EX-10.1 3 f8k052317ex10i_nxtidinc.htm AGREEMENT AND PLAN OF MERGER BY AND BETWEEN NXT-ID, INC. Execution Copy AGREEMENT AND PLAN OF MERGER
Exhibit 10.1
Execution Copy
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of May 19, 2017, is entered into by and among Nxt-ID, Inc., a Delaware corporation (“Purchaser” or “Parent”), Fit Merger Sub, Inc. a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”), Fit Pay, Inc., a Delaware corporation (the “Company”), and Xxxxxxx Xxxxxxx (“Orlando”), Xxxxxxxx & Devrient Mobile Security America, Inc. (“G&D”), the other stockholders of the Company (“Other Holders”) and Xxxxxxx Xxxxxxx as the “Shareholder Representative” representing the Other Holders (each of Orlando, G&D and the Shareholder Representative, a “Seller” and collectively the “Sellers”) as the sole shareholders of the Company.
AGREEMENT
ARTICLE I
“Act” means the Securities Act of 1933, as amended.
“Affiliate” means, 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, the term “control” (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
“Agreement” means this Agreement and Plan of Merger, including all exhibits and schedules hereto, as it may be amended from time to time.
“Balance Sheet” means the consolidated balance sheet of the Company, dated April 30, 2017, a copy of which is set forth in Schedule 1.1.
“Balance Sheet Date” means April 30, 2017.
“Bankruptcy Code” means Title 11 of the United States Code, as amended.
“Business” means the business of the Company, and shall be deemed to include any of the following incidents of such business: income, cash flow, operations, condition (financial or other), assets/properties, anticipated revenues/income, prospects, Liabilities and personnel/management.
“Business Confidential Information” means all information, knowledge or data related to the operation of the Business or the Company that is not in the public domain or otherwise publicly available, other than as a result of any action or inaction by a Seller, or that has been treated as confidential by the Company.
“Business Day” means any day other than (a) any Saturday or Sunday or (b) any other day on which banks located in New York, New York are required or permitted to be closed.
“Certificates” shall mean stock certificates that, immediately prior to the Effective Time, represented Shares converted into Merger Consideration pursuant to Section 2.3 (including any Shares referred to in the last sentence of Section 2.11).
“Closing” has the meaning set forth in Section 2.2.
“Closing Date” has the meaning set forth in Section 2.2.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Share” means the shares of common stock, par value $0.0001 per share, of the Company.
“Company” has the meaning set forth in the introductory paragraph of this Agreement.
“Company Charter Documents” means the Company’s Certificate of Incorporation, as amended to the date hereof, and the Company’s Bylaws, as amended to the date hereof.
“Company Plans” has the meaning set forth in Section 3.14(a).
“Company IP Rights” has the meaning set forth in Section 3.10(b).
“Company Registered IP” has the meaning set forth in Section 3.10(a).
“Company Technology” means software and licenses sufficient to enable secure contactless payments at NFC-capable point of sale terminals, tokenization and authentication services, and backend services for digital wallet creation and management.
“Company Unpaid Transaction Expenses” means the expenses incurred by the Company in connection with this Agreement and the transactions contemplated hereby that remain unpaid as of the Closing.
“Consolidated Omnibus Budget Reconciliation Act” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
“Contract” means any contract, lease, commitment, understanding, task order, sales order, purchase order, delivery order, teaming agreement, joint venture agreement, other agreement, indenture, mortgage, note, bond, right, warrant, instrument, plan, permit or license, whether written or oral, which is intended or purports to be binding and enforceable.
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“De Minimis Claim” has the meaning set forth in Section 11.3(a).
“Debt” means, on a consolidated basis, any and all (a) obligations for borrowed money, whether current or unfunded, secured or unsecured (including any accrued but unpaid interest thereon and any premiums, penalties, termination fees, expenses or breakage costs due upon prepayment of such indebtedness or payable as a result of the consummation of the transactions contemplated hereby) and whether or not evidenced by notes, bonds, debentures, mortgages or other debt instruments, debt securities or other similar instruments, (b) obligations to reimburse any Person for amounts drawn upon or funded under a letter of credit or similar arrangement, but which have not been repaid, (c) obligations arising out of overdrafts, acceptance credit or similar facilities, (d) guarantees of obligations of a type described in clauses (a) - (c) and inclusive of the items set forth in Section 6.11.
“Determination Letter” has the meaning set forth in Section 3.14(b).
“Determined Losses” has the meaning set forth in Section 11.6.
“Earnout Payment” has the meaning set forth in Section 2.3(b).
“Earnout Period” means the 16-quarter period commencing on October 1, 2017, and ending on September 30, 2021.
“Effective Time” means the time at which the Certificate of Merger is filed with the Secretary of State of Delaware.
“Equipment” means machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property accounted for as equipment.
“Equity Recipients” has the meaning set forth in Section 4.3.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Final Gross Revenue Statement” has the meaning set forth in Section 2.3(b)(ii)(B).
“Financial Statements” means, collectively, (a) the Company’s consolidated unaudited balance sheet at December 31, 2016 and the Company’s consolidated unaudited statements of income and cash flows for the 12-month period ended December 31, 2016, and (b) the Balance Sheet and the Company’s consolidated unaudited statements of income and cash flows for the 3-month period ended March 31, 2017.
“Foreign Benefit Plan” has the meaning sent forth in Section 3.14(g).
“Fundamental Representations” has the meaning set forth in Section 11.1.
“G&D” has the meaning set forth in the introductory paragraph of this Agreement.
“GAAP” means United States generally accepted accounting principles.
“Government Bid” means a bid, tender or proposal which, if accepted, would result in a Government Contract.
“Government Contract” means any Contract between the Company and any Governmental Authority, as well as any subcontract or other arrangement by which (i) such company has agreed to provide goods or services to a prime contractor, to the Governmental Authority, or to a higher-tier subcontractor or (ii) a subcontractor or vendor has agreed to provide goods or services to a company, where, in either event, such goods or services ultimately will benefit or be used by a Governmental Authority.
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“Governmental Authority” means the government of the United States or any foreign country, any state or political subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory, administrative or other governmental functions or any court, department, commission, board, agency, instrumentality or administrative body of any of the foregoing.
“Gross Revenue” means all revenue derived from Company Technology and prior to any deductions in respect of gross margin and sales, general, and administrative expenses as those terms are generally defined according to GAAP, including (i) all revenue calculated in a manner consistent with current Company pricing methodology for all existing and future agreements, and (ii) all gross revenue derived from Purchaser’s use of the Company’s technology and calculated as the number of devices shipped with Company Technology multiplied by $3.00. For the avoidance of doubt, Gross Revenue shall include any revenue derived from any use by the Purchaser and its Affiliates (including the Company) of the Company Technology.
“Gross Revenue Statement” has the meaning set forth in Section 2.3(b)(ii)(A).
“Indemnification Payment” has the meaning set forth in Section 11.9.
“Indemnitee” has the meaning set forth in Section 11.2.
“Indemnitor” has the meaning set forth in Section 11.2.
“Intellectual Property” means, throughout the world, all trade names, trade dress, corporate names and logos, trademarks, service marks, patents, copyrights, industrial designs, Internet domain names, IP Addresses (and any registrations with any Governmental Authority of, and applications for registration pending with respect to, any of the foregoing), works of authorship, trade secrets, proprietary information, mask works, technology, inventions, processes, designs, know-how, computer software and data, databases and data collections, formulas, goodwill, any licenses related to any of the foregoing, and all other intangible intellectual property assets, including all rights to xxx and recover for past and future infringement or misappropriation thereof and to receive all income, royalties, damages and payments for past and future infringements thereof and all other intangible intellectual property assets and similar or equivalent rights to any of the foregoing anywhere in the world.
“IT Systems” has the meaning set forth in Section 3.10(g).
“Law” means any constitution or provision thereof, law, statute, regulation, ordinance, rule, order, decree, judgment, consent decree, settlement agreement or governmental requirement enacted by, promulgated by, entered into by, agreed to or imposed by any Governmental Authority.
“Leased Real Property” means all real property leased by the Company.
“Legal Fees” has the meaning set forth in Section 6.12.
“Liability” means any liability, debt or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due, and whether or not required to be reported under GAAP).
“Lien” means any mortgage, lien, charge, restriction, pledge, security interest, option, claim, easement, encroachment or encumbrance.
