure Schedule delivered to
the Buyer and Parent concurrently with the parties' execution of this Agreement
(the "Disclosure Schedule"), which statements contained in the Disclosure
Schedule shall also be deemed to be representations and warranties made and
given by the Company and the Principals under this Article V of this Agreement,
each of the Company, Green and Sheinwald hereby jointly and severally represents
and warrants to each of the Buyer and Parent as follows:
5.1 ORGANIZATION, STANDING AND QUALIFICATION; SUBSIDIARIES.
(a) The Company and each of its its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate or
other power and authority to own, lease and operate its properties and to carry
on its business as it is now being conducted. The Company and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which its property is owned, leased or operated or the
nature of the business conducted by it makes such qualification or licensing
necessary. None of the subsidiaries or Affiliates of the Company has any
material assets used in connection with the business of the Company. The Company
has delivered to Parent or its counsel complete and correct copies of its and
each of its subsidiaries' certificate of incorporation and bylaws, or other
governing documents, as currently in effect.
(b) All the outstanding shares of capital stock of, or other
equity interests in, each of the Company's subsidiaries have been validly issued
and are fully paid and non-assessable and are owned directly by the Company,
free and clear of all Liens and security interests of any kind or nature
whatsoever and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), except for restrictions imposed by applicable securities
laws, and no other person or entity has any rights of any nature to acquire any
securities of any of such subsidiaries. Neither the Company nor any of its
subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity.
5.2 AUTHORITY.
Each of the Company and the Principals has all requisite corporate or
other power and authority to enter into this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and the
Principals. This Agreement has been duly executed and delivered by each of the
Company and
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the Principals and the Related Agreements, when executed and delivered by each
of the Company and the Principals, will constitute legal, valid and binding
obligations of each of the Company and the Principals, enforceable against each
of the Company and the Principals in accordance with its respective terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability of
creditors' rights in general and subject to general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law). A vote of the Stockholders representing at least a majority of the
issued and outstanding Company Common Stock is sufficient to approve this
Agreement, the Related Agreements and the transactions contemplated hereby and
thereby under the certificate of incorporation and bylaws of the Company and
under the applicable provisions of Delaware law.
5.3 CONSENTS AND APPROVALS; NO VIOLATION.
Neither the execution and delivery of this Agreement or the Related
Agreements, nor the consummation of the transactions contemplated hereby or
thereby nor compliance by the Company and the Principals, as applicable, with
any of the provisions hereof or thereof will (i) conflict with or result in a
breach of the certificate of incorporation, bylaws or other constitutive
documents of the Company or any of its subsidiaries, (ii) conflict with or
result (with or without notice or lapse of time or both) in a default (or give
rise to any right of reimbursement, termination, cancellation, modification or
acceleration) under any of the provisions of any note, bond, lease, mortgage,
indenture, license, franchise, permit agreement or other instrument or
obligation to which the Company or any of their respective subsidiaries is a
party, or by which the Company or any of their respective subsidiaries or their
respective properties or assets may be bound or affected, except for such
conflict, breach or default as to which requisite waivers or consents are
described in Section 5.3 of the Disclosure Schedule and are required to be
obtained prior to Closing, (iii) violate any Law, statute, rule or regulation or
order, writ, injunction, judgment or decree (each, an "Order") applicable to any
of the Company or any of its subsidiaries or their respective properties or
assets or (iv) result in the creation or imposition of any Lien upon any
property or assets used or held in connection with the Business. Except as set
forth in Section 5.3 of the Disclosure Schedule, no consent or approval by, or
any notification of or filing with, or other action of any Person (governmental
or private) is required in connection with the execution, delivery and
performance by the Company and the Principals of this Agreement or any Related
Agreement. There is no Proceeding pending or, to the knowledge of the Company
and the Principals, threatened against the Company and the Principals or any of
their respective assets or properties or that seeks to prevent the consummation
of the transactions contemplated herein or in any Related Agreement.
5.4 BOOKS AND RECORDS.
The minute books and other similar records of the Company and each of
its subsidiaries made available to the Buyer and Parent prior to the execution
of this Agreement contain a true, correct and complete record of all actions
taken at all meetings and by all written consents in lieu of meetings of the
shareholders, the board of directors and committees of the board of directors of
the Company and each of its subsidiaries. The stock transfer ledger and other
similar records of the Company and each of its subsidiaries made available to
the Buyer and Parent prior to the execution of this Agreement accurately reflect
all record transfers prior to the execution of this Agreement in the capital
stock of the Company and each of its subsidiaries. No Books and
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Records of the Company and each of its subsidiaries have been recorded, stored,
maintained, operated or are otherwise wholly or partly dependent upon or held by
any means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means or access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company and each
of its subsidiaries. "Books and Records" means, collectively, all files,
documents, instruments, papers, books and records relating to the business or
the condition of a company, including financial statements, tax returns and
related work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, minute books, stock certificates and
books, corporate seals, stock transfer ledgers, contracts, licenses, customer
lists, computer files and programs, retrieval programs, operating data and plans
and environmental studies and plans.
5.5 FINANCIAL STATEMENTS; CERTAIN FINANCIAL INFORMATION.
(a) The Company has previously delivered to the Buyer and
Parent true and complete copies of the following financial statements: (i) the
unaudited consolidated balance sheet of the Company and its subsidiaries as of
June 30, 2001 and the related unaudited statements of operations and cash flows
of the Company for the six months then ended (such balance sheet as of June 30,
2001 (the "Interim Balance Sheet Date") is referred to herein as the "Interim
Balance Sheet" and all of the financial statements described in this clause (i)
are referred to as the "Interim Financial Statements"); and (ii) the audited
consolidated balance sheets of the Company and its subsidiaries for the fiscal
years ended December 31, 1999 (of the Company's predecessor GALT IT Solutions,
LLC) and December 31, 2000 and the related audited statements of operations and
cash flows of the Company and its subsidiaries for the fiscal years then ended,
certified by the Company's independent certified public accountants (the
"Audited Financials") (such financial statements described in clauses (i) and
(ii) and any notes thereto are hereinafter collectively referred to as the
"Financial Statements"). Each of the balance sheets included in the Financial
Statements is true, complete and correct, and each of the balance sheets
included in the Financial Statements presents fairly the financial position of
the Company and its subsidiaries as of the respective date of such balance
sheet, in each case in accordance with GAAP, subject, in the case of the Interim
Balance Sheet, to year-end adjustments and the absence of notes. Each of the
statements of operations and cash flows included in the Financial Statements is
true, complete and correct, and each of the statements of operations and cash
flows included in the Financial Statements presents fairly the results of
operations of the Company and its subsidiaries for the periods set forth
therein, in each case in accordance with GAAP, subject, in the case of the
Interim Balance Sheet, to year-end adjustments and the absence of notes. The
Financial Statements were compiled from the Books and Records regularly
maintained by management and used to prepare financial statements of the Company
and its subsidiaries in accordance with the principles stated therein. The
Companyhave maintained the Books and Records in a manner sufficient to permit
the preparation of the Financial Statements in accordance with GAAP. The Books
and Records fairly reflect the income, expenses, assets and liabilities of the
Company and its subsidiaries and provide a fair and accurate basis for the
preparation of the Financial Statements.
(b) All reserves established by the Company and its
subsidiaries are reflected on the Interim Balance Sheet and are adequate and are
stated in accordance with GAAP, including reserves for bad debt, vacation, sick
leave and similar paid leave. There are no loss
14
contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such Interim Balance Sheet.
5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in the Interim Balance Sheet, since
December 31, 2000, neither the Company nor any of its subsidiaries has:
(a) made any material change in its business or operations or
in the manner of conducting its business;
(b) suffered any event, violation or other matter that would
have a material adverse effect on the Business, condition (financial or
otherwise), assets, liabilities, operations , properties of the Company (a
"Material Adverse Effect"), and no fact or condition exists that would
reasonably be expected to cause a Material Adverse Effect in the future;
(c) suffered any material casualty loss (whether or not
insured) or condemnation or other taking;
(d) other than in the ordinary course of business, entered
into any employment or consulting contract or commitment (whether oral or
written) or compensation arrangement or employee benefit plan, or changed or
committed to change (including any change pursuant to any bonus, pension,
profit-sharing or other plan, commitment, policy or arrangement) the
compensation payable or to become payable to any of its officers, directors,
employees, agents or consultants, or made any pension, retirement,
profit-sharing, bonus or other employee welfare or benefit payment or
contribution;
(e) declared, paid or made, or set aside for payment or
making, any dividend or other distribution in respect of its common stock or
other capital stock or securities, or directly or indirectly redeemed, purchased
or otherwise acquired any of its common stock or other capital stock or
securities, or combined or subdivided or in any way changed any of the terms or
provisions of its common stock or other capital stock or securities;
(f) paid, loaned or advanced any amount to or in respect of,
or sold, transferred or leased any property or assets (real, personal or mixed,
tangible or intangible) to, or entered into, amended or waived any rights under
any transactions, agreements or arrangements with or for the benefit of, any of
its stockholders or any of their respective Affiliates, associates or family
members or any of its officers or directors or any Affiliate or associate of its
officers or directors;
(g) made or proposed any change in any accounting or tax
principles, practices or methods, including its accounts payable or accounts
receivable practices and terms (including reserves), except for such changes
which are both (x) required by GAAP or by Law and (y) set forth in Section
5.6(g) of the Disclosure Schedule;
(h) incurred any liability (whether known or unknown,
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise, and
whether due or to become due),
15
except for current liabilities reflected on the Interim Balance Sheet or
incurred after the date of the Interim Balance Sheet in the ordinary course of
business consistent with past practice and not exceeding $10,000 individually or
$25,000 in the aggregate;
(i) canceled or waived rights with respect to any debts or
other obligations owed to or claims held by the Company (including the
settlement of any claims or litigation or other Proceeding);
(j) accelerated or delayed collection of notes or accounts
receivable generated by the Business in advance of or beyond their regular due
dates or the dates when the same otherwise would have been collected;
(k) terminated or amended or suffered the termination or
amendment of any Contract pursuant to which the Company or any of its
subsidiaries would receive from any Person or pay to any Person more than
$10,000 in any calendar year or disposed of or permitted to lapse any item of
Intellectual Property Rights;
(l) made any capital expenditures or commitments for additions
to property, plant or equipment constituting capital assets in excess of $10,000
(or $25,000 in the aggregate);
(m) incurred any Indebtedness; and
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 5.6 or any action which, if taken after the
date of this Agreement without Parent's consent, would constitute a breach under
this Agreement.
