ASSET PURCHASE AGREEMENT
EXHIBIT
99
-47-
THIS
ASSET PURCHASE AGREEMENT
is made
and entered into as of this 23rd
day of
February, 2007 by and between Telkonet, Inc., a Utah corporation (“Purchaser”),
and
Smart Systems International, a Nevada corporation (“Seller”).
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in Section 1.1 hereof.
RECITALS
WHEREAS,
Seller
is engaged in the development, marketing and sale of proprietary programmable
thermostats, PTAC controllers and wireless occupancy sensors to the lodging
and
multi-resident building markets (the “Business”).
WHEREAS,
Purchaser desires to purchase from Seller and Seller desires to sell to
Purchaser, the Purchased Assets (as hereinafter defined) constituting all or
substantially all of the assets necessary to conduct the Business as currently
conducted upon the terms and subject to the conditions set forth in this
Agreement.
WHEREAS,
Purchaser
and Seller intend that Purchaser’s acquisition of the Purchased Assets hereunder
qualify for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended.
NOW,
THEREFORE,
in
consideration of the mutual covenants, representations, warranties and
agreements hereinafter set forth, and intending to be legally bound hereby,
the
parties hereto agree as follows:
ARTICLE
I
DEFINED
TERMS
1.1 Definitions.
The
following capitalized terms have the following meanings:
“409A
Plans”
is
defined in Section 5.16(m).
“Affiliate” means,
with respect to any Person, any other Person which, directly or indirectly,
controls, is under common control with, or is controlled by, such specified
person.
“Agreement”
means
this Asset Purchase Agreement and the Disclosure Schedules hereto, as this
Agreement may be amended from time to time.
“Arbitrator”
is
defined in Section 3.3(c).
“Assumed
Liabilities”
are
defined in Section 2.1(c).
“Assumed
Obligations”
are
defined in Section 2.1(b).
-1-
“Baseline
Net Working Capital”
is
defined in Section 3.3(b).
“Benefit
Plan”
means
any collective bargaining agreement, any Pension Plan or any bonus, profit
sharing, deferred compensation, incentive compensation, performance, retirement,
vacation, severance or termination, disability, death benefit, employment,
consulting, independent contractor, member, retention, hospitalization, fringe
benefit, medical, dental, vision or other material plan, program, policy,
arrangement or Contract (whether or not subject to the Laws of the United
States) established, maintained, contributed to or required to be established,
maintained or contributed to by Seller or any ERISA Affiliate, in each case,
providing benefits to any employee of Seller, and, in each case, whether written
or oral, informal or formal, subject to ERISA or not. The term “Benefit Plan”
shall also include any plan, program, policy, arrangement or Contract with
respect to which Seller or any ERISA Affiliate may have liability (including
potential, secondary or contingent liability) under Title IV of ERISA or
otherwise to any Person being and including any liability by reason of any
Person’s being or having been an ERISA Affiliate.
“Business
Day”
means
any day other than (i) a Saturday or Sunday, or (ii) a day on which banking
institutions located in Maryland are permitted or required by Law, executive
order or decree of a Governmental Entity to remain closed.
“Cash
Consideration”
is
defined in Section 3.1.
“Closing”
is
defined in Section 4.1.
“Closing
Date”
is
defined in Section 4.1.
“Closing
Date Net Working Capital”
is
defined in Section 3.3.
“Closing
Price”
is
defined in Section 3.1.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“Common
Stock”
is
defined in Section 3.1.
“Constitutive
Documents”
means
Seller’s articles of incorporation and bylaws.
“Contract”
means
any loan or credit agreement, bond, debenture, note, mortgage, indenture,
guarantee, lease or other contract, commitment, agreement, instrument,
obligation, undertaking, concession, franchise, license or legally binding
arrangement or understanding, whether written or oral.
“Controlled
Group Liability”
means
any and all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA,
(iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code,
(v)
the portability and nondiscrimination requirements of Section 701 et seq. of
ERISA and Section 9801 et seq. of the Code, and (vi) Section 4975 of the
Code.
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“Copyright”
means
any registered copyright (i) licensed from any third party (other than
“shrink-wrap” software), or (ii) assigned, registered or applied
for.