“Loss” or “Losses” means all Liabilities, losses, costs, claims, damages, lost profits, lost revenues, diminution in value, penalties and expenses (including reasonable attorneys’ and accountants’ fees and expenses and reasonable investigation and litigation costs incurred in relation to the matter or in enforcing such matter), whether or not special, non-compensatory, consequential, indirect, incidental, statutory or punitive.
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“Material” for the purposes of determining whether an item needs to be disclosed herein shall mean any item, contract, or liability that has a value or effect on the Business of $10,000 or more.
“Material Adverse Change” or “Material Adverse Effect” means any change, event, development or effect that has a materially adverse effect on or in the business, operations, assets, Liabilities, results of operations, cash flows, prospects or condition (financial or otherwise) of the Company; provided, however, that Material Adverse Change or Material Adverse Effect shall not include any adverse change, event, development, or effect to the extent arising from or relating to: (a) general business or economic conditions, including such conditions related to the Business (provided the impact on the Company or the Business is not disproportionate to the impact on similar companies in the same industry); (b) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States; (c) financial, banking, or securities markets (including any disruption thereof and any decline in the price of any security or any market index); (d) changes in Laws; or (e) the taking of any action required by this Agreement.
“Material Contracts” means all of the Contracts listed or described, or required by Section 3.11 to be listed or described, in Section 3.11 of the Schedule of Exceptions.
“Merger” has the meaning set forth in the Recitals.
“Merger Consideration” means the Common Stock Payment, the Preferred Stock Payment and the Debt Payment.
“National Labor Relations Act” means National Labor Relations Act of 1935, as amended.
“Neutral Accountant” means Xxxxx Xxxx, or in the event that circumstances create an actual conflict of interest that would impair such Person’s ability to impartially determine any issue presented to it pursuant to this Agreement or if such Person is otherwise unwilling or unable to provide such services, a nationally-recognized certified public accounting firm mutually agreed upon by Purchaser and the Sellers. If (1) circumstances create an actual conflict of interest that would impair Xxxxx Xxxx’x ability to impartially determine any issue presented to it pursuant to this Agreement or if Xxxxx Xxxx is otherwise unwilling or unable to provide such services and (2) Purchaser and the Sellers cannot agree on a nationally recognized certified public accounting firm to serve as the Neutral Accountant within ten (10) days after either party notifies the other of its intent to submit such dispute to the Neutral Accountant, then the Neutral Accountant shall be selected by JAMS.
“Note Payments” has the meaning set forth in Section 6.13.
“Notice of Claim” has the meaning set forth in Section 11.4.
“Notice of Objection” has the meaning set forth in Section 11.4.
“Order” means any decree, injunction, judgment, order, ruling, assessment or writ.
“Orlando” has the meaning set forth in the introductory paragraph of this Agreement.
“Other Holders” has the meaning set forth in the introductory paragraph of this Agreement.
“Permits” means any license, permit, franchise, certificate of authority, or order required to be issued by any Governmental Authority.
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“Permitted Liens” means (a) Liens created by Law for current taxes, assessments or similar charges not yet due and payable and (b) Liens on Equipment securing leases or purchase money indebtedness or financing of such Equipment.
“Person” means any individual or any corporation, proprietorship, firm, partnership, limited partnership, limited liability company, trust, association, Governmental Authority or other entity.
“Pre-Closing Taxes” means (i) any Taxes of the Company or any of their Affiliates with respect to any Pre-Closing Tax Period, and (ii) any Taxes for which the Company is held liable under Treasury Regulations Section 1.1502-6 (or any corresponding or similar provision of state, local or foreign Tax law) by reason of such entity being included in any consolidated, affiliated, combined or unitary group in any Pre-Closing Tax Period.
“Pre-Closing Tax Period” means any taxable period ending on or prior to the Closing Date.
“Preferred Shares” shall mean the shares of preferred stock, par value $0.01 per share, of the Company.
“Pro Rata Share” means, with respect to a Seller, the number of Shares being sold pursuant to this Agreement by such Seller divided by the total number of Shares.
“Public Software” has the meaning set forth in Section 3.10(h).
“Purchaser” has the meaning set forth in the introductory paragraph of this Agreement.
“Purchaser Common Stock” means shares of Purchaser’s common stock, par value $0.0001 per share.
“Purchaser Share Value” shall mean the average closing sales prices per share of the Purchaser Common Stock on the Nasdaq Global Market during the period of five (5) consecutive trading days ending one trading day prior to the Closing Date.
“Receivables” means accounts receivable, notes receivables and other receivables of the Company arising from the operation of the Business.
“Release” means the form of Release Agreement attached hereto as Exhibit C.
“Resolved Amount” has the meaning set forth in Section 11.4.
“Schedule of Exceptions” has the meaning set forth in Article III.
“SEC” means the U.S. Securities and Exchange Commission, or any successor Governmental Authority.
“Seller” and “Sellers” have the meaning set forth in the introductory paragraph of this Agreement.
“Sellers’ knowledge” or “to the knowledge of the Sellers” or variants thereof mean with respect to any matter in question that Orlando, or any officer or director of the Company has present actual knowledge of such matter or would have knowledge of such matter after reasonable inquiry and investigation of their direct reports.
“Series C Preferred Stock” means the Series C non-convertible, voting preferred stock of Purchaser.
“Shareholder Representative” shall mean Xxxxxxx Xxxxxxx acting in his capacity as the appointed agent and attorney in fact of the Other Holders to take the actions set forth herein. All such actions shall be deemed to be facts ascertainable outside this Agreement and shall be binding on all of the Other Holders of the Company.
“Shares” means all of the issued and outstanding shares of stock of the Company.
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“Supplement” has the meaning set forth in Section 6.2.
“Surviving Entity” has the meaning set forth in Section 2.1.
“Tax Return” means any report, return or other information required to be and actually supplied to a Governmental Authority in connection with any Taxes.
“Taxes” means all taxes, and all other charges, fees, duties (including customs duties), levies or other assessments in the nature of a tax, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, occupational, interest equalization, windfall profits, severance, license, payroll, environmental, capital stock, disability, employee’s income withholding, other withholding, unemployment and Social Security taxes, which are imposed by any Governmental Authority, and such term shall include any interest, penalties or additions to tax attributable thereto.
“Termination Date” has the meaning set forth in Section 10.1(f).
“Threshold Amount” has the meaning set forth in Section 11.3(a).
“Transaction Documents” means this Agreement and the Releases.
“Treasury Regulations” means the Treasury Regulations promulgated under the Code by the U.S. Treasury Department.
“Total Consideration” means the Merger Consideration and the Earnout Payment.
“WARN Act” has the meaning set forth in Section 3.15.
“WilmerHale” has the meaning set forth in Section 6.12.
ARTICLE II
(a) Upon the terms and subject to the conditions set forth herein and unless this Agreement has been terminated pursuant to its terms, the closing of the Merger (the “Closing”) shall take place at the offices of Xxxxxxxx Xxxx at 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 on the second business day after the satisfaction or waiver of the conditions in Article VIII and Article IX (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted hereunder, waiver of any such conditions) or at such other time, date or location as the parties hereto agree. The date on which the Closing actually occurs and the transactions contemplated hereby become effective is hereinafter referred to as the “Closing Date.”
(b) At the Closing:
(i) the Company shall deliver to Purchaser and Merger Sub the various certificates, instruments and documents referred to in Section 8.5;
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(ii) Purchaser and Merger Sub shall deliver to the Company the various certificates, instruments and documents referred to in Section 9.4;
(iii) the Surviving Entity shall file with the Secretary of State of the State of Delaware the Certificate of Merger in accordance with Section 2.4;
(iv) Purchaser shall deliver to the holders of the Certificates, certificates evidencing the Merger Consideration in accordance with Section 2.3(c);
2.3 Effect on Capital Stock; Earnout; Payment of Merger Consideration.
(i) The Common Shares and a portion of the Preferred Shares held by G&D issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and Common Shares held in the Company’s treasury) shall be converted into and represent the right to receive shares of common stock of the Parent equal to 19.96% of the outstanding shares of Parent on the trading day prior to the Closing as set forth in accordance with the Schedule 2.3(a)(i) (such Schedule 2.3(a)(i) to be updated by the parties on the trading day immediately prior to the Closing) (the “Common Stock Payment”).