5.7 REAL PROPERTY.
Neither the Company nor any of its subsidiaries have ever
owned, nor will own as of the Closing Date, any real property or any option to
acquire any real property.
5.8 LEASES.
(a) Except as set forth on Section 5.8 of the Disclosure
Schedule, the Company shall not incur a liability in excess of $10,000
individually or $25,000 in the aggregate as a result of the termination of
leases of real property as to which the Company or any of its subsidiaries is
the lessee or sublessee (the "Leased Real Property"), and shall be able to make
timely payments on any Leased Real Property it leases after the Closing Date.
(b), All leases of personal property as to which the Company
or any of its subsidiaries is the lessee or sublessee are listed in Section 5.8
of the Disclosure Schedule (true and correct and complete copies of which have
been delivered to the Parent). All such leases are in full force and effect, are
enforceable against the Company or its subsidiaries and the other parties
thereto and have not been modified or amended, except as set forth in Section
5.8 of the Disclosure Schedule. There exists no default by the Company or any of
its subsidiaries under any of such leases or, to the knowledge of the Company or
the Principals, by any other party thereto, nor any event which, with the giving
of notice or the passage of time or both, would constitute and event of default
by the Company or any of its subsidiaries or any other party thereunder, except
as set forth in Section 5.8 of the Disclosure Schedule. There are no leases of
16
personal property leased or subleased for the use or benefit of any Person other
than the Company or any of its subsidiaries to which the Company or any of its
subsidiaries is a party. The payments on the equipment leases which comprise the
Assumed Liabilities shall be current as of the Closing Date. Except as set forth
in Section 5.8 of the Disclosure Schedule all of the leases are current and no
payments are overdue as of the Closing Date and all of the amounts indicated as
owed in arrears for the leases identified in Section 2.3 are accurate and
complete. Any inaccuracy in Schedule 2.3 with respect to such amounts owed in
arrears which causes a loss to Buyer shall not be subject to the $100,000
limitation of Section 9.4.
5.9 TITLE TO ASSETS.
The Company and each of its subsidiaries has good, valid and
marketable title to all of the Acquired Assets. Except as set forth in Section
5.9 of the Disclosure Schedule, the Acquired Assets are free and clear of any
Lien. The Acquired Assets are in good operating condition, subject to ordinary
wear and tear, and constitute all of the assets, interests and rights held for
use or used in connection with the Business and constitute all those necessary
to operate the Business as it is currently conducted and in accordance with
recent historical practice. All Acquired Assets with a book value in excess of
$5,000 are listed in Section 2.1 of Disclosure Schedule.
5.10 INTELLECTUAL PROPERTY RIGHTS.
(a) The Company and each of its subsidiaries is the exclusive
owner of all right, title and interest in and to each of the following that are
used or licensed in the Business as currently conducted and are included in the
Acquired Assets:
(i) except for commercially available computer
software programs, all computer programs, databases and
associated system and user documentation (the "Software
Products");
(ii) all copyrights and copyright registrations owned
by the Company and any of its subsidiaries and Affiliates,
including, without limitation, all copyrights and copyright
registrations owned by the Company and any of its subsidiaries
and Affiliates listed in Section 2.1(a) of the Disclosure
Schedule and all copyrights and copyright registrations in and
to the Software Products or otherwise related to or used in
the Business;
(iii) all patentable inventions, patents and patent
applications owned by the Company, including, without
limitation, all inventions, patents and patent applications
owned by the Company and any of its subsidiaries and
Affiliates listed in Section 2.1(a) of the Disclosure Schedule
and all patentable inventions, patents and patent applications
relating to or embodied in the Software Products or otherwise
related to or used in the Business;
(iv) all Internet domain names and registrations,
trademarks, service marks and trade names, and the
applications to register any of them in federal, state or
foreign jurisdictions, including, without limitation, all
Internet domain names and registrations, trademarks, service
marks and trade names, and the applications to register any of
them in federal, state or foreign jurisdictions owned by the
Company and any of
17
its subsidiaries and Affiliates listed in Section 2.1(a) of
Disclosure Schedule and all Internet domain names and
registrations, trademarks, service marks and trade names, and
the applications to register any of them in federal, state or
foreign jurisdictions now used or contemplated to be used in
connection with the Software Products or otherwise related to
or used in the Business; and
(v) all trade secrets and other proprietary rights,
including those applicable to any of the Software Products,
necessary or useful for the operation of the Business as
currently conducted.
These items referred to in subparagraphs (i) through (v) of this Section 5.10(a)
are herein referred to collectively as the "Intellectual Property Rights."
(b) Section 2.1(a) of the Disclosure Schedule sets forth a
list of all licenses and similar agreements between the Company or any of its
subsidiaries and Affiliates, on the one hand, and third parties, on the other
hand, under which any of the Company or any of its subsidiaries and Affiliates
are granted rights to make, use, sell, reproduce, distribute, manufacture,
prepare derivative works based upon, perform or display publicly, or license
items embodying the patent, copyright, trade secret, trademark or other
proprietary rights of such third parties for use in the Business. None of the
Company or any of its subsidiaries or Affiliates is, nor as a result of the
execution and delivery of this Agreement or any Related Agreement or the
performance of its obligations hereunder or thereunder will be, in violation of
or lose any rights pursuant to any license or similar agreement described in
Section 2.1(a) of the Disclosure Schedule. Except as set forth in Section 2.1(a)
of the Disclosure Schedule, no Person is entitled to any royalty, fee or other
payment with respect to any such agreement or any Intellectual Property Rights
for use in the Business.
(c) Section 2.1(a) of the Disclosure Schedule sets forth a
list of all agreements under which the Company or any of its subsidiaries or
Affiliates have granted rights to third parties under the Intellectual Property
Rights. Except as set forth in Section 2.1(a) of the Disclosure Schedule, all
such rights granted have been and are non-exclusive. True, correct and complete
copies of all such agreements have been delivered to the Buyer .
(d) No claims with respect to any Intellectual Property Right
have been asserted or, to the knowledge of any of the Company or the Principals
, are threatened by any Person, nor do any of the Company or the Principals know
of any valid grounds for any bona fide claims against the use by the Company or
any of its subsidiaries or Affiliates of any Intellectual Property Rights. All
Internet domain names granted and issued patents listed in Section 2.1(a) of the
Disclosure Schedule, all trademarks, trade names and service marks and all
applications to register the same listed in Section 2.1(a) of the Disclosure
Schedule, and all copyrights and copyrights registrations listed in Section
2.1(a) of the Disclosure Schedule are valid, enforceable and subsisting. As of
the date hereof, there has not been and there is not any unauthorized use,
infringement or misappropriation of any of the Intellectual Property Rights by
any third party, employee, consultant or former employee or consultant of any of
the Company or any of its subsidiaries or Affiliates.
18
(e) No Intellectual Property Rights are subject to any Order
restricting in any manner the use or licensing thereof by the Company or any of
its subsidiaries or Affiliates. None of the Company or any of its subsidiaries
or Affiliates has entered into any agreement to indemnify any other Person
against any charge of infringement of any third party intellectual property
rights. Neither the Company nor any of its subsidiaries or Affiliates have
entered into any agreement granting any third party the right to bring
infringement actions or otherwise to enforce rights with respect to any
Intellectual Property Rights. The Company has the exclusive right to file,
prosecute and maintain all applications and registrations with respect to the
Intellectual Property Rights.
(f) Each of the Software Products set forth in Section 2.1(a)
of the Disclosure Schedule is the most recent version of such Software Product.
Except as set forth in Section 2.1(a) of the Disclosure Schedule, each of the
Software Products set forth in Section 2.1(a) of the Disclosure Schedule (the
"Core Software Products") conforms substantially to the functional and
operational specifications set forth in the respective user manuals and other
documentation for such Core Software Product. The Company owns and has
possession of all such technical documentation and software tools (including, by
way of example and not limitation, all source code, compilers, system
documentation, statements of principles of operation and schematics, as
applicable) for each of such Core Software Products as are necessary and
sufficient for the continued effective use, further development and maintenance
of the latest version of each such Core Software Product. The current status of
such conformity is set forth in brackets immediately following the name and
version number of each such Core Software Product in Section 2.1(a) of the
Disclosure Schedule.
(g) Except as set forth in Section 2.1(a) of the Disclosure
Schedule, there are no restrictions on the direct or indirect transfer of any
Contract, or any interest therein, held by the Company or any of its
subsidiaries or Affiliates in respect of the Intellectual Property Rights or the
Software Products. The Company has delivered to the Buyer and Parent prior to
the date hereof documentation with respect to any invention, process, design,
computer program or other know-how or trade secret included in the Intellectual
Property Rights, which documentation is accurate in all material respects and
reasonably sufficient in detail and content to identify and explain such
invention, process, design, computer program or other know-how or trade secret
and to facilitate its full and proper use without reliance on the special
knowledge of any Person. Each of the Company and its subsidiaries and Affiliates
has taken the necessary security and other measures to protect the secrecy,
confidentiality and value of its trade secrets and other Intellectual Property
Rights.
(h) No former or present employee, consultant, officer or
director of the Company or any of its subsidiaries or Affiliates holds any
right, title or interest, directly or indirectly, in whole or in part, in or to
any Intellectual Property Rights.
(i) The Intellectual Property Rights are sufficient and
adequate for the Company to carry on the Business as presently constituted.