“Current
Assets”
means
the aggregate value of the accounts receivable, inventory and prepaid expenses
included in the Purchased Assets, as determined in accordance with all
applicable accounting requirements of GAAP and the rules and regulations
thereunder consistently applied in accordance with past practice.
“Current
Liabilities”
means
accounts payable and accrued expenses included in the Assumed Liabilities,
as
determined in accordance with all applicable accounting requirements of GAAP
and
the rules and regulations thereunder consistently applied in accordance with
past practice.
“Delivery
Date”
is
defined in Section 3.3(a).
“Disclosure
Schedule”
means
a
schedule of exceptions to the representations and warranties of Seller and
Purchaser set forth in Articles V and VI, respectively, delivered
contemporaneously with this Agreement.
“Disputed
Matters”
is
defined in Section 3.3(c).
“Environment”
means
any and all environmental media, including, but not limited to, ambient air,
surface water, ground water, drinking water supply, land surface, subsurface
strata,
wetlands or sediments.
“Environmental
Law”
means
any and all federal, state, local or foreign statutes, laws, codes, regulations,
rules, orders, judgments, binding judicial decisions, permits, writs, decrees,
licenses, approvals, injunctions, written policies, ordinances and binding
directives pertaining to or relating to protection or restoration of the
Environment, pollution, health and safety, noise, radiation, or the manufacture,
generation, handling, storage, use, emission, discharge, release,
transportation, treatment, disposal or remediation of any Hazardous Material
and
the health or safety of employees in the workplace environment with respect
to
Hazardous Material, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Occupational Safety and Health
Act, the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the Federal Insecticide, Fungicide, and Rodenticide Act,
the
Safe Drinking Water Act, the Hazardous Materials Transportation Act and any
similar federal, state or local law, as each is in effect as of the date
hereof.
“ERISA”
means
the Employee Retirement Income Security Act of 1974.
“ERISA
Affiliate”
means
any Person which is (or at any relevant time was) a member of a “controlled
group of corporations” with, under “common control” with, or a member of an
“affiliate service group” with Seller as such terms are defined in Section
414(b), (c), (m) or (o) of the Code.
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“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Excluded
Assets”
are
defined in Section 2.1(a).
“Excluded
Liabilities”
are
defined in Section 2.1(c).
“Financial
Statements”
are
defined in Section 5.6(a).
“GAAP”
means
accounting principles generally accepted in the United States, consistently
applied.
“Governmental
Entity”
means
any nation, state, province, county, city or political subdivision and any
official, agency, arbitrator, authority, court, department, commission, board,
bureau, instrumentality or other governmental or regulatory authority of any
thereof, whether domestic or foreign.
“Hazardous
Material”
means,
whether alone or in combination, whether solid, liquid or gaseous: (i) any
pollutant, contaminant, substance, chemical or material that is listed,
classified or regulated pursuant to any Environmental Law; (ii) any petroleum,
petroleum product, waste oil, crude oil and its fractions, asbestos and
asbestos-containing material, urea formaldehyde, nuclear material, natural
or
synthetic gas, pesticide, or polychlorinated biphenyl; (iii) any pollutant,
contaminant, substance, material, chemical or waste that is explosive or
radioactive; or (iv) any hazardous chemical, pollutant, contaminant, hazardous
waste, toxic chemical, all as defined as hazardous under any Environmental
Law.
“Holdback
Obligation”
is
defined in Section 3.2.
“Holdback
Shares”
is
defined in Section 3.2.
“Indebtedness” of
any
Person means, without duplication: (i) all indebtedness of such Person for
borrowed money, with respect to deposits or advances of any kind or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the Ordinary Course of Business and payable in
accordance with customary practices); (ii) all principal, interest, prepayment
penalties and premiums and other obligations of such Person evidenced by bonds,
debentures, notes or similar instruments; (iii) all obligations of such Person
upon which interest charges are customarily paid (other than interest charges
applicable to current trade liabilities incurred in the Ordinary Course of
Business); (iv) all obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person; (v) all obligations of such Person issued or assumed as the deferred
purchase price of property or services; (vi) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien or other claim on property
owned or acquired by such Person, whether or not the obligations secured thereby
have been assumed; (vii) all guarantees by such Person of Indebtedness of
others; (viii) all obligations of such Person in respect of interest rate
protection agreements, foreign currency exchange agreements, caps or collar
agreements or other interest or exchange rate hedging arrangements either
generally or under specific contingencies; (ix) all obligations of such Person
as an account party in respect of letters of credit and banker’s acceptances;
(x) all obligations of such Person consisting of overdrafts (e.g.,
cash
float reflected as a negative on the cash line); and (xi) all obligations of
such Person pursuant to any deferred compensation agreements.