(ii) The remaining Preferred Shares issued and outstanding immediately prior to the Effective Time and held by G&D (other than Dissenting Shares and Preferred Shares held in the Company’s Treasury) shall be converted into and represent the right to receive 2,000 shares of Series C Preferred Stock, stated value $1,000 per share (the “Preferred Stock Payment”).
(i) During the Earnout Period, the Sellers shall be entitled to receive an Earnout Payment equal to 12.5% of the Gross Revenue (the “Earnout Payment”).
(ii) Review and Dispute Procedures.
(A) For each quarter during the Earnout Period, within five (5) days after the filing of the Purchaser’ quarterly report on Form 10-Q with the SEC, Purchaser shall prepare and deliver to the Sellers its good faith calculation of Gross Revenue for such quarter (the “Gross Revenue Statement”).
(B) On the tenth (10th) day following Purchaser’s delivery of the Gross Revenue Statement to the Sellers, the Gross Revenue Statement shall be deemed to be the “Final Gross Revenue Statement” (and shall, for purposes of this Agreement, be deemed to be final and binding on the parties, including with respect to the calculation of the Gross Revenue thereon) unless, prior to such date, the Sellers shall have delivered to Purchaser a notice describing in reasonable detail its objections to the Gross Revenue Statement (including such reasonable detail (to the extent then known to the Sellers) regarding the items in dispute and a statement of the amount of each adjustment that the Sellers believe should be made to the Gross Revenue Statement). Any items in the Gross Revenue Statement that are not objected to in the Sellers’ notice shall be deemed to be final and binding on the parties. Purchaser and the Sellers shall each use reasonable best efforts to resolve any objections and any such resolution shall be final and binding on all parties. Any disputes on any Gross Revenue Statement shall be addressed after the close of the fiscal year and the outside independent auditors have reviewed the Purchaser’s financial statements and any adjustments have been made that may impact the calculation of the Gross Revenue.
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(C) If Purchaser and the Sellers do not resolve all of the Sellers’ objections within ten (10) days after the filing of the Purchaser’s annual report on Form 10-K with the SEC containing Purchaser’s audited financial statements, then either Purchaser or the Sellers may, within ten (10) days after such date, submit the unresolved objections to a Neutral Accountant. Purchaser and the Sellers shall direct the Neutral Accountant to, within twenty (20) days following such submission, resolve such unresolved objections and such resolution shall be final and binding on all parties. The Gross Revenue Statement provided by the Neutral Accountant pursuant to this Section 2.3(b)(ii)(C) (including the calculation of the Gross Revenue thereon) shall be deemed to be the “Final Gross Revenue Statement” and shall, for purposes of this Agreement, be deemed to be final and binding on the parties. If neither Purchaser nor the Sellers submits such unresolved objections to the Neutral Accountant during the ten (10) Business Day period, the Gross Revenue Statement prepared by Purchaser shall be the “Final Gross Revenue Statement” and shall, for purposes of this Agreement, be deemed to be final and binding on the parties, including with respect to the calculation of the Gross Revenue therein.
(D) Within five (5) days after the calculation of the Gross Revenue becomes final and binding on the Parties pursuant to this Section 2.3, Purchaser shall pay the applicable Earnout Payment to the Sellers in accordance with the wire instructions delivered by the Sellers to Purchaser.
(iii) Operating Procedures of the Company.
(A) Generally. Purchaser and the Sellers recognize that decisions made in the management of the Business by Purchaser after the Closing may affect the Earnout Payment. Each Seller acknowledges and agrees that after the Closing, Purchaser will manage the Business with a view to maximizing the long-term value of Purchaser taken as a whole with its subsidiaries as determined by Purchaser and not to maximize the Earnout Payment during the Earnout Period. Neither Purchaser nor any of its officers, employees, directors or shareholders or other Affiliates will owe any duty to any Seller or any Affiliate of any Seller to manage Purchaser (including its subsidiaries), the Company or the Business in such a way as to maximize the Earnout Payment. Notwithstanding the foregoing, during the Earnout Period, (a) Purchaser shall manage the ongoing business in good faith and shall not intentionally take any action or fail to take any action primarily for the purpose of reducing or eliminating the Earnout Payment, (b) the Company shall operate the Business independently from Purchaser’s other businesses and subsidiaries and (c) subject to the principles in the other sentences of this Section 2.3(b)(iii) and Purchaser’s right to manage the Company and the Business accordingly, Purchaser shall use its good faith efforts to manage the Company and the Business substantially in the same manner as they were managed prior to the Closing (and, to the extent any Seller is then an officer of the Company, permit such Seller(s) to do the same. Without limiting the generality of the foregoing provisions of this Section 2.3(b)(iii), the parties agree that Purchaser’s consideration of and decisions made in light of normal business consideration factors, such as profit margins, costs of marketing and sales activities, commercial feasibility, market and technology developments, market acceptance, business opportunities, company resources, competition and competitive advantages and disadvantages, and economic conditions, shall constitute management of the Business by Purchaser in good faith
(B) Internal Restructuring; Acquisitions or Sales. For purposes of clarification, it is the intent of the parties that the economic benefits of this Section 2.3 shall not be modified or decreased if, in the future, there is an internal ownership, organizational or operational change within Purchaser and its Affiliates (including, without limitation, if any business or entity is acquired by Purchaser following the Closing, any current business or Affiliate of Purchaser is combined with the Company, any Affiliate of Purchaser makes use of Company Technology, or the Purchaser otherwise restructures the Business or the Company) that changes the actual entities that conduct the Business of the Company after the Closing.
(C) Certain Acknowledgements. Sellers agree and acknowledge that the right to receive the Earnout Payments, if any, pursuant to this Agreement: (1) is an integral part of the total consideration for the Shares and not an investment; (2) does not represent an ownership interest in Purchaser’s or any of its Affiliates (including the Company after Closing); (3) does not carry voting, dividend or liquidation rights; and (4) is not represented by any form of certificate or instrument.
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(c) Payment of Merger Consideration.
(i) Purchaser shall serve as the exchange agent and paying agent to effect the payment and exchange of the Merger Consideration. On the Closing Date, Purchaser shall deliver (i) to the Sellers, stock certificates representing the Merger Consideration as set forth in Schedule 2.3(a)(i) and Schedule 2.3(a)(ii) (such schedules may be updated by the parties on the trading day immediately prior to the Closing). As soon as practicable after the Effective Time, Purchaser shall send a notice and a transmittal form to each Seller advising such Seller of the effectiveness of the Merger and the procedure for surrendering to the Purchaser such Certificate in exchange for the payment of the Merger Consideration payable pursuant to this Section 2.3. Each Seller, upon proper surrender thereof to Purchaser in accordance with the instructions in such notice, shall be entitled to receive as payment therefor (subject to any taxes required to be withheld) the Merger Consideration payable pursuant to this Section 2.3 plus cash in lieu of any fractional shares, as provided in Section 1.8 below. Until properly surrendered, each such Certificate shall be deemed for all purposes to evidence only the right to receive the Merger Consideration payable pursuant to Section 2.3.
(ii) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed, Purchaser shall pay in respect of such lost, stolen or destroyed Certificate the Merger Consideration payable in respect thereof pursuant to Section 2.3.
(iii) No dividends or other distributions that are payable to the holders of record of Purchaser Common Stock as of a date on or after the Closing Date shall be paid to former holders of capital stock of the Company entitled by reason of the Merger to receive Merger Consideration until such holders surrender their Certificates for certificates representing the Merger Consideration. Upon such surrender, Purchaser shall pay or deliver to the persons in whose name the certificates representing such Merger Consideration are issued any dividends or other distributions that are payable to the holders of record of Purchaser Common Stock as of a date on or after the Closing Date and which were paid or delivered between the Effective Time and the time of such surrender; provided that no such person shall be entitled to receive any interest on such dividends or other distributions.
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(a) Dissenting Shares shall not be converted into or represent the right to receive any Merger Consideration, unless the Seller holding such Dissenting Shares shall have forfeited his, her or its right to appraisal under the Delaware General Corporation Law or properly withdrawn, his, her or its demand for appraisal. If such Seller has so forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares, then (i) as of the occurrence of such event, such Seller’s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger Consideration payable in respect of such Shares pursuant to Section 2.3, and (ii) promptly (but in no case later than ten (10) Business Days) following the occurrence of such event, Purchaser shall deliver to such Seller the Merger Consideration to which such holder is entitled pursuant to Section 2.3.