5.11 CONTRACTS.
Schedule 2.1(f) of the Disclosure Schedule contains a true and
complete list of all written and oral (and a brief description of such oral
agreements) contracts, agreements and other
19
instruments which are included in the Acquired Assets (collectively,
"Contracts") to which any of the Company or its subsidiaries or Affiliates is a
party (i) relating to Indebtedness or guaranty of performance or warranty of
products or services, (ii) of duration of six months or more from the date
hereof and not cancelable by the Company without material penalty on 30 days' or
less notice, (iii) relating to commitments in excess of $10,000, (iv) relating
to the employment or compensation of any director, officer, employee, consultant
or other agent of the Company, (v) relating to the sale or other disposition of
any assets, properties or rights, (vi) relating to the lease or similar
arrangement of any machinery, equipment, motor vehicles, furniture, fixture or
similar property, (vii) to which any federal, state or local governmental agency
or authority is a party, (viii) between the Company and any stockholder of the
Company or any Affiliate of any stockholder of the Company, (ix) that restricts
the operation of the Company anywhere in the world, (x) pursuant to which the
Company is or may be obligated to make payments, contingent or otherwise, on
account of or arising out of prior acquisitions or sales of businesses, assets
or stock of other Persons, (xi) providing for the license to the Company by
third parties of rights to use software or other technology or providing for the
performance of development services by or for any third party; or (xii) that is
otherwise material to the Business or entered into other than in the ordinary
course of business consistent with past practice. Except as will be set forth in
Section 2.1(f) of the Disclosure Schedule, none of the Company or its
subsidiaries or Affiliates is in default under any such Contract, and there has
been no event that with the giving of notice or the passage of time, or both,
would constitute such a default or, to the knowledge of the Company or the
Principals, any default, or event that with the giving of notice or the passage
of time, or both, would constitute such a default, by any other party thereto,
existing with respect to any such Contract except for such defaults which, in
the aggregate, would result in loss or liability to the Company of no more than
$10,000, and none of the Company or the Principals intends, and has not received
notice that any party to any such Contract intends, to terminate, amend, not
renew or cancel any such Contract. Each of the Contracts listed in Section
2.1(f) of the Disclosure Schedule is in full force and effect and constitutes a
legal, valid and binding obligation of the Company or its subsidiaries or
Affiliates and, to the Company's knowledge, the other parties thereto,
enforceable in accordance with its terms. The Company has delivered to the Buyer
true and complete copies of all written Contracts described in Section 2.1(f) of
the Disclosure Schedule. The Company is not currently obligated to pay or is
liable for any amounts under any of the Contracts, nor are the Company aware of
any facts or circumstances that could result in any claim under any Contract
with respect to periods ending on or before the date of this Agreement, in each
instance, for which an accrual on the Financial Statements is or would have been
required under GAAP and has not been made. Section 2.1(f) of the Disclosure
Schedule sets forth each contract which is an Assumed Liability for which the
Company has received a partial or full payment and the amount outstanding for
payment to the Company at the Closing Date. All of the contracts and agreements
set forth in Schedule 2.1(f) of the Disclosure Schedule represent all of the
written and oral contracts and agreements between the Company and its customers.
Schedule 5.11 of the Disclosure Schedule accurately sets forth the names of all
customers with contracts for which works are in progress, any deposits or
pre-paid amounts, number of hours worked, milestones reached to date, for
performance vs. budget and payments remaining. Any inaccuracy in Schedule 5.11
which causes a loss to Buyer in excess of $10,000 shall not be subject to the
$100,000 limitation of Section 9.4.
20
5.12 LITIGATION.
There are no, nor have there been since January l999 any, (i)
investigations pending or, to the knowledge of the Company or the Principals,
threatened affecting or potentially affecting the Company or any of its
subsidiaries or Affiliates or the Business, (ii) actions, causes of action,
claims, suits, proceedings, arbitrations, mediations or other alternative
dispute resolution procedures, orders, writs, injunctions or decrees (each, a
"Proceeding") entered against, involving, pending or, to the knowledge of the
Company or the Principals, threatened against any of the Company or any of its
subsidiaries or Affiliates or, in each case affecting or potentially affecting
the operations of the Company or any of its subsidiaries or Affiliates, the
business, assets, properties or prospects of the Company or any of its
subsidiaries or Affiliates or the Business, at law or in equity, or before or by
any governmental entity, and (iii) existing or prior facts, circumstances or
conditions that could reasonably form the basis for a Proceeding against any of
the Company or any of its subsidiaries or Affiliates that would affect or
potentially affect the operations of the Company, the Business, Assumed Assets ,
properties of the Company or any of its subsidiaries or Affiliates or the
Business. None of the Company or any of its subsidiaries or Affiliates is in
default with respect to any Order of any governmental entity. The Company has
delivered to the Buyer accurate and complete copies of all documentation
relating to each Proceeding.
5.13 INSURANCE.
All insurance policies relating to the Business are in full
force and effect and shall remain in full force and effect through the Closing
Date and thereafter (until the scheduled expiration date). With respect to all
policies, all premiums currently payable or previously due have been paid, and
no notice of cancellation or termination has been received by the Company with
respect to any such policy. All such policies are sufficient for compliance with
all requirements of law and of all Contracts to which the Company or any of its
subsidiaries is a party or otherwise bound and are valid, outstanding,
enforceable and, to the knowledge of the Company, collectible policies and
provide insurance coverage that is adequate and customary for businesses of
similar size and type. Complete and accurate copies of all such policies and
related documentation have previously been delivered to the Buyer .
5.14 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 5.14 of the Disclosure
Schedule, neither the Company nor any ERISA Affiliate (as defined below)
maintains or contributes to, has ever maintained or contributed to, or has or
has ever incurred any liability (whether or not contingent) with respect to any
employee benefit plan or any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, stock appreciation
right, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, worker's compensation, disability, supplementary
unemployment benefits, or other plan, arrangement or understanding (whether or
not legally binding), or any employment, severance, termination or any similar
agreement (each, a "Plan"). "ERISA Affiliate" means (i) any corporation which at
any time on or before the Closing Date is or was a member of the same controlled
group of corporations (within the meaning of Section 414(b) of the Code) as the
Company; (ii) any partnership, trade or business (whether or not incorporated)
which at any time on or before the Closing Date is or was under
21
common control (within the meaning of Section 414(c) of the Code) with the
Company; and (iii) any entity which at any time on or before the Closing Date is
or was a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as either the Company, any corporation described in
clause (i) or any partnership, trade or business described in clause (ii).
(b) Section 5.14 of the Disclosure Schedule contains a list
and a brief, general description of each Plan. The Company has delivered to the
Buyer true and complete copies of (A) each Plan, (B) the summary plan
description, if any, for each Plan, (C) the latest annual report, if any, which
has been filed with the Internal Revenue Service (the "IRS") for each Plan, (D)
the most recent IRS determination letter for each Plan that is a pension plan
(as defined in Section 3(2) of ERISA) intended to be qualified under Code
Section 401(a) and (E) copies of reports for the three most recent Plan years
showing compliance with discrimination rules under those of Code Sections
401(a), 401(k), 401(m), 419, 419A, 505, 501(c)(9), 105(h), 125 or 129 applicable
to such Plan. Each Plan intended to be tax qualified under Sections 401(a) and
501(a) of the Code has been determined by the IRS to be tax qualified under
Sections 401(a) and 501(a) of the Code, and, no amendment to or failure to amend
any such Plan and, no other circumstance or event has occurred that adversely
affects its tax qualified status. There has been no prohibited transaction
within the meaning of Section 4975 of the Code and Section 406 of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to any Plan. The Company has no commitment, whether or not legally
binding, to create any additional employee benefit plan (as defined in Section
3(3) of ERISA) or to change the terms of any existing Plan.
(c) Neither the Company nor any ERISA Affiliate has ever
maintained an employee benefit plan (as defined in Section 3(3) of ERISA)
subject to the provisions of Section 412 of the Code, Part 3 of Subtitle B of
Title I of ERISA or Title IV of ERISA.
(d) There are no Proceedings by any Plan participant, Plan
beneficiary or any representative thereof, (other than routine claims for
benefits) pending, or, to the knowledge of the Company or the Principals,
threatened, and no facts or circumstances exist which could give rise to any
Proceeding. The Company has timely satisfied all funding, compliance and
reporting requirements for all Plans. No event or condition exists or is
reasonably expected to occur in connection with the administration of any Plan
that would either (i) subject the Buyer, Parent or any of their Affiliates to
any liability, contingent or otherwise to the IRS, the Department of Labor
("DOL") or the Pension Benefit Guarantee Corporation (other than any liability
for premiums payments to the Pension Benefit Guarantee Corporation) or (ii)
cause the imposition of any Lien on the assets of the Buyer, Parent, or any of
their Affiliates under the Code or ERISA. No Plan is the subject of any pending
application for administrative relief under any voluntary compliance program or
closing agreement program of the IRS or the DOL. With respect to each Plan, the
Company has timely paid all contributions (including employee salary reduction
contributions) and all insurance premiums that have become due, and any such
expense accrued but not yet due has been properly reflected in the Financial
Statements. Each Plan has been operated in accordance with its terms and
complies in all material respects with all applicable Laws.
22
(e) No Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any individual beyond termination of employment
except to the extent required under any state insurance Law or under Part 6 of
Subtitle B of Title I of ERISA and under Section 4980(B) of the Code (COBRA
benefits). Except to the extent of such COBRA benefits, no Plan covers any
individual other than an employee of the Company or dependents of employees
under health and child care Plans disclosed to the Buyer .
(f) Except as set forth in Section 5.14 of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
and the Related Agreements will not (A) entitle any Person providing or that has
provided services at anytime to the Company to severance pay or termination
benefits for which the Buyer, Parent or any of their Affiliates may become
liable, (B) solely as a result of their consummation, increase or accelerate any
amount due under any Plan, require assets to be set aside or other forms of
security to be provided with respect to any liability under any Plan, or result
in any "parachute payment" (within the meaning of Code Section 280G) under any
Plan or (C) except as and to the extent accrued or reserved for on the Interim
Balance Sheet, obligate the Company or any of its subsidiaries or Affiliates to
pay or otherwise be liable for any compensation (including options, warrants,
rights and similar instruments), vacation days, pension contribution or other
benefits to any such Person for periods before the Closing Date or for personnel
whom the Company does not actually employ.
5.15 TAX MATTERS.
(a) All federal, state, local and foreign tax returns and tax
reports required to be filed by the Company and any of its subsidiaries on or
prior to the Closing Date (giving effect to any valid requests for extension
that have been, or will be, validly filed and granted) have been or will be
filed on a timely basis with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed. All
such returns and reports are and will be true, correct and complete in all
material respects and disclose all taxes required to be paid by the Company and
any of its subsidiaries . All federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, employment and other taxes
(including interest, penalties and withholdings of tax) due from and payable by
the Company and any of its subsidiaries with respect to periods through the
Closing Date have been or will be fully paid on a timely basis or will be
adequately reserved for on the Interim Balance Sheet. Each of the Company and
its subsidiaries is not currently the beneficiary of any extension of time
within which to file any tax return. There are no Liens for taxes upon the
assets of the Company or any of its subsidiaries or Affiliates except for
statutory liens for current taxes not yet due.
(b) No claim has ever been made by an authority in a
jurisdiction where each of the Company or any of its subsidiaries or Affiliates
does not file tax returns that it is or may be subject to taxation by that
jurisdiction, and each of the Company or any of its subsidiaries or Affiliates
has not received any notice or request for information from any such authority.
(c) No issues have been raised with the Company or any of its
subsidiaries or Affiliates by the IRS or any other taxing authority in
connection with any tax return or report filed by the Company or any of its
subsidiaries or Affiliates relating to the Company or any of
23
its subsidiaries or Affiliates, and there are no issues which, either
individually or in the aggregate, could reasonably result in any material
liability for tax obligations of the Company or any of its subsidiaries or
Affiliates relating to periods ending on or before the Closing Date in excess of
the accrued liability for taxes shown on the Interim Balance Sheet. No waivers
or extensions of statutes of limitations have been given or requested with
respect to the Company or any of its subsidiaries or Affiliates. None of the
Company or any of its subsidiaries or Affiliates has been, or have received
notice that any of the Company or any of its subsidiaries or Affiliates may be,
subject to an audit by any federal, state, local or foreign tax authority.
(d) No material differences exist between the amounts of the
book basis and tax basis of assets that are not accounted for by an accrual on
the books of the Company for income tax purposes. The Company and its
subsidiaries will not be required to recognize for income tax purposes in a
taxable year beginning on or after the Closing Date any amount of income or gain
which it would have been required to recognize under the accrual method of
accounting for tax purposes in a tax period ending on or before the Closing Date
as a result of the installment method of accounting, the completed contract
method of accounting, the cash method of accounting or a change in method of
accounting.
(e) All transactions or methods of accounting that could give
rise to an understatement of federal income tax (within the meaning of Section
6661 of the Code for tax returns filed on or before December 31, 1990, and
within the meaning of Section 6662 of the Code for tax returns filed after
December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990.
(f) None of the Company or any of its subsidiaries or
Affiliates is or has been a United States real property holding company (as
defined in Section 897(2) of the Code) during the applicable period specified in
Section 897(c)(1)(11) of the Code.
(g) The Company and each of its subsidiaries and Affiliates
have complied (and until the Closing will comply) with all applicable Laws
relating to the payment and withholding of taxes (including withholding and
reporting requirements under Section 1441 through 1464, 3401 through 3406, 6041
and 6049 of the Code and similar provisions under any other Laws) and, within
the time and in the manner prescribed by Law, has withheld from wages, fees and
other payments and paid over to the proper governmental or regulatory
authorities all amounts required.
(h) None of the Company or any of its subsidiaries and
Affiliates is a party to any tax-sharing or tax indemnity agreement or any other
agreement of a similar nature that remains in effect on the Closing Date.
(i) None of the Company or any of its subsidiaries or
Affiliates is subject to any liability under Treasury Regulations 1.1502-6 or
any comparable provision of state, local or foreign tax law or regulation.
24
(j) There are no tax rulings, requests for rulings, closing
agreements or changes of accounting method relating to the Company or any of its
subsidiaries or Affiliates that could affect their liability for Taxes for any
period after the Closing. No power of attorney with respect to any matter
relating to Taxes of the Company or any of its subsidiaries or Affiliates is
currently in force. None of the Company nor any of its subsidiaries and
Affiliates has any deferred gain or loss (i) arising from deferred intercompany
transactions (as referred to in Treasury Regulations Section 1.1502- 13), or
(ii) with respect to the stock or obligations of any other member of the
Company's affiliated group (as described in Treasury Regulations Section
1.1502-14). Neither the Company nor any of its subsidiaries has filed a consent
under Section 341(f) of the Code or any comparable provision of state revenue
statutes. No property of the Company or any of its subsidiaries or Affiliates is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
Neither the Company nor any of its subsidiaries or Affiliates is a party to any
lease made pursuant to Section 168(f) of the Code. Any amount or other
entitlement that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Agreement or the Related Agreements by any employee, officer or director of the
Company or any of its subsidiaries or Affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulations Section
1.280G-1) under any Employee Plans or other compensation arrangement entered
into or in effect prior to the Closing would not be characterized as an "excess
parachute payment" or a "parachute payment" (as such terms are defined in
Section 280G(b)(1) of the Code).
(k) None of the Company or any of its subsidiaries or
Affiliates file, and has never filed or been included in, a consolidated Return
for federal Income Tax purposes.
(l) For purposes of this Agreement, except as otherwise
expressly provided, unless the context otherwise requires:
"income taxes" means any federal, state, local, or foreign
income, or franchise Tax and in each instance any interest, penalties, or
additions to tax attributable to such Tax;
"return" means any report, return, statement, estimate,
declaration, form, or other information required to be supplied to a taxing
authority in connection with Taxes; and
5.16 ENVIRONMENTAL MATTERS.
(a) The operations of the Company and each of its subsidiaries
and Affiliates comply with all applicable federal, state, local, and foreign
laws, codes, regulations, requirements, directives, Orders and common law, and
all administrative or judicial interpretations thereof that may be enforced by
any governmental entity, other Person or court, relating to pollution, the
protection of human health, the protection of the environment or the emission,
discharge, disposal, storage, transportation, Release or threatened Release of
materials in or into the environment, including the Occupational Safety and
Health Act (collectively, "Environmental Laws"). "Release" means release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the environment or into or out of any property,
including the movement of Contaminants through or in the air, soil, surface
water, groundwater or Leased Real Property or other property. "Contaminant"
means any pollutant contaminant, chemical or industrial, hazardous or toxic
material or waste for which liability or standards of conduct are imposed under
Environmental Laws, and includes asbestos
25
or asbestos-containing materials, PCBs, and petroleum, oil or petroleum or oil
products or derivatives.
(b) Each of the Company and its subsidiaries and Affiliates
has obtained all environmental, health and safety Governmental Permits (as
defined in Section 5.21) necessary for the operation of the Business, and all
such Governmental Permits are in full force and effect and will not be revoked,
suspended or otherwise adversely affected by the consummation of the
transactions contemplated hereby. Each of the Company and its subsidiaries and
Affiliates is in compliance with all terms and conditions of such Governmental
Permits.
(c) None of the Company, its subsidiaries nor Affiliates is
subject to any judicial, administrative or other Proceeding, Order or settlement
alleging or addressing a violation of or liability or Indebtedness under any
Environmental Law.
(d) None of the Company or its subsidiaries or Affiliates has
received any notice or claim (whether written or oral) to the effect that it is
or may be liable to any governmental entity or any other Person as a result of
the Release or threatened Release of a Contaminant, and, to the knowledge of the
Company and its subsidiaries and Affiliates, there are no existing or prior
facts, circumstances or conditions that could reasonably form the basis for such
a notice or claim against the Company or its subsidiaries or Affiliates.
(e) There have been no environmental investigations, studies,
audits, tests, reviews or other analysis conducted by or on behalf of, or which
are in the possession of, the Company or its subsidiaries or Affiliates in
relation to any site or facility now or previously owned, operated or leased by
the Company or its subsidiaries or Affiliates which have not been delivered to
the Buyer prior to the execution of this Agreement.
5.17 LABOR RELATIONS; EMPLOYEES.
(a) There is no labor strike, dispute, slowdown, stoppage or
lockout pending, affecting, or, to the knowledge of the Company or the
Principals, threatened against the Company or its subsidiaries or Affiliates,
and since January 1999 there has not been any such action, and there are no
existing or prior facts, circumstances or conditions that are reasonably likely
to lead to such an action. There are no union claims to represent the employees
of any of the Company or its subsidiaries or Affiliates, nor have there been any
such claims since January 1999. There is no written or oral contract,
commitment, agreement, understanding or other arrangement with any labor
organization or multi-employer or union benefit or pension fund, or work rules
or practices agreed to with any labor organization or employee association,
applicable to employees of any of the Company or its subsidiaries or Affiliates,
nor is any of the Company or its subsidiaries or Affiliates a party to or bound
by any collective bargaining or similar agreement. There is, and within since
January 1999 has been, no representation of the employees of any of the Company
or its subsidiaries or Affiliates by any labor organization and, to the
knowledge of the Company and its subsidiaries and Affiliates, there are no union
organizing activities among the employees of any of the Company or its
subsidiaries or Affiliates, nor does any question concerning representation
exist concerning such employees.
(b) Neither the Company nor any of its subsidiaries or
Affiliates has engaged in any unfair labor practices as defined in the National
Labor Relations Act or other applicable
26
Law, ordinance or regulation, and each of the Company and its subsidiaries and
Affiliates is and has since January 1999 been in compliance in all material
respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health. There is no unfair labor practice charge or
complaint against the Company or any of its subsidiaries or Affiliates pending
or, to the knowledge of the Company or any of its subsidiaries or Affiliates,
threatened before the National Labor Relations Board or any similar state or
foreign agency, and there are no existing or prior facts, circumstances or
conditions that could reasonably be expected to form the basis therefor. There
is no grievance pending or, to the knowledge of the Company and its subsidiaries
and Affiliates, threatened against any of the Company or its subsidiaries or
Affiliates arising out of any collective bargaining agreement or other grievance
procedure, and there are no existing or prior facts, circumstances or conditions
that could reasonably be expected to form the basis therefor. There are no
charges with respect to or relating to any of the Company or its subsidiaries or
Affiliates pending or, to the knowledge of the Company and its subsidiaries and
Affiliates, threatened before the Equal Employment Opportunity Commission or any
other governmental entity responsible for the prevention of unlawful employment
practices, and there are no existing or prior facts, circumstances or conditions
that could reasonably be expected to form the basis therefor. There are no
workers compensation claims pending, and the Company and its subsidiaries and
Affiliates have no knowledge of any such potential claim. The Company and its
subsidiaries and Affiliates have not received notice of the intent of any
government entity responsible for the enforcement of labor or employment Laws to
conduct an investigation with respect to or relating to the Company and, to the
knowledge of the Company and its subsidiaries and Affiliates, no such
investigation is in progress. No complaints, lawsuits or other Proceedings are
pending or, to the knowledge of the Company and its subsidiaries and Affiliates,
threatened in any forum by or on behalf of any present or former employee of any
of the Company and its subsidiaries or Affiliates, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
for employment, any Law governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with any employment
relationship.