(b) The Company shall give Purchaser (i) prompt notice of any written demands for appraisal of any Shares, withdrawals of such demands and any other instruments that relate to such demands received by the Company and (ii) Purchaser and the Company shall jointly participate in all negotiations and proceedings with respect to such demands for appraisal under the Delaware General Corporation Law. Neither Purchaser nor the Company shall, except with the prior written consent of the other, make any payment with respect to any demands for appraisal of Shares or offer to settle or settle any such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
The Company and each Seller, excluding G&D, severally and not jointly, represents and warrants to Purchaser that, except as set forth on the schedule of exceptions attached hereto as Exhibit A (the “Schedule of Exceptions”), which exceptions or disclosure shall be deemed to be part of the representations and warranties made hereunder, the following representations in this Article III are true, correct and complete as of the date hereof. The Schedule of Exceptions shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections of this Article III, and the disclosures in any section or subsection of the Company Disclosure Schedule shall only qualify each section and subsection of this Article III to which it corresponds and each other section and subsection of this Article III to the extent it is reasonably apparent from a reading of the text of the disclosure without reference to any underlying document that such disclosure is applicable to such other section or subsection.
3.2 Authorization; Investment Intent; Ownership of Shares.
(a) The Company has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the performance by the Company its obligations hereunder have been duly authorized by all necessary corporate action of the Company in accordance with applicable Law and the Company Charter Documents. This Agreement constitutes the valid and legally binding obligations of the Company enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting the enforcement of creditors’ rights or by general principles of equity, whether such enforceability is considered in a court of law, a court of equity or otherwise.
(b) Section 3.2(b) of the Schedule of Exceptions sets forth all of the Company’s shareholders, the number and class and series of shares of capital stock owned by them and all outstanding securities of the Company convertible into or exercisable or exchangeable for shares of capital stock of the Company along with the holders thereof. Each Seller is the sole record and beneficial owner of the Shares set forth opposite such Seller’s name in Section 3.2(b) of the Schedule of Exceptions, all of which Shares are owned free and clear of all rights, claims and Liens, and have not been sold, pledged, assigned or otherwise transferred except pursuant to this Agreement. There are no outstanding subscriptions, rights, options, warrants or other agreements obligating the Company to issue any shares of capital stock of the Company or securities convertible into or exercisable or exchangeable for shares of capital stock of the Company or obligating any Seller to sell or transfer to any Person any or all of the Shares owned by such Seller, or any interest therein.
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(c) The authorized capital stock of the Company consists of 10,000,000 shares of common stock, $0.01 par value and 2,235,081 shares of Preferred Stock, $0.01 par value, the number of shares of each class of stock issued and outstanding and the holders of and the number of shares owned by each shareholder are set forth in Section 3.2(b) of the Schedule of Exceptions and all of which constitute Shares hereunder. The Company has not granted, issued or agreed to grant, issue or make available any warrants, options, subscription rights or any other calls, claims or commitments of any character relating to the unissued shares of capital stock of the Company. All of the issued and outstanding capital stock of the Company has been duly authorized and validly issued, is fully paid and non-assessable, and was issued in compliance with all applicable securities Laws, and are not subject to, and immediately after the Closing will not be subject to any option, Lien, right of rescission, right of first refusal, right of first offer, voting agreement, voting trust, proxy, shareholders agreement, or preemptive right. No shares of capital stock of the Company are subject to vesting or repurchase rights.
(a) The Financial Statements were prepared in accordance with GAAP applied on a basis consistent with prior periods (except, to the extent any such Financial Statements are unaudited, such unaudited Financial Statements do not contain footnotes and are subject to normal and recurring year-end adjustments, none of which are, individually or in the aggregate, material in amount or nature) and fairly present in all material respects the financial position, assets and Liabilities of the Company as of the dates thereof and the revenues, expenses, results of operations and cash flows of the Company for the periods covered thereby. The Financial Statements are in accordance with the books and records of the Company, and do not reflect any transactions which are not bona fide transactions. Except as set forth in the Balance Sheet, the Company does not have any material Liabilities, debts, claims or obligations, whether accrued, absolute, contingent or otherwise, whether due or to become due, other than trade payables to third parties and accrued expenses incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. A true and complete copy of the Financial Statements is attached as Exhibit A to the Schedule of Exceptions.
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(d) Projections. Any financial projections provided by the Company or any Seller to Purchaser in connection with Purchaser’s review of the Company were prepared in good faith based upon assumptions believed by the Company’s management and the Sellers to be reasonable at the time made.
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(a) The Company operates the Business at the Leased Real Property, and at no other locations, other than client sites. Except for the Leased Real Property, the Company is not a party to any lease of any real property, whether as lessor or as lessee, and has no ownership of or other interest in any real property. Section 3.7(a) of the Schedule of Exceptions lists the addresses and the leases relating to each Leased Real Property.
(b) The Leased Real Property leases are in full force and effect and the Company holds a valid and existing leasehold interest under such leases free and clear of all Liens, other than Permitted Liens. The Company is not in material default, and no circumstances exist which would result in such default (including upon the giving of notice or the passage of time, or both), under such lease, and no other party to such lease has the right to terminate or accelerate performance under or otherwise modify any of such lease, including upon consummation of Purchaser’s acquisition of the Shares pursuant to this Agreement. To the knowledge of the Sellers, no Person other than the Company has any right to use, occupy or lease any of the Leased Real Property.
(c) There is no pending or, to the knowledge of the Sellers, threatened condemnation, expropriation, eminent domain or similar proceeding affecting all or any part of the Leased Real Property, and the Company has not received any written notice thereof.
(d) The buildings and other structures on the Leased Real Property are in good repair, ordinary wear and tear excepted, and fit for the purposes for which they are presently used in all material respects. The Company has rights of egress and ingress with respect to each of the Leased Real Property that is sufficient for it to conduct its business.
(a) Section 3.10(a) of the Schedule of Exceptions sets forth a complete and accurate list of all Intellectual Property owned by the Company as of the date hereof that is registered, recorded or filed in the name of the Company with a Governmental Authority and all applications therefor (“Company Registered IP”). Each item of Company Registered IP is (i) in compliance with all applicable legal requirements and is current with its filing, registration and maintenance requirements, and (ii) to the knowledge of the Sellers, valid and enforceable. Section 3.10(a) of the Schedule of Exceptions also sets forth a complete and accurate list of all material unregistered trademarks or service marks owned by the Company (“Unregistered Marks”) and used by the Company in the operation of the Business. Each of the Unregistered Marks is, to the knowledge of the Seller, enforceable.
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(b) The Company either exclusively owns, free and clear of all Liens (other than Permitted Liens), or has permission to use pursuant to a valid written agreement or, to the knowledge of the Sellers, has other valid rights to use, all Intellectual Property used or held for use in the operation of the Business as presently conducted (collectively, “Company IP Rights”). The Company IP Rights comprise all of the Intellectual Property that is used in or necessary for the operation of the Business as currently conducted. No Person has asserted any claims against the Company or, to the knowledge of the Sellers, threatened to assert any claims against the Company (i) contesting the right of the Company to use, transfer or license any Company IP Rights owned by a Person other than the Company or any products, processes, services or materials covered thereby in any manner, or (ii) challenging the ownership, validity or enforceability of any such Company IP Rights. In addition, to the knowledge of the Sellers, no Person has asserted any claims against the Company or any other Person, to the knowledge of the Sellers, threatened to assert any claims against the Company or any other Person (x) contesting the right of the Company or any other Person to use, transfer or license any Company IP Rights owned by the Company or any products, processes, services or materials covered thereby in any manner, or (y) challenging the ownership, validity or enforceability of any such Company IP Rights.
(c) To the knowledge of the Sellers, the operation of the Business has not and does not infringe or misappropriate any Intellectual Property of any Person, and has not and does not violate the rights of any Person (including the right to privacy or publicity) or constitute unfair competition or trade practices under any Laws. To the knowledge of the Sellers, no Person has infringed or misappropriated or is infringing or misappropriating any Company IP Rights.