(c) Since the enactment of the Worker Adjustment and
Retraining Notification Act of 0000 (xxx "XXXX Xxx"), xxxx of the Company or its
subsidiaries or Affiliates has effectuated or experienced (i) a "plant closing"
(as defined in the WARN Act) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility used by
any of the Company or its subsidiaries or Affiliates; or (ii) a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or facility used
by any of the Company or its subsidiaries or Affiliates, nor has any of the
Company or its subsidiaries or Affiliates been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local Law. None of the Company's employees
has suffered an "employment loss" (as defined in the WARN Act) at any time prior
to the Closing Date.
(d) Each of the Company and its subsidiaries and Affiliates
has complied with all employment verification procedures including proper
completion of Forms I-9 as it relates to all of its current and former
employees. Each of the Company and its subsidiaries and Affiliates has complied
with all applicable immigration, visa and work-related laws, codes and
regulations of the United States in general.
27
5.18 COMPLIANCE WITH LAW.
Each of the Company and its subsidiaries and Affiliates has
complied in all material respects since January 1999 and is presently complying
in all material respects with all applicable laws (whether statutory or
otherwise), rules, regulations, orders, ordinances, judgments, decrees or other
pronouncements having the effect of any of the foregoing, of all governmental
entities having jurisdiction (collectively, "Laws"), including the Federal
Occupational Safety and Health Act and all Laws relating to the safe conduct of
business and environmental protection and conservation, the Civil Rights Act of
1964 and Executive Order 11246 concerning equal employment opportunity
obligations of federal contractors and any applicable health, sanitation, fire,
safety, labor, zoning and building laws. The Company has not received written
notification of any asserted present or past failure by the Company or any of
its subsidiaries or Affiliates to so comply with the Laws and there are no
existing or prior facts, circumstances or conditions that could reasonably be
expected to form the basis for such notification or assertion. The
representations of this Section 5.18 are intended to be in addition to and not
as a qualification of any other Section in this Article V.
5.19 GOVERNMENT PERMITS.
Each of the Company and its subsidiaries and Affiliates owns,
holds or possesses all licenses, franchises, permits, privileges, immunities,
approvals and other authorizations from all governmental entities that are
necessary to entitle it to own or lease, operate and use its assets and to carry
on and conduct the Business substantially as currently conducted (herein
collectively called "Governmental Permits"). Such Governmental Permits are in
full force and effect, no violations are or have been recorded in respect
thereof, no Proceeding is pending, or, to the knowledge of the Company or the
Principals, threatened, to revoke or limit any thereof or to affect the rights
of the Company or any of its subsidiaries or Affiliates under any thereof. The
Company and the Principals do not know of any basis for any such Proceeding, and
none of such Governmental Permits will be revoked, suspended or otherwise
adversely affected by the consummation of the transactions contemplated hereby.
5.20 BROKERS OR FINDERS.
Neither the Buyer, Parent nor any of their Affiliates will
have any obligation to pay any broker's, finder's, investment banker's,
intermediary's, financial advisor's or similar fee in connection with this
Agreement or the Related Agreements or the transactions contemplated herein or
therein by reason of any action taken by or on behalf of the Company or any of
its subsidiaries or Affiliates.
5.21 CUSTOMERS AND SUPPLIERS.
Section 5.21 of the Disclosure Schedule sets forth a true and
complete list of the names of the ten largest suppliers (and for each such
supplier the dollar amount) of products and services to the Company and its
subsidiaries and the ten largest customers (and for each such customer the
dollar amount) of products and services of the Company and its subsidiaries
during the 12 months ended June 30, 2001, indicating any existing contractual
arrangements for continued supply from or to each such firm. Except as will be
set forth in Section 5.21 of the Disclosure Schedule, there exists no actual or,
to the knowledge of the Principals or the Company, threatened termination,
cancellation or limitation of, or any modification or change in,
28
the business relationship of the Company and its subsidiaries with any customer
or group of customers which are listed in Section 5.21 of the Disclosure
Schedule or which are otherwise material to the operations of the Business, or
with any supplier or group of suppliers which are listed in Section 5.21 of the
Disclosure Schedule or which are otherwise material to the operations of the
Business other than as completed in the ordinary course of business, and none of
the Company or any of its subsidiaries or Affiliates has received any report or
other information from any employee, sales representative or other Person who
reports to the Company on such matters in the ordinary course of business
regarding the existence of any present or future condition or state of facts or
circumstances involving customers, suppliers or sales representatives (including
the consummation of the transactions contemplated in this Agreement) that would
materially adversely affect the Business or the prospects of the Company or the
Business or prevent the conduct of the Business after the consummation of the
transactions contemplated in this Agreement on substantially the same terms as
the Business has been conducted prior to the date hereof. The Company has
delivered to the Buyer copies of all written Contracts or other arrangements and
written summaries of any oral arrangements with the customers and suppliers
listed in Section 5.21 of the Disclosure Schedule.
5.22 ACCOUNTS RECEIVABLE.
The accounts and notes receivable and all other receivables
included in the Acquired Assets are bona fide receivables and represent amounts
due with respect to actual, arm's-length transactions entered into in the
ordinary course of business consistent with past practice and the Company is not
aware of any facts or circumstances that would render such amounts
uncollectable. No such account has been assigned or pledged to any other Person,
and no defense or set-off or similar right to any such account has been asserted
by the account obligor.
5.23 COMMON ACTIVITIES.
In the conduct of the Business, the assets of the Company and
its subsidiaries have not been commingled with those of any Affiliate or
associate of the Company, and the Company and its subsidiaries have not engaged
in any joint activities with regard to the purchase or sale of products or
services, failed to maintain appropriate distinction between the Business and
assets and property of the Company and its subsidiaries and those of any other
Person or engaged in any other acts or omitted to take any other action which
could reasonably be expected to form the basis for any claim or assertion that
the Company or any of its subsidiaries or its property or assets were
responsible for any Indebtedness, liability or obligation of any other Person.
5.24 DISCLOSURE.
The representations and warranties by the Principals and the
Company in this Agreement and the Related Agreement and the statements contained
in the Disclosure Schedule or any other schedules, certificates, documents,
exhibits and agreements referred to herein or otherwise furnished or to be
furnished by the Principals and the Company to the Buyer or Parent pursuant to
this Agreement and the Related Agreements or in connection with the transactions
contemplated hereby or thereby do not and will not taken as a whole contain any
untrue statement of a material fact and do not and will not taken as a whole
omit to state any material fact necessary to make the statements herein or
therein not misleading. The Company has
29
delivered to the Buyer or its counsel true and complete copies of all material
certificates, exhibits, schedules, agreements or documents and has notified the
Buyer or its counsel of all events, facts, circumstances, violations or other
matters that to the best of their knowledge after due inquiry taken as a whole
may have a Material Adverse Effect on the Business, transactions contemplated in
this Agreement or the Related Agreements, or the business or operations of the
Company or Parent subsequent to the consummation of the transactions
contemplated hereby.
5.25 INVESTMENT REPRESENTATIONS.
The Company acknowledges, represents and warrants that:
(a) the shares represented by Purchase Price are being
acquired, and the shares representing the Parent Shares when they are acquired
will be, for their own accounts and not with a view to, or for sale in
connection with, the distribution thereof, nor with any present intention of
distributing or selling any of such shares;
(b) they have been advised that the shares represented by
Purchase Price and the shares representing the Parent Shares, have not been
registered under the Securities Act on the ground that no distribution or public
offering thereof are to be effected, and in this connection Parent is relying in
part on the Company's representations set forth in this Section;
(c) the Company has sufficient available financial resources
to provide adequately for their current needs and can bear the economic risk of
the complete loss of their investment in Parent without materially affecting
each of the Company's financial condition.
(d) the transfer of the shares represented by the Purchase
Price and Parent Shares have not been registered under the Securities Act, and
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available ; and
(e) they understand that the shares represented by the
Purchase Price and the Parent Shares are restricted securities within the
meaning of Rule 144 promulgated under the Securities Act; that the exemption
from registration under Rule 144 will not be available unless (i) a public
trading market then exists for the Common Stock, (ii) adequate information
concerning Parent is then available to the public, and (iii) other terms and
conditions of Rule 144 or any exemption therefrom are complied with; and
(f) Parent has provided the Company and the Principals with
the opportunity to meet and confer with representatives of Parent regarding all
aspects of its business and has afforded the Company and the Principals the
opportunity to obtain additional information concerning Parent and has answered
all questions to the satisfaction of the Company and the Principals.
30
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT
The Buyer and Parent represent and warrant to the Company and the
Principals as follows:
6.1 ORGANIZATION, STANDING AND QUALIFICATION.
Parent is a corporation duly organized, validly existing and
in good standing under the laws of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Parent is duly qualified or licensed to do
business and in good standing in each jurisdiction in which its property is
owned, leased or operated or the nature of its business makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material adverse
effect on Parent. The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of New York.
6.2 AUTHORITY.
(a) Parent has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. Parent has all requisite corporate power and authority to enter into the
Related Agreements to which it is a party, and to consummate the transactions
contemplated thereby. The execution and delivery of this Agreement and the
Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent. This Agreement has been duly
executed and delivered by Parent. This Agreement does, and, when executed and
delivered by Parent, the Related Agreements to which it is a party will,
constitute legal, valid and binding obligations of Parent, enforceable against
Parent in accordance with its respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforceability of creditors'
rights in general and subject to general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(b) The Buyer has all requisite corporate power and authority
to enter into this Agreement and the Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Buyer. This Agreement has been duly executed and delivered by the Buyer.
This Agreement does, and, when executed and delivered by the Buyer, the Related
Agreements to which it is a party will, constitute legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
31
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights in general and subject to general principles
of equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
6.3 CAPITALIZATION.
The authorized capital stock of Parent consists of 22,500,000
shares consisting of 17,500,000 shares of common stock and 5,000,000 shares of
preferred stock. As of the date hereof, 2,500,000 shares of Common Stock are
issued and outstanding, 1,012,500 shares of Common Stock are reserved for
issuance pursuant to options granted or to be granted under Parent's stock
option plans, 24,500 shares of Common Stock are held in treasury, 893,333 shares
are reserved for issuance pursuant to outstanding warrants to purchase Common
Stock, 2,695,208 shares of Common Stock are reserved for issuance pursuant to
outstanding shares of convertible preferred stock and 20,000 shares of Preferred
Stock are issued and outstanding, and there are no other shares of capital stock
of Parent authorized, issued or outstanding, except as otherwise set forth in
this Agreement and the transactions contemplated hereby or as otherwise set
forth in the Parent's SEC Reports.