(d) Following the Closing, the Surviving Entity will be permitted to exercise all of the rights under the Company IP Rights to the same extent the Company would have been able to had the transactions contemplated by this Agreement not occurred. All Company IP Rights are, and immediately after the Closing Date, will be, fully transferable, alienable or licensable by the Surviving Entity to the same extent as they would be transferable, alienable or licensable by the Company immediately prior to the Closing Date, without any restrictions (other than those restrictions set forth in any of the Contracts listed in Section 3.11(b)(xiv) of the Schedule of Exceptions or otherwise identified in Section 3.10(d) of the Schedule of Exceptions), and without payment of any kind to any Person (other than payments which would have been due from Company, notwithstanding the closing of the transactions contemplated in this Agreement, and which are obligations under one or more of the Contracts listed in Section 3.11(b)(xiv) of the Schedule of Exceptions), except as a result of any independent agreements or obligations of Purchaser. The Company has not granted any exclusive licenses or rights of any kind in the Company IP Rights to any Person, and the Company does not hold any rights to Company IP Rights jointly with any third Person.
(e) The Company has not entered into any Contract to settle or resolve any action, claim or dispute with respect to any Intellectual Property. No Company IP Right is subject to any proceeding or outstanding decree, Order, judgment, Contract or stipulation that restricts in any manner the use, transfer or licensing thereof by the Company and subsequently by the Surviving Entity.
(f) The Company has taken all actions reasonably necessary to maintain and protect all Company IP Rights, including all confidential and proprietary information and trade secrets pertaining thereto. All agents, employees and independent consultants of the Company employed or engaged in the five (5) years prior to the date hereof who have participated in or contributed to the development of any Intellectual Property for the Company have executed and delivered to the Company a written assignment agreement that vests in the Company exclusive ownership of all right, title and interest in and to any such Intellectual Property.
(g) The information technology systems used by the Company in connection with the operation of the Business (“IT Systems”) as a whole, are adequate and sufficient in all material respects for the conduct of the Business as currently conducted. The Company has taken commercially reasonable steps consistent with industry practice to protect the IT Systems from unauthorized access, use and damage. The IT Systems have not suffered any material failures or defects and have functioned consistently and accurately in all material respects.
(h) No software owned by the Company incorporates any Public Software. For purposes of this Agreement, “Public Software” means any software that contains, or is derived in any manner from, in whole or in part, any software, that is distributed as freeware, shareware, open source software (e.g., Linux) or similar licensing or distribution models that (i) requires the licensing or distribution of source code of other software that is combined or used with such software to licensees, (ii) prohibits or limits the receipt of consideration in connection with sublicensing or distributing any other software that is combined with such software, (iii) except as specifically required to be permitted by applicable Law, allows any Person to decompile, disassemble or otherwise reverse-engineer any other software that is combined with such software, or (iv) requires the licensing of any other software that is combined with such software to any other Person for the purpose of making derivative works. No software owned by the Company has been provided or disclosed in source code form to any Person (including without limitation, any escrow agents), other than employees, agents and independent contractors of the Company who have executed nondisclosure agreements and intellectual property assignment agreements for their use on behalf of the Company. To the extent the Company has provided or disclosed any such source code, such provision or disclosure has been pursuant to a written confidentiality agreement adequate to protect the proprietary and confidential nature of such source code.
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(a) All of the Material Contracts are in writing and are in full force and effect and constitute the legal, valid and binding obligations of the Company and, to the knowledge of the Sellers, the other parties thereto. All of the Material Contracts are enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and by equitable limitations on the availability of specific remedies. No termination notice has been delivered by the Company to any other party or, to the knowledge of Sellers, by any other party to the Company, with respect to any Material Contract. As to each Material Contract, there does not exist thereunder any breach, violation or default on the part of the Company or, to the knowledge of the Sellers, any other party to such Material Contract, and there does not exist any event, occurrence or condition, including the consummation of the transactions contemplated hereby, which (with or without notice, passage of time, or both) would constitute a breach, violation or default thereunder on the part of the Company. No waiver has been granted by the Company or, to the knowledge of the Sellers, any of the other parties thereto under any of the Material Contracts. The Company has delivered or made available to Purchaser true and complete copies of each Material Contract that Purchaser has requested.
(b) Section 3.11(b) of the Schedule of Exceptions sets forth a true and complete list of all Contracts of the following types to which a Company is a party, by which it is bound, or which otherwise pertain to the Business of the Company (including in each case which subsection(s) of this Section 3.11 to which such Material Contract is responsive) (each such Contract, whether or not so listed, is referred to as a “Material Contract”):
(i) any Contract or arrangement of any kind with any employee, officer, director, shareholder or other equity interest holder or other Persons with whom the Company is not dealing at arm’s-length;
(ii) any Contract or arrangement with a broker, advertising agency, placement agent or other Person engaged in sales, marketing, distributing or promotional activities, or any Contract to act as one of the foregoing on behalf of any Person;
(iii) any Contract or arrangement of any nature (A) having an aggregate value in excess of $100,000, (B) of any value that is not terminable by the Company at any time on notice of thirty (30) days or less or (C) is otherwise material to the Company;
(iv) any indenture, credit agreement, loan agreement, note, mortgage, security agreement, letter of credit, loan commitment, guaranty, repurchase agreement or other Contract or arrangement relating to the borrowing of funds, an extension of credit or financing, pledging of assets or guarantying the obligations of any Person;
(v) any Contract or arrangement involving the Company as a participant in or an owner of a partnership, limited liability company, corporation, joint venture, strategic alliance, or other cooperative undertaking;
(vi) any Contract or arrangement involving any restrictions on the Company or any Affiliate of the Company with respect to the geographical area of operations where such Person may conduct business, or scope or type of business that such Person may conduct or the solicitation of any individual or class of individuals for employment;
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(vii) any Contract granting to any Person a right at such Person’s option to purchase or acquire any asset or property of the Company (or interest therein);
(viii) any Contract for capital improvements or expenditures in excess of $20,000 individually or $40,000 in the aggregate;
(ix) any Contract for which the full performance thereof may extend beyond ninety (90) days from the date of this Agreement;
(x) any Contract not made in the ordinary course of business which is to be performed in whole or in part at or after the date of this Agreement;
(xi) any Contract or arrangement relating to management support, facilities support or similar arrangement which, if breached, could have a Material Adverse Effect on the Business;
(xii) any Contract whereby any Person agrees (A) not to compete with the Company or to solicit employees, clients or customers of the Company, or (B) to maintain the confidentiality of any information of the Company;
(xiii) any Contract of the Company for the provision of consulting services of any type or nature and any arrangement for the payment of commissions, in each case, whether by or for the Company;
(xiv) any Contract (A) under which the Company is granted a right or license to use the Intellectual Property of any Person (other than for generally commercially available software) and (B) pursuant to which the Company has granted any right or license to any Person in respect of Company IP Rights;
(xv) any Contract evidencing or relating to any obligations of the Company with respect to the issuance, sale, repurchase or redemption of any securities of the Company;
(xvi) all Leased Real Property leases;
(xvii) any Contract that obligates the Company with respect to contingent payments of any type;
(xviii) any Contract relating to any litigation or claim involving the Company at any time during the last five (5) years or under with there are ongoing responsibilities;
(xix) any Contract relating to the acquisition or disposition of any capital stock, all or substantially all the assets or business or product line of any other Person; and
(xx) any Government Bid or Government Contract.
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3.14 Employee Benefit Plans and Employment Agreements.
(a) Section 3.14(a) of the Schedule of Exceptions contains a list as of the date of this Agreement of each “employee benefit plan,” as defined in Section 3(3) of ERISA and all other material employment Contracts, and employee benefit plans, programs, policies and arrangements (including all collective bargaining, stock purchase, stock option, compensation, deferred compensation, pension, retirement, severance, termination, separation, vacation, sickness, health insurance, welfare and bonus plans or Contracts) entered into, maintained or contributed to by the Company for the benefit of continuing employees or other service-providers (or former employees or service-providers) of the Company or with respect to which the Company has any obligation or Liability (collectively, the “Company Plans”).
(b) The Company has provided or made available to Purchaser true and materially correct copies of each of the Company Plans (including all amendments thereto) and all Contracts relating thereto, or to the funding thereof, including all trust Contracts, insurance Contracts, administration Contracts, investment management Contracts, subscription and participation Contracts, and recordkeeping Contracts, each as in effect on the date hereof, to the extent such Company Plans are in written form (and, as to any Company Plan that is not in writing, a description of the material terms of such plan). To the extent applicable, a true and correct copy of the most recent annual report, actuarial report, summary plan description, and Internal Revenue Service determination, opinion, notification or advisory letter (“Determination Letter”) with respect to each of the Company Plans has been supplied or made available to Purchaser by the Company.