6.4 VALIDITY; ISSUANCE OF SHARES.
The shares of Common Stock being issued as part of the
Purchase Price and the Parent Shares have been duly authorized and, and upon
issuance of the Parent Shares when issued in accordance with this Agreement (and
in the case of the shares issuable upon exercise of the Parent Warrant, in
accordance with the terms thereof), will be validly issued, fully paid and
non-assessable. Parent shall reserve a sufficient number of shares of Common
Stock, Preferred Series F Stock and Parent Shares at or prior to delivery of the
Purchase Price.
6.5 CONSENTS AND APPROVALS; NO VIOLATION.
(a) Neither the execution and delivery of this Agreement or
the Related Agreements, nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by Parent with any of the provisions hereof or
thereof will (i) conflict with or result in a breach of the certificate of
incorporation or by-laws or other constitutive documents of Parent, (ii)
conflict with or result (with or without notice or lapse of time or both) in a
default (or give rise to any right of reimbursement, termination, cancellation,
modification or acceleration) under any of the provisions of any material note,
bond, lease, mortgage, indenture, license, franchise, permit agreement or other
instrument or obligation to which Parent is a party, or by which Parent or its
properties or assets may be bound or affected, except for such conflict, breach
or default as to which requisite waivers or consents are described in Section
6.5 of the disclosure schedule delivered to the Company prior to the date of
this Agreement (the "Buyer Disclosure Schedule") and are required to be obtained
prior to Closing or would otherwise not have a Material Adverse Effect on
Parent, or (iii) violate any Law or Order applicable to Parent or its properties
or assets; or (iv) result in the creation or imposition of any material Lien
upon any property or assets used in Parent's business. Except as set forth in
Section 6.5 of the Buyer Disclosure Schedule, no consent or approval by, or any
notification of or filing with, or other action of any Person (governmental or
private) that has not been obtained is required in connection with the
execution, delivery and performance by Parent of this Agreement or the Related
Agreements. There is no Proceeding pending or, to the knowledge of Parent,
threatened
32
against Parent or the Buyer that seeks to prevent the consummation of the
transactions contemplated herein or in any Related Agreement to which Parent is
a party.
(b) Neither the execution and delivery of this Agreement or
any of the Related Agreements to which it is a party, nor the consummation of
the transactions contemplated hereby or thereby nor compliance by the Buyer with
any of the provisions hereof or thereof will (i) conflict with or result in a
breach of the certificate of incorporation or by-laws or other constitutive
documents of the Buyer or (ii) violate any Law or Order applicable to the Buyer
or the properties or assets of the Buyer that would prevent or materially impair
the consummation of the transactions contemplated hereby or thereby.
6.6 BROKERS OR FINDERS.
Neither Parent nor the Buyer will have any obligation to pay
any broker's, finder's, investment banker's, intermediary's, financial advisor's
or similar fee in connection with this Agreement or the transactions
contemplated herein by reason of any action taken by or on behalf of Parent or
the Buyer.
6.7 PUBLIC REPORTS.
Parent has and, as of the Closing Date will have, filed all
required forms, reports and documents with the SEC since July 1, 2000
(collectively, the "Parent's SEC Reports") all of which have and shall have
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and Parent is current in all of its
required filings under the Exchange Act.
6.8 DISCLOSURE.
The representations and warranties by Parent in this
Agreement and the Related Agreements and the statements contained in the Buyer
Disclosure Schedule or any other schedules, certificates, documents, exhibits
and agreements referred to herein or otherwise furnished or to be furnished by
Parent to the Company pursuant to this Agreement or in connection with the
transactions contemplated hereby do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact necessary to make the statements herein or therein not misleading.
6.9 LINE OF CREDIT.
Nothing has come to the Parent's or Buyer's attention that
would cause the credit agreement with Connecticut Bank of Commerce dated May 24,
2001, as amended by First Amendment to the Credit Agreement, dated August 16,
2001, not to be in full force and effect in accordance with the terms and
conditions therein.
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ARTICLE VII
COVENANTS
7.1 CERTAIN GUARANTEES.
Parent and Buyer shall indemnify Xxx Xxxxxx, Xxxxx Xxxxxx,
Xxxxx Xxxxxxx and Xxxxxxxxx with respect to their personal guarantees of
equipment leases which comprise the Assumed Liabilities and are set forth in
Section 7.1 of the Disclosure Schedule.
7.2 ACCOUNT RECEIVABLES.
(a) The Company and/or Sheinwald shall promptly endorse all
checks received by the Company for any payment made in connection with an
Acquired Asset, including, without limitation, account receivables, to the order
of the Buyer, or as otherwise directed by the Buyer in writing. The Company
shall give an officer of the Buyer or Parent power of attorney to endorse such
checks promptly upon request of the Buyer.
(b) Parent and Buyer grant the Company a royalty free,
non-exclusive, limited use license to use the name "Galt Corporation" for the
purpose of collecting receivables of the Company and winding down the Company's
business. The Buyer or Parent shall promptly endorse all checks received by the
Parent or Buyer for any payment made in connection with the Excluded Assets,
including, without limitation, account receivables, to the order of the Company,
or as otherwise directed by the Company or Sheinwald in writing, promptly upon
request of the Company.
7.3 CONSENTS.
THE COMPANY AND SHEINWALD SHALL USE THEIR REASONABLE BEST
EFFORTS TO OBTAIN ALL CONSENTS THAT ARE REQUIRED BY ANY ASSUMED CONTRACT BETWEEN
THE COMPANY AND ANY OF THE COMPANY'S CUSTOMERS IN CONNECTION WITH THE ASSIGNMENT
OF SUCH ASSUMED CONTRACT TO BUYER OR PARENT. THE COMPANY AND PRINCIPALS SHALL
INDEMNIFY THE BUYER AND PARENT FOR ANY LOSS ARISING OUT OF THE FAILURE OF THE
COMPANY OR SHEINWALD TO OBTAIN CONSENTS IN RESPECT OF THE ASSIGNMENT TO PARENT
AND BUYER OF ANY ASSUMED CONTRACTS (WHETHER SUCH ASSUMED CONTRACT IS A CUSTOMER
CONTRACT, EQUIPMENT LEASE OR OTHERWISE), PROVIDED THAT THE PARENT AND BUYER HAVE
PERFORMED ALL OBLIGATIONS ASSUMED UNDER SUCH ASSUMED CONTRACT AFTER THE CLOSING.
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ARTICLE VIII
CLOSING CONDITIONS
8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND THE BUYER.
The obligation of Parent and the Buyer under this Agreement
to consummate the purchase of the Acquired Assets on the Closing Date shall be
subject to the satisfaction, at or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived by the Parent and
the Buyer in their sole discretion:
(a) WARRANTIES ACCURATE. The representations and warranties of
the Company and the Principals contained in this Agreement and the Related
Agreements which are qualified as to materiality shall be true and correct in
all respects, and those not so qualified shall be true and correct in all
material respects, as of the date of this Agreement and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date.
(b) PERFORMANCE BY THE COMPANY AND THE PRINCIPALS . The
Company and the Principals shall have performed and complied in all material
respects with all covenants and agreements required to be performed or complied
with by the Company and the Principals hereunder or in the Related Agreements on
or prior to the Closing Date.
(c) CONSENTS. All consents, approvals, filings and notices
required in connection with the transactions contemplated hereby and the sale
and transfer of the Acquired Assets and Assumed Liabilities at the Closing
(including, but not limited to, those set forth on Schedules 5.4 and 6.5) shall
have been duly obtained, made or given and shall be in full force and effect,
without the imposition upon Parent or the Buyer of any material condition,
restriction or required undertaking.
(d) CERTIFICATE. Parent and Buyer shall have received (i) a
certificate, dated the Closing Date, signed by an officer of the Company to the
effect that the conditions set forth in Sections 8.1(a), (b) and (c) have been
satisfied and (ii) an incumbency certificate, dated the Closing Date, signed by
the secretary of the Company certifying to the Certificate of Incorporation,
by-laws and resolutions of the Company and its shareholders.
(e) STOCKHOLDER APPROVAL. Stockholders representing a majority
of the issued and outstanding Company Common Stock and any other Person
necessary in order to consummate the transactions contemplated hereby shall have
approved and adopted this Agreement and the transactions contemplated by this
Agreement and all requisite resolutions and consents shall have been adopted and
delivered to Parent and the Buyer.
(g) ADDITIONAL DOCUMENTS, ETC. There shall have been delivered
to Parent and the Buyer each other agreement, document, certificate and other
items as is reasonably necessary to effectuate the transactions contemplated
hereby.
(j) TRANSFER TAXES. The Company and Principals shall pay all
required transfer taxes, stamp duties and similar assessments and taxes in
connection with the sale and transfer of the Shares and the Preferred Stock as
contemplated herein, if any.
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8.2 BOOKS AND RECORDS.
All files, documents, instruments, papers, books and records
relating to the Business or the Acquired Assets including financial statements,
tax returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books,
stock certificates and books, corporate seals, stock transfer ledgers,
contracts, licenses, customer lists, computer files and programs, retrieval
programs, operating data and plans and environmental studies and plans
(collectively, the "Books and Records") shall be delivered to Parent or the
Buyer on or prior to the Closing Date.
8.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
PRINCIPALS.
The obligations of the Company and the Principals under this
Agreement to consummate the transactions contemplated hereby on the Closing Date
shall be subject to the satisfaction, at or prior to the Closing Date, of all of
the following conditions, any one or more of which may be waived by the Company
and the Principals in their sole discretion:
(a) Warranties Accurate. The representations and warranties of
the Parent and the Buyer contained in this Agreement and the Related Agreements
which are qualified as to materiality shall be true and correct in all respects,
and those not so qualified shall be true and correct in all material respects,
as of the date of this Agreement and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date.
(b) PERFORMANCE BY PURCHASER. Parent and the Buyer shall have
performed and complied in all material respects with all covenants and
agreements required to be performed or complied with by Parent and the Buyer
hereunder on or prior to the Closing Date.
(c) CONSENTS. All Consents set forth on Schedule 6.5 shall
have been duly obtained, made or given and shall be in full force and effect.
(d) CERTIFICATE. The company shall have received (i)
certificates, dated the closing date, signed by an officer of the parent and
buyer to the effect that the conditions set forth in sections 8.2(a), (b) and
(c) have been satisfied and (ii) incumbency certificates, dated the closing
date, signed by the secretary or assistant secretary of the parent and buyer.