(d) There are no actions, suits or claims pending or, to the knowledge of Sellers, threatened involving any Company Plan (other than routine claims for benefits) or the assets thereof (other than with respect to publicly traded securities or insurance company products and as to which neither the Company Plan or the Company is a named party), and no audits, inquiries or proceedings pending or, to the Seller’s knowledge, threatened by the IRS or other Governmental Authority with respect to any Company Plan. Each Company Plan has been maintained and administered in all material respects in material compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations (foreign and domestic), including (without limitation) ERISA and the Code, which are applicable to such Company Plan. All contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Company Plans have in all material respects been timely made or accrued. No “Prohibited Transaction,” within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Plan. No Company Plan provides, or reflects or represents any Liability to provide, health or welfare benefits with respect to any former or current employee, or any spouse or dependent of any such employee, beyond the employee’s retirement or other termination of employment with the Company (other than coverage mandated by Part 6 of Title I of ERISA or Section 4980B of the Code or analogous provision of applicable U.S. state or foreign Law).
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(e) There is no Contract or plan covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment as a result of the transactions contemplated by this Agreement of any amount that would not be deductible by the Company by reason of Section 280G of the Code. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement (alone or together with any other event which, standing alone, would not by itself trigger such entitlement or acceleration) will not (1) entitle any Person to any payment, forgiveness of indebtedness, vesting, distribution, or increase in benefits under or with respect to any Company Plan, (2) otherwise trigger any acceleration (of vesting or payment of benefits or otherwise) under or with respect to any Company Plan, or (3) trigger any obligation to fund any Company Plan.
(f) With respect to each Company Plan that is a “nonqualified deferred compensation plan” (as defined for purposes of Section 409A(d)(1) of the Code) that is subject to, and not exempt from, Section 409A of the Code, (1) such plan has been operated since January 1, 2005 in compliance with Section 409A of the Code and all applicable IRS guidance promulgated thereunder; (2) the document or documents that evidence each such plan have conformed to the provisions of Section 409A of the Code and the final regulations under Section 409A of the Code since December 31, 2008; and (3) as to any such plan in existence prior to January 1, 2005 and not subject to Section 409A of the Code, has not been “materially modified” (within the meaning of IRS Notice 2005-1) at any time after October 3, 2004. No stock option covering securities of the Company is subject to any tax, penalty or interest under Section 409A of the Code.
(g) No Company Plan is maintained outside the jurisdiction of the United States, or covers any employee residing or working outside the United States (any such Company Plan, a “Foreign Benefit Plan”). With respect to any Foreign Benefit Plans, (A) all Foreign Benefit Plans have been established, maintained and administered in compliance in all material respects with their terms and all applicable statutes, laws, ordinances, rules, orders, decrees, judgments, writs, and regulations of any controlling Governmental Authority, (B) all Foreign Benefit Plans that are required to be funded are fully funded, and with respect to all other Foreign Benefit Plans, adequate reserves therefor have been established on the Financial Statements, and (C) no material Liability or obligation of the Company exists with respect to such Foreign Benefit Plans.
(a) Except for current Taxes not due and payable through Closing, each of the Company has paid to, and where necessary collected or withheld and remitted to, the proper Governmental Authority, all Taxes that are due and payable.
(b) The Company has filed all Tax Returns which are required to be filed and all such Tax Returns are complete and accurate in all material respects. All unpaid Taxes of the Company for periods through the date of the Financial Statements are reflected on the balance sheets of the Company. The Company does not have any Liability for Taxes accruing after the Financial Statements other than Taxes accrued in the ordinary course of business and which are not yet due and payable.
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(c) There is no, and there has never been any, action, suit, investigation, audit, claim, collection or assessment pending or, to the knowledge of the Sellers, proposed or threatened, with respect to any Tax Return or Taxes of the Company. No claim has ever been made by a Taxing authority in a jurisdiction where the Company is not paying Taxes or filing Tax Returns asserting that the Company is or may be subject to Taxes assessed by such jurisdiction. There are no Liens for Taxes upon the any of the assets of the Company except Liens relating to current Taxes not yet due.
(d) The Company is not (and has never been) a party to any Tax sharing agreement, Tax indemnity agreement or Tax allocation agreement, or has assumed the Tax Liability of any other Person under contract with the exception of customary commercial leases or Contracts that are not primarily related to Taxes entered into in the ordinary course of business.
(e) The Company has not been the “distributing corporation” or the “controlled corporation” (in each case, within the meaning of Section 355(a)(1) of the Code) with respect to a transaction described in Section 355 of the Code (i) within the three (3)-year period ending as of the date of this Agreement, or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) that includes the transactions contemplated by this Agreement.
(f) The Company has never been a member of an affiliated group filing consolidated Tax Returns. With the exception of customary commercial leases or Contracts that are not primarily related to Taxes entered into in the ordinary course of business and Liabilities thereunder, the Company does not have any actual or potential Liability under Treasury Regulations Section 1.1502-6 (or any comparable or similar provision of federal, state, local or foreign law), as a transferee or successor, pursuant to any contractual obligation, or otherwise for any Taxes of any Person.
(g) There are no adjustments under Section 481 of the Code (or any similar adjustments under any provision of the Code or the corresponding foreign, state or local Tax laws) that are required to be taken into account by the Company in any period ending after the Closing Date by reason of a change in method of accounting in any taxable period ending on or before the Closing Date.
(h) There are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which the Company may be subject.
(i) The Company has not engaged in a “reportable transaction,” as set forth in Treasury Regulation Section 1.6011-4(b), or any transaction that is the same as or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a “listed transaction,” as set forth in Treasury Regulation Section 1.6011-4(b)(2).
(j) The Company is in compliance with all terms and conditions of all Tax exemptions, or order of a foreign government with respect to taxes and the transactions contemplated by this Agreement shall not have any adverse effect on the continued validity and effectiveness of any such Tax exemptions or orders.
(k) No Seller holds equity in the Company that is non-transferable and subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code with respect to which a valid election under Section 83(b) of the Code has not been made.
(l) Notwithstanding anything to the contrary in this Agreement, it is agreed and understood that (i) no representation or warranty is made by the Sellers or the Company in this Agreement in respect of Tax matters, other than the representations and warranties set forth in this Section 3.16, (ii) the representations and warranties of the Company in this Section 3.16 refer only to activities prior to the Closing and shall not serve as representations and warranties regarding, or a guarantee of, nor can they be relied upon with respect to, Taxes attributable to any Tax period (or portion thereof) beginning, or Tax positions taken, after the Closing Date, and (iii) no representations or guarantees are made with respect to the amount or availability of Tax attributes of the Company or any Subsidiary for any Tax period ending after the Closing Date.
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3.17 No Defaults or Violations.
(a) The Company is not in material breach of or default under any Material Contract, no event has occurred or circumstance exists which, with notice or lapse of time or both, would constitute a material breach of or default under any Material Contract, and, to the knowledge of the Sellers, no other party to any Material Contract is in material breach of or default under any such Material Contract.
(b) The Company is not, and during the past two (2) years the Company has not been, in violation of, in any material respect, and, to the knowledge of the Sellers, no event has occurred or circumstance exists that (with or without notice or lapse of time) would constitute or result in a violation in any material respect by the Company of, or failure on the part of the Company to comply with in any material respect, any Law that is or was applicable to it or the conduct or operation of its business or the ownership or use of any of its assets.
(c) No written notice from any Governmental Authority has been received by or on behalf of the Company within the past three (3) years claiming any violation of any Law or requiring any work, construction (other than pursuant to sales contracts with Governmental Authorities), or expenditure, or asserting any Tax, assessment or penalty, with respect to the Company.
(a) No Seller has any direct or indirect interest in any other Person which conducts a business similar to the Business, or in any customer or supplier of the Company.
(b) To the knowledge of the Sellers, no officer, director, employee, consultant, shareholder of the Company or any Affiliate of any of the foregoing (a) has any interest in any property (real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Business, (b) except for the ownership of less than 2% of the outstanding common stock of a publicly-held corporation, owns of record or as a beneficial owner, an equity interest or any other financial or a profit interest in a Person that has had business dealings or a material financial interest in any transaction with the Company or (c) is a party to any Contract (except for employment and similar agreements), including with respect to compensation or remuneration to be paid to such officer, director, shareholder or Affiliate in connection with this Agreement or the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, severally and not jointly, represents and warrants to Purchaser that the following representations in this Article IV are true, correct and complete as of the date hereof:
4.1 Authorization; Investment Intent; Ownership of Shares.
(a) Such Seller has full power, authority and capacity to enter into this Agreement and the Transaction Documents to which such Seller is a party, and to consummate the transactions contemplated hereby and thereby. This Agreement and each Transaction Document to which such Seller is a party constitutes, or upon execution and delivery will constitute, a valid and legally binding obligation of such Seller, enforceable against such Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting the enforcement of creditors’ rights or by general principles of equity, whether such enforceability is considered in a court of law, a court of equity or otherwise. The Shares held by such Seller do not constitute community property under applicable Laws.
(b) Such Seller is the sole record and beneficial owner of the Shares set forth opposite such Seller’s name in Section 3.2(b) of the Schedule of Exceptions, all of which Shares are owned free and clear of all Liens, and neither such Shares nor any interest therein have been sold, pledged, assigned or otherwise transferred except pursuant to this Agreement. There are no outstanding subscriptions, rights, options, warrants or other agreements obligating such Seller to sell or transfer to any third person any or all of the Shares owned by such Seller, or any interest therein. Following the Closing, Purchaser shall own one-hundred percent (100%) of the issued and outstanding shares of capital stock of the Company. This Agreement, together with any stock powers or assignments delivered at the Closing by the Sellers to Purchaser, are sufficient to transfer to Purchaser the entire right, title and interest, legal and beneficial, in the Shares, free and clear of all Liens.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and each Seller that the following representations in this Article V are true, correct and complete as of the date hereof:
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ARTICLE VI
(a) Charter Documents. Cause or permit any amendments to the Company Charter Documents;
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(d) Issuance of Securities. Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into or exercisable or exchangeable for, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible, exercisable or exchangeable securities, including the grant of options pursuant to a stock option plan;
(f) Exclusive Rights. Enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology;
(i) Leases. Enter into any lease with aggregate payment obligations in excess of $10,000;
(j) Payment of Obligations. Pay, discharge or satisfy in an amount in excess of $5,000 in any one case or $25,000 in the aggregate, any claim, Liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) arising other than in the ordinary course of business, other than the payment, discharge or satisfaction of Liabilities reflected or reserved against in the Balance Sheet;
(m) Termination or Waiver. Terminate or waive any right of substantial value;
(n) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any employee benefit or stock purchase or option plan, enter into any employment Contract, or hire any new officer-level employee, pay any special bonus or special remuneration to any employee or director (except payments made pursuant to written agreements outstanding on the date hereof and that have been delivered to Purchaser prior to the date hereof), or increase the salaries or wage rates of any employee;
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(r) Taxes. Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any material claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any material claim or assessment in respect of Taxes;
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“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”
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ARTICLE VII
POST CLOSING OPERATIONS
7.1 Reserved.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under Article II of this Agreement are subject to the satisfaction of the following conditions precedent on or before the Closing, unless waived in writing by Purchaser in its sole discretion:
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(a) all consents listed in Section 3.3 of the Schedule of Exceptions;
(b) a good standing certificate for the Company, dated within five (5) days of the Closing Date, from the State of Delaware and each other State where the Company is or is required to be qualified to do business;
(c) stock certificates relating to the Shares duly endorsed for transfer to Purchaser or accompanying duly executed and delivered stock powers effecting the same;
(d) a certificate of the Company’s Secretary’s certifying as to resolutions adopted by the Company’s Board of Directors approving the transactions described herein; and
(e) a Release duly executed and delivered by each Seller;
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ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company under Article II of this Agreement are subject to the satisfaction of the following conditions precedent on or before the Closing, unless waived by the Company:
9.4 Closing Deliveries. The Company shall have received the following duly executed instruments:
(a) a good standing certificate for Purchaser, dated within five (5) days of the Closing Date, from the State of Delaware and each other State where Purchaser is or is required to be qualified to do business;
(b) a certificate of Purchaser’s Secretary certifying as to resolutions adopted by the Board of Directors of Purchaser approving the transactions described herein;
9.7 Purchaser Series C Preferred Stock Issuance. Purchaser shall have issued to G&D 2,000 shares of Series C Preferred Stock.
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ARTICLE X
10.1 Termination. This Agreement may be terminated at any time on or prior to the Closing:
(a) By the written consent of each of the Company and Purchaser;
(b) By Purchaser by written notice to the Company if any event occurs or condition exists that would render impossible the satisfaction of one or more conditions to the obligations of Purchaser to consummate the transactions contemplated by this Agreement as set forth in Article VIII and that, if capable of cure, has not been cured within ten (10) Business Days of receipt by the Company of notice thereof from Purchaser;
(c) By the Company by written notice to Purchaser if any event occurs or condition exists that would render impossible the satisfaction of one or more conditions to the obligation of the Company to consummate the transactions contemplated by this Agreement as set forth in Article IX and that, if capable of cure, has not been cured within ten (10) Business Days of receipt by Purchaser of notice thereof from the Company;
(d) By Purchaser by written notice to the Company if there has been a material misrepresentation or other material breach by any Seller or the Company of the representations, warranties or covenants of any Seller or the Company set forth herein that, if capable of cure, has not been cured within ten (10) Business Days of receipt by the Company of notice thereof from Purchaser; or by the Company if there has been a material misrepresentation or other material breach by Purchaser of the representations, warranties and covenants of Purchaser set forth herein that, if capable of cure, has not been cured within ten (10) Business Days of receipt by Purchaser of notice thereof from the Company;
(e) By written notice of the Company or Purchaser, to the other parties, if any court of competent jurisdiction or other Governmental Authority shall have issued an Order or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such Order, ruling or other action shall have become final and nonappealable; or
(f) By written notice of Purchaser, on the one hand, or the Company, on the other hand, to the other parties hereto, if the Closing has not occurred on or before May 31, 2017 (the “Termination Date”), provided, that the right to terminate under this Agreement under this Section 10.1(f) shall not be available to a party if the failure of such party to fulfill or breach by such party of any if its obligations under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date. Any extension of the Closing Date shall require the mutual written consent of the Company and Purchaser.
ARTICLE XI
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(a) any breach of any representation or warranty made by the Company or any Seller in this Agreement in Article III;
(b) any breach of any representation or warranty made by any Seller in Article IV;
(c) any breach of any covenant of the Company or any Seller in this Agreement; and
(d) any Pre-Closing Taxes.
11.3 Limitations. Notwithstanding anything to the contrary in this Agreement:
(a) no claim may be made by any Indemnitee(s) for indemnification pursuant to Section 11.2(a) unless and until the aggregate amount of Losses for which the Indemnitee(s) seeks to be indemnified pursuant to Section 11.2(a) exceeds $50,000 (the “Threshold Amount”), at which time the Indemnitee(s) shall be entitled to indemnification for all such Losses (including all Losses included within the Threshold Amount); provided, that the Sellers shall not have any liability relating to an individual claim (or a series of related or similar claims) resulting in Losses in the amount of $5,000 or less (a “De Minimis Claim”), regardless of whether or not aggregate Losses as of the time of such claim have exceeded the Threshold Amount.
(b) except for any claim based on fraud or intentional misrepresentation, the maximum aggregate indemnification obligation of each Seller for money damages pursuant to Section 11.2(a), other than with respect to a claim for indemnification arising from any breach or inaccuracy of any Fundamental Representations, shall be limited to such Seller’s Pro Rata Share of the Total Consideration;
(c) notwithstanding anything in this Agreement to the contrary, except for any claim based on fraud or intentional misrepresentation, the maximum aggregate indemnification obligation of each Seller for money damages pursuant to Article XI shall be limited in the aggregate to the consideration actually received by such Seller pursuant to this Agreement; and
(d) no Seller shall be liable or have any indemnification obligation for the breach of any representations or warranty made by any other Seller in Article IV of this Agreement, the breach of any covenant of any other Seller in this Agreement or for the actions or inaction of any other Seller in connection with this Agreement.