(e) FLEET BANK GUARANTEE. Parent and the Buyer shall provide
evidence reasonably acceptable to the Company and the Principals that the
guaranty by Xxx Xxxxxx of the approximately $130,000 Fleet Bank credit line is
being paid within three business days of the Closing.
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ARTICLE IX
INDEMNIFICATION AND SURVIVAL
9.1 INDEMNIFICATION.
(a) The Company and the Principals shall jointly and severally
indemnify the Buyer, Parent and their respective officers, directors,
stockholders, employees, agents and Affiliates (the "Buyer Parties") and hold
each of them harmless from and against any Loss suffered, incurred or sustained
by any of them or to which any of them becomes subject, resulting from, arising
out of or relating to (i) any inaccuracy in or breach of any representation or
warranty or failure to perform any covenant or agreement to be performed on or
before the Closing Date on the part of the Company or the Principals contained
in this Agreement or the Related Agreements; (ii) any intentional tort,
including without limitation, fraud (including fraud in the inducement), willful
misconduct or bad faith by the Company or the Principals or any executive
officer, director, stockholder or employee of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby; (iii) the assertion against the Parent, the Buyer, the Business, the
Acquired Assets, or the Assumed Liabilities, of any liability or obligation of
the Company or its respective Affiliates or relating to the Company's
operations, businesses or other activities of any kind or nature prior to the
Closing Date that have not been expressly assumed by Parent or the Buyer under
this Agreement; and (iv) any and all actions, suits, Proceedings, demands,
judgments, costs and legal and reasonable other expenses incident to any of the
matters referred to in clauses (i), (ii) and (iii) of this Section 9.l (a). Once
it is determined there is such an indemnifiable event, the amount of the Loss
shall be determined without giving effect to any "Material Adverse Effect"
qualification or any other materiality, dollar limit or similar qualification
contained in the representation, warranty, covenant or agreement.
(b) Each of Parent and the Buyer hereby indemnifies and holds
harmless the Company and the Principals from and against any Loss suffered,
incurred or sustained by any of them or to which any of them becomes subject,
resulting from, arising out of or relating to (i) any inaccuracy in or breach
of, or any alleged inaccuracy or alleged breach of any representation or
warranty or failure to perform any covenant or agreement to be performed on or
before the Closing Date on the part of the Buyer or Parent contained in this
Agreement or the Related Agreements to which the Buyer or Parent is a party;
(ii) any intentional tort, including without limitation, fraud (including fraud
in the inducement), willful misconduct or bad faith by any of the Buyer Parties
in connection with this Agreement, the Related Agreements or the transactions
contemplated hereby or thereby; and (iii) any and all actions, suits,
Proceedings, demands, judgments, costs and legal and reasonable other expenses
incident to any of the matters referred to in clauses (i) and (ii) of this
Section 9.1(b). Once it is determined there is such an indemnifiable event, the
amount of the Loss shall be determined without giving effect to any "Material
Adverse Effect" qualification or any other materiality, dollar limit or similar
qualification contained in the representation, warranty, covenant or agreement.
(c) All claims for indemnification by any party seeking
indemnity under this Agreement (an "Indemnified Party") will be asserted and
resolved as follows:
37
(i) In the event any claim or demand, in respect of
which an Indemnified Party might seek indemnity under this
Agreement, is asserted against or sought to be collected from
such Indemnified Party by a Person other than a Buyer Party or
the Company or a Principal or any of their respective
Affiliates (a "Third Party Claim"), the Indemnified Party
shall deliver a notice (a "Claim Notice") with reasonable
promptness to the party from whom the Indemnified Party is
seeking indemnification (the "Indemnifying Party"), which
Claim Notice shall provide reasonable detail relating to such
Third Party Claim, including the amount of Loss claimed, to
the extent known. If the Indemnified Party fails to provide
the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim,
the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim only
to the extent that the Indemnifying Party demonstrates that
its ability to defend such Third Party Claim has been
irreparably prejudiced by such failure of the Indemnified
Party. The Indemnifying Party shall notify the Indemnified
Party as soon as practicable within the Dispute Period
(defined below) whether the Indemnifying Party disputes its
liability to the Indemnified Party, and whether the
Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
"Dispute Period" means the period ending 30 days following
receipt by an Indemnifying Party of either a Claim Notice or
an Indemnity Notice (as hereinafter defined).
(ii) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Indemnified Party
with respect to the Third Party Claim pursuant to this Section
9.1, then the Indemnifying Party shall have the right to
defend, with counsel reasonably satisfactory to the
Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings must be vigorously and
diligently prosecuted by the Indemnifying Party to a final
conclusion or may be settled at the discretion of the
Indemnifying Party; provided, however, that the Indemnifying
Party shall not be permitted to effect any settlement without
the written consent (which shall not be unreasonably withheld)
of the Indemnified Party unless (A) the sole relief provided
in connection with such settlement is monetary damages that
are paid in full by the Indemnifying Party, (B) such
settlement involves no finding or admission of any wrongdoing,
violation or breach by any Indemnified Party of any right of
any other Person or any Laws, Contracts or Governmental
Permits, and (C) such settlement has no effect on any other
claims that may be made against or liabilities of any
Indemnified Party. The Indemnifying Party shall have full
control of such defense and proceedings, including any
compromise or settlement thereof (except as provided in the
preceding sentence); provided, however, that the Indemnified
Party may, at its sole cost and expense, at any time prior to
the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause (ii), file any motion,
answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further,
that if requested by the Indemnifying Party, the Indemnified
Party shall, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party
may participate in, but not control, any defense or settlement
of any Third Party Claim
38
controlled by the Indemnifying Party pursuant to this clause
(ii) and, except as provided in the first sentence of this
clause (ii) and the preceding sentence, the Indemnified Party
will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement
of a Third Party Claim at any time if it irrevocably waives
its right to indemnity with respect to such Third Party Claim.
(iii) If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party Claim
pursuant to Section 9.1(c)(ii) or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim (in each case in
accordance with Section 9.1(c)(ii) above), or if the
Indemnifying Party fails to give any notice whatsoever within
the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent
will not be unreasonably withheld). Subject to the immediately
preceding sentence, the Indemnified Party will have full
control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party
will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified Party and
its counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause
(iii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
(iv) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its liability to
the Indemnified Party with respect to a Third Party Claim or
fails to notify the Indemnified Party within the Dispute
Period whether the Indemnifying Party disputes its liability
to the Indemnified Party with respect to such Third Party
Claim, the Loss in the amount specified in the Claim Notice
will be conclusively deemed a liability of the Indemnifying
Party, and the Indemnifying Party shall pay the amount of such
Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability with respect to such
claim, the Indemnifying Party and Indemnified Party will
proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the
Resolution Period, such dispute shall be resolved by
litigation in a court of competent jurisdiction. "Resolution
Period" means the period ending 30 days following expiration
of the Dispute Period.
(v) In the event any Indemnified Party should have a
claim under this Agreement against any Indemnifying Party that
does not involve a Third Party Claim, the Indemnified Party
shall deliver a notice (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party, which Indemnity Notice
shall provide reasonable detail relating to such claim,
including the amount of Loss claimed, to the extent known. If
the Indemnified Party fails to provide the Indemnity Notice
with reasonable promptness, the Indemnifying Party shall not
be obligated to indemnify the Indemnified
39
Party with respect to such claim only to the extent that an
Indemnifying Party demonstrates that it has been irreparably
prejudiced by such failure of the Indemnified Party. If the
Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim described in such Indemnity Notice or
fails to notify the Indemnified Party within the Dispute
Period whether the Indemnifying Party disputes the claim
described in such Indemnity Notice, the Loss in the amount
specified in the Indemnity Notice will be conclusively deemed
a liability of the Indemnifying Party, and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed
its liability with respect to such claim, the Indemnifying
Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved
through negotiations within the Resolution Period, such
dispute shall be resolved by litigation in a court of
competent jurisdiction.
(d) Any indemnity payment, including any payments made through
cancellation of the shares of Common Stock as set forth in Section 9.3 will be
treated for tax purposes as an adjustment to the Purchase Price.
9.2 SURVIVAL PERIODS.
(a) All representations and warranties of the Company and the
Principals contained in this Agreement, the Disclosure Schedule, the Related
Agreements or any certificate or document delivered in connection herewith or
therewith shall survive the Closing and shall remain in full force and effect
for 12 months after the Closing Date (such 12 -month anniversary to the Closing
Date being referred to as the "Expiration Date") and shall apply beyond such 12
month period with respect to claims asserted in writing within such 12 month
period; provided, however, that those representations and warranties which
relate to taxes, benefit plans, environmental liabilities and Intellectual
Property Rights shall survive until 90 days beyond all applicable statutes of
limitations have expired and shall apply beyond such period with respect to
claims asserted in writing during such period. Except as otherwise provided, the
covenants and agreements of the parties hereto shall survive the Closing. Rights
of an Indemnified Party to indemnification shall not be limited or affected in
any way by any pre-Closing investigation by such Indemnified Party or by such
Indemnified Party's actual knowledge of any inaccuracy of the representations
and warranties.
(b) All representations and warranties of Parent and the Buyer
contained in this Agreement, the Buyer Disclosure Schedule, the Related
Agreements or any certificate or document delivered in connection herewith or
therewith shall survive the Closing and shall remain in full force and effect
for a period of twelve months after the Closing Date and any claims in respect
thereof, whether made by the Company or a Principal or any current or former
holder of the capital stock of the Company or any of its subsidiaries, shall be
limited to an amount in the aggregate not in excess of $150,000.
9.3 CANCELLATION OF SHARES
The Warrants representing a portion of the Purchase Price are subject to
cancellation by Parent (without any additional action on the part of the holders
of such shares) to the extent that any claims by any Buyer Party with respect to
the indemnification obligations of the Companyand the Principals hereunder. The
value of such Escrow Amount with respect to payment of any
40
indemnity obligation shall be based on the fair market value of the Warrants as
of the date of the settlement of the claim for the indemnification.
Notwithstanding the foregoing, cancellation of such shares of Company Common
Stock as provided for hereunder shall not relieve the Company or Principals of
their indemnification obligations and any Buyer Party may enforce its rights and
seek all remedies available to it in lieu of or in addition to those set forth
in this Section 9.3.
9.4 LIMITATION OF LIABILITY.
(a) Notwithstanding anything to the contrary contained herein,
except with respect to payment of Taxes and liability of the Buyer under Bulk
Sales Laws, the Company and Principals shall have no liability, with respect to
Losses, in excess of the Purchase Price.
(b) Except as provided in Sections 5.8 and 5.11, Parent and
Buyer shall not make any Claim unless and until the aggregate indemnified Losses
under this Agreement exceed $100,000, in which event, recovery for such Losses
shall be available for the entire amount of all such Losses, including those
below the aggregate of $100,000.
ARTICLE X
GENERAL
10.1 EXPENSES.
Except as otherwise provided by this Agreement, each party
shall bear and pay its own expenses incurred in connection with the transactions
referred to in this Agreement.
10.2 NOTICES.
Any notices required or permitted to be sent to a party
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, delivered by overnight courier service, or by telecopy to the
following addresses, or such other address as such party hereto designates by
written notice given to the other party, and shall be deemed to have been
delivered five business days after mailing, if mailed, or four business days
after delivery to the courier, if delivered by overnight courier services or if
by telecopy, on the date set forth on the confirmation:
If to any
of the Principals or the
Company to: c/o Galt Corporation
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxxxx
Facsimile No.: (000) 000-0000
41
copy to:
Xxxxxxxxx Ball Xxxxxx Xxxxxx & Xxxxxxxxxx, LLP
000 Xxx Xxxxxxx Xxxx
Xxxxxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Facsimile No. : (000) 000-0000
If to Parent or
the Buyer to: x/x 0X Xxxxxxxxxxxx Xxxxxxxxxxx
000 Xxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx, CEO
Facsimile No.: (000) 000-0000
copy to: Xxxxxxxx & Xxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
10.3 ENTIRE AGREEMENT; HEADINGS; COUNTERPARTS.
This Agreement and the Related Agreements constitutes the
entire understanding and agreement between the parties with respect to the
transactions contemplated herein, and supersedes any and all prior or
contemporaneous, oral or written, communications with respect to the subject
matter hereof, all of which are merged herein. The section headings contained
herein shall in no way limit, extend, or interpret the scope or language of this
Agreement or of any particular section and are intended only for convenience of
reference. 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, without necessity of production of the others. Such
counterparts may be delivered to the other parties hereto by facsimile and such
delivery shall be deemed a delivery of an executed original.
10.4 AMENDMENT; WAIVER.
This Agreement cannot be modified, amended or in any way
altered except by written document executed by each of the parties hereto. No
waiver of any provision of this Agreement, or of any rights or obligations of
any party hereunder, shall be effective unless in writing and executed by the
party waiving compliance, and such waiver shall be effective only in the
specific instance, and for the specific purpose, stated in such writing. No
waiver of any breach of, or default under, any provision of this Agreement shall
be deemed a waiver of any other provision, or of any subsequent breach or
default of the same provision, of this Agreement.
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10.5 SEVERABILITY.
If any provision of this Agreement is determined to be invalid
or unenforceable, that provision shall be deemed stricken and the remainder of
the Agreement shall continue in full force and effect, insofar as it remains a
workable instrument to accomplish the intent and purposes of the parties. The
parties further agree to replace the severed provision with the provision that
will come closest to reflecting the intention of the parties underlying the
severed provision but that will be valid, legal and enforceable.
10.6 PARTIES IN INTEREST; ASSIGNMENT.
This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and assigns;
provided, however, that neither party may assign by operation of law or
otherwise to any third party, any right or obligation set forth in this
Agreement without the prior written consent of the other party. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto any rights or remedies under or by reason of this Agreement.
10.7 APPLICABLE LAW.
(a) This Agreement and the performance of the parties
hereunder shall be governed and construed in accordance with the substantive
laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
(b) For the purpose of the serving of legal documents in
relation to litigation and arbitration, the parties choose domicile at the
addresses mentioned in Section 10.2.
(c) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OF THE
PARTIES WITH RESPECT TO THIS AGREEMENT OR ANY RELATED AGREEMENT, MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT. EACH PARTY ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT AND ANY
RELATED AGREEMENT. THE COMPANY AND THE PRICIPALS DESIGNATE AND APPOINT XXXXXXXXX
BALL XXXXXX XXXXXX & XXXXXXXXXX, LLP AND SUCH OTHER PERSONS AS MAY HEREAFTER BE
SELECTED BY THEM IRREVOCABLY AGREEING IN WRITING TO SERVE, AS THEIR AGENT TO
RECEIVE ON THEIR BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY
SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THEM TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. THE PARENT AND BUYER DESIGNATE AND APPOINT
XXXXXXX X. XXXXXX AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THEM
IRREVOCABLY AGREEING IN WRITING TO SERVE, AS THEIR AGENT TO RECEIVE ON THEIR
BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH
SERVICE BEING HEREBY ACKNOWLEDGED BY THEM TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. A COPY OF SUCH
43
PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE PARTIES AT THEIR
ADDRESS PROVIDED IN SECTION 10.2, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE,
SUCH PARTY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
(d) EACH OF THE PARTIES HEREBY WAIVES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO,
IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT, OR
THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM
MAY BE MADE BY ANY OF THE PARTIES AGAINST ANOTHER PARTY FOR ANY LOST PROFITS OR
ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN
CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED HEREUNDER OR UNDER ANY RELATED AGREEMENT OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH; EACH OF THE PARTIES HEREBY WAIVES,
RELEASES AND AGREES NOT TO XXX UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES. EACH OF
THE COMPANY AND THE PRICIPALS AND THE COMPANY AGREES THAT THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT PARENT AND
THE BUYER WOULD NOT ENTER INTO THIS AGREEMENT IF THIS SECTION WERE NOT PART OF
THIS AGREEMENT.
10.8 PUBLICITY.
The financial and business terms of this Agreement or the
Related Agreements shall not be disclosed to any third party or the public
without the prior written consent of the other party; provided, however, that
either party may disclose such information as required by law (including
applicable securities laws), the rules of any applicable stock exchange, or
court order or as necessary to enforce the terms of this Agreement. The
foregoing shall not prohibit either party from disclosing this Agreement or its
contents to its attorneys, accountants or other advisors.
10.9 BULK SALES COMPLIANCE.
The Buyer hereby waives compliance by the Company with the
provisions of any applicable Bulk Sales Laws, in consideration whereof the
Company and the Principals, jointly and severally, agree to pay and discharge
when due all claims of creditors which could be asserted against the Buyer or
Parent by reason of noncompliance under such laws to the extent that such
liabilities are not assumed by the Buyer or Parent under this Agreement and to
indemnify and hold Parent and the Buyer Parties harmless from and against any
such claims pursuant to Article IX hereof.
44
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
5B TECHNOLOGIES CORPORATION
By: ________________________________
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer
XXXX XXXXXXX & XXXX, LTD
By: ________________________________
Name: Xxxxx Xxxxxxx
Title: President
GALT CORPORATION.
By: ________________________________
Name:
Title:
--------------------------------
Xxxx Xxxxxxxxx
--------------------------------
Xxxxxxx Xxxxxx
45
TABLE OF CONTENTS
Page
ARTICLE I Definitions.........................................................1
1.1 Definitions..................................................1
ARTICLE II Sale and Purchase..................................................6
2.1 Sale and Purchase of Acquired Assets.........................6
2.2 Excluded Assets..............................................7
2.3 Assumption of Liabilities....................................7
2.4 Information and Records......................................9
ARTICLE III Consideration.....................................................9
3.1 Payment of Purchase Price....................................9
3.2 Escrow.......................................................9
3.3 Allocation of the Purchase Price.............................9
ARTICLE IV Closing...........................................................10
4.1 Closing.....................................................10
4.2 Seller at Closing...........................................10
4.3 Buyer at Closing............................................11
4.4 Further Assurances..........................................11
ARTICLE V Representations and Warranties of the COMPANY AND PRINCIPALS.......12
5.1 Organization, Standing and Qualification; Subsidiaries......12
5.2 Authority...................................................12
5.3 Consents and Approvals; No Violation........................13
5.4 Books and Records...........................................13
5.5 Financial Statements; Certain Financial Information.........14
5.6 Absence of Certain Changes or Events........................15
5.7 Real Property...............................................16
5.8 Leases......................................................16
5.9 Title to Assets.............................................17
5.10 Intellectual Property Rights................................17
5.11 Contracts...................................................19
5.12 Litigation..................................................20
5.13 Insurance...................................................21
5.14 Employee Benefit Plans......................................21
5.15 Tax Matters.................................................23
5.16 Environmental Matters.......................................25
5.17 Labor Relations; Employees..................................26
5.18 Compliance with Law.........................................27
5.19 Government Permits..........................................28
5.20 Brokers or Finders..........................................28
5.21 Customers and Suppliers.....................................28
5.22 Accounts Receivable.........................................29
5.23 Common Activities...........................................29
5.24 Disclosure..................................................29
5.25 Investment Representations..................................30
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER AND PARENT............31
6.1 Organization, Standing and Qualification....................31
6.2 Authority...................................................31
6.3 Capitalization..............................................32
6.4 Validity; Issuance of Shares................................32
6.5 Consents and Approvals; No Violation........................32
6.6 Brokers or Finders..........................................33
6.7 Public Reports..............................................33
6.8 Disclosure..................................................33
6.9 Line of Credit..............................................33
ARTICLE VII COVENANTS........................................................34
7.1 Certain Guarantees..........................................34
ARTICLE VIII CLOSING CONDITIONS..............................................35
8.1 Conditions Precedent to Obligations of Parent and the Buyer.35
8.2 Books and Records...........................................36
8.3 Conditions Precedent to Obligations of the Company
and the Principals..........................................36
ARTICLE IX INDEMNIFICATION AND SURVIVAL......................................37
9.1 Indemnification.............................................37
9.2 Survival Periods............................................40
9.3 Cancellation of Shares......................................40
9.4 Limitation of Liability.....................................41
ARTICLE X General............................................................41
10.1 Expenses....................................................41
10.2 Notices.....................................................41
10.3 Entire Agreement; Headings; Counterparts....................42
10.4 Amendment; Waiver...........................................42
10.5 Severability................................................43
10.6 Parties in Interest; Assignment.............................43
10.7 Applicable Law..............................................43
10.8 Publicity...................................................44
10.9 Bulk Sales Compliance.......................................44