(e) for the avoidance of doubt, each Indemnitor shall only be responsible (based on their Pro Rata Share) for an amount up to seventy-seven percent (77%) of their Pro Rata Share of Losses with respect to any claim or claims for indemnification by Indemnitee pursuant to this Article XI.
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11.4 Procedures for Making Claims. If and when an Indemnitee desires to assert a claim for Losses against any Indemnitor, the Indemnitee shall deliver to the Indemnitor a certificate signed by such Indemnitee (if the Indemnitee is an entity, the certificate shall be signed by its chief executive officer) (a “Notice of Claim”), which Notice of Claim shall: (i) state that the Indemnitee has paid or accrued (or intends or expects to pay or accrue) Losses to which it is entitled to indemnification pursuant to this Article XI and the amount thereof (to the extent then known); and (ii) specifying to the extent possible (A) the individual items of Losses in the certificate, (B) the date each such item was or is expected to be paid or accrued, to the extent known, and (C) the basis upon which Losses are claimed (including the specific clause of this Agreement pursuant to which such indemnification is being sought. Such Notice of Claim shall be delivered prior to the expiration of any applicable survival period as set forth in Section 11.1. If the Indemnitor shall object to such Notice of Claim, the Indemnitor shall deliver written notice of objection (the “Notice of Objection”) to the Indemnitee within fifteen (15) Business Days after receipt of the Notice of Claim. The Notice of Objection shall set forth the grounds upon which the objection is based and state whether the Indemnitor objects to all or only a portion of the matter described in the Notice of Claim. The Losses set forth in the Notice of Claim shall be payable to the Indemnitee within twenty (20) Business Days of the expiration of such fifteen (15) Business Day period without the necessity of further action to the extent the Indemnitor has not delivered a Notice of Objection. If the Indemnitor shall timely deliver a Notice of Objection, the Indemnitor and the Indemnitee shall attempt in good faith to agree upon the rights of such Persons with respect to the claim in the Notice of Claim. If an agreement on the amount of Losses is reached, then the Losses set forth in the Notice of Claim shall be payable to the Indemnitee within fifteen (15) Business Days of the date of such agreement. If the parties are unable to reach an agreement within fifteen (15) Business Days, either the Indemnitor or the Indemnitee may demand arbitration of the matter (such arbitration to be conducted by JAMS in New York City) (unless the matter is at issue in a pending third party claim, in which case arbitration shall not be commenced until such amount is ascertained or both persons agree to arbitration), and the matter shall be settled by arbitration conducted by one arbitrator mutually agreeable to the Indemnitor and the Indemnitee. In the event that within ten (10) days after submission of any dispute to arbitration, the Indemnitor and the Indemnitee cannot mutually agree on one arbitrator, the Indemnitor and the Indemnitee shall each select one arbitrator and the two arbitrators so selected shall select a third arbitrator. The arbitrator(s) shall set a limited time period and establish procedures designed to reduce the cost and time for discovery. The decision of the arbitrator or a majority of the arbitrators, as the case may be, as to the validity and amount of any claim for indemnification for Losses (a “Resolved Amount”) shall be binding and conclusive upon the Indemnitor and the Indemnitee. Such decision shall be delivered in writing and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator(s). Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction.
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(a) In the event the Closing occurs, subject to Section 12.11, the sole and exclusive remedy of Purchaser or any other Indemnitee for Losses for any breach or inaccuracy of any representation or warranty or for any breach of any covenant or obligation by the Company or any of the Sellers shall be indemnification pursuant to this Article XI; provided, however, this exclusive remedy does not preclude (i) a party from bringing an action for specific performance or other equitable remedy to require a party to perform its obligations under this Agreement or any of the Transaction Agreements or (ii) a party from pursuing remedies under applicable Law for fraud or intentional misrepresentation, provided that the maximum indemnification obligation of any Seller for fraud of another party shall be limited to the total consideration received by such Seller pursuant to this Agreement.
ARTICLE XII
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If to Purchaser, addressed as follows:
Nxt-ID, Inc.
Attn: Xxxx Xxxxxxx, CEO
000 Xxxxx Xxxxx – Xxxxx X
Xxxxxxxxx, XX 00000
Email: xxxx@xxx-xx.xxx
with a copy to (which shall not constitute notice):
Xxxxxxxx Xxxx
000 0xx Xxxxxx
0xx Xxxxx
Xxx Xxxx, XX 00000
Attn.: Xxxxx X. Xxxxxxxxx, Esq.
Email: xxx@xxxxxxxxxxxx.xxx
If to Xxxxxxx Xxxxxxx, addressed as follows:
Xxxxxxx Xxxxxxx
0000 Xxxx Xxxxxx Xxxx
Xxxxx X000
Xxxxxxxx, XX 00000
Email: xxxxxxx@xxx-xxx.xxx
If to G&D, addressed as follows:
Xxxxxxxx & Devrient Mobile Security America, Inc.
00000 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Email:
with a copy to (which shall not constitute notice):
Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx LLP
0000 Xxxxxxxx Xxxx, 0xx Xxxxx
Xxxxxx Xxxxxx, XX 00000-0000
Attn: Xxxx Xxxxxxxxxx, Esq.
Email: xxxxxxxxxxx@xxxx.xxx
Other Holders to the Shareholder Representative, addressed as follows:
Xxxxxxx Xxxxxxx
0000 Xxxx Xxxxxx Xxxx
Xxxxx X000
Xxxxxxxx, XX 00000
Email: xxxxxxx@xxx-xxx.xxx
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If to the Company, addressed as follows:
Fit Pay, Inc.
Attn: Chief Executive Officer
0000 Xxxx Xxxxxx Xxxx
Xxxxx X000
Xxxxxxxx, XX 00000
with a copy to (which shall not constitute notice):
Xxxxxx Xxxxxx Xxxxxxxxx Xxxx and Xxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxxxxx, Esq.
Email: Xxxxx.Xxxxxxxxxx@xxxxxxxxxx.xxx
or to such other individual or address as a party hereto may designate for itself by notice given as herein provided.
12.7 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without giving effect to the principles of conflicts of law thereof.
12.11 Jurisdiction, Service of Process. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent or to address breaches or threatened breaches of this Agreement, without the necessity of proving actual damages or posting bond, and to enforce specifically the terms and provisions of this Agreement in any Federal Court located in the Southern District of New York or any New York State Court, this being in addition to any other remedy to which they are entitled at law or in equity pursuant to, and as limited by, the terms of this Agreement. In addition, except to the extent an alternative dispute resolution mechanism is expressly provided for herein, each of the parties hereto (a) consents to submit itself to the personal jurisdiction in the Federal District Court of the Southern District of New York in the event any dispute arises out of this Agreement or any transaction contemplated hereby, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or any transaction contemplated hereby in any court other than the Federal District Court for the Southern District of New York or any New York State Court, and (d) waives any right to trial by jury with respect to any action related to or arising out of this Agreement or any transaction contemplated hereby. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER ARISING OUT OF THIS AGREEMENT.
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{Signature page to follow}
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| NXT-ID, INC. | ||
| By: | ||
| Name: | Xxxx X. Xxxxxxx | |
| Title: | Chief Executive Officer |
| Fit Merger Sub, Inc. | ||
| By: | ||
| Name: | Xxxx X. Xxxxxxx | |
| Title: | Chief Executive Officer |
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| FIT PAY, INC. | ||
| By: | ||
| Name: | Xxxxxxx Xxxxxxx | |
| Title: | Chief Executive Officer |
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| Xxxxxxx Xxxxxxx | |
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| XXXXXXXX & DEVRIENT MOBILE SECURITY AMERICA, INC. | ||
| By: | ||
| Name: | ||
| Title: |
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| XXXXXXX XXXXXXXX AND XXXXX XXXXXXXX, JOINT TENANTS WITH RIGHT OF SURVIVORSHIP | ||
| By: | ||
| Name: | ||
| Title: |
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Shareholder Representative: | |
| Xxxxxxx Xxxxxxx |
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| Xxxxxxx Xxxxxxx | |
| Xxxxx Xxxxxxxxxx | |
| Xxxxxxx Xxxxx | |
| Xxxxx Xxxxxx | |
| Xxxxx Xxxxxxx | |
| Xxxx Xxxxxx | |
| Xxxxxxxx Xxxxxxx | |
| Xxxxxx Xxxxx | |
| Xxxxxxx Xxxxx | |
| J. Xxxxxxx Xxxxxxx | |
| Other Holders | |
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