-4-
“Indemnified
Party”
means
either a Purchaser Indemnified Party or a Seller Indemnified Party.
“Indemnifying
Party”
means
either Purchaser or Seller.
“Intellectual
Property”
means
any (i) Patents, (ii) Marks, (iii) Copyrights, (iv) trade secrets, as defined
in
the Uniform Trade Secrets Act, including confidential research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, methods, schematics, technology, technical data, designs, drawings,
flowcharts, block diagrams, specifications, customer and supply lists, pricing
and cost information, and business and marketing plans and proposals, (v)
software or computer programs, (vi) licenses and agreements pursuant to which
a
Person has acquired rights in or to any of the foregoing or licenses or
agreements pursuant to which a Person has licensed or transferred the right
to
use any of the foregoing, (vii) domain names, and (viii) unregistered rights
in
copyright to print or electronic publications and content.
“Issued
Patent”
means
a
Patent which has been granted by the PTO, or any patent office of any other
country, which is unexpired and which has not been held invalid by a decision
of
a court or other appropriate body of competent jurisdiction.
“IRS”
means
the United States Internal Revenue Service.
“Judgment”
means
any judgment, order or decree of, or issued by, any Governmental
Entity.
“Knowledge”
means,
with respect to any matter in question, the actual knowledge of Xxxxxxx X.
Xxxxx
after reasonable inquiry. Known has a correlative meaning.
“Law”
means
any constitution, act, statute, law, directive, ordinance, treaty, rule or
regulation of any Governmental Entity.
“Legal
Proceeding”
means
any action, suit, proceeding, claim, arbitration or investigation before any
Governmental Entity or before any arbitrator or mediator or similar party,
or
any investigation or review by any Governmental Entity.
“Leased
Property”
is
defined in Section 5.10.
“Lien” means
any
lien, pledge, claim, charge, mortgage, encumbrance or other security interest
of
any kind, whether arising by Contract or by operation of Law.
“Losses”
means
any debts, obligations and other liabilities (whether known or unknown, absolute
or contingent, liquidated or unliquidated, due or to become due, accrued or
not
accrued, asserted or unasserted or otherwise), losses, claims, damages, Taxes,
interest obligations, deficiencies, Judgments, assessments, fines, fees,
penalties, expenses (including amounts paid in settlement, interest, court
costs, costs of investigators, reasonable fees and expenses of attorneys,
accountants, financial advisors, consultants and other experts, and other
expenses of litigation). Losses shall not include any special, speculative,
punitive, incidental or consequential damages, including, but not limited to,
lost profits or business opportunities, diminution of value of any business
or
amounts with respect to which specific reserves have been created on the Most
Recent Balance Sheet.
-5-
“Xxxx”
means
any trademark, trade name, trade dress, service xxxx or domain
name.
“Master
Escrow Agreement”
means
that certain Master Escrow Agreement to be entered into on the Closing Date
by
and among Purchaser, the Escrow Agent (as therein defined) and Seller,
substantially in the form of Exhibit
A
hereto.
“Material
Adverse Change”
means
any change, circumstance, development, state of facts, event or effect (i)
that
has had a material adverse change or effect (taken alone or in the aggregate
with any other adverse change or effect) on the business, financial condition
or
results of operations of the Business as a whole; or (ii) that would reasonably
be expected to prevent or materially impede, interfere with, hinder or delay
the
consummation by Seller of the transactions contemplated by this Agreement;
provided that none of the following shall be deemed to constitute, and none
of
the following shall be taken into account in determining whether there has
been
or will be a Material Adverse Change: (a) any change relating to the United
States economy or securities markets in general, so long as any impact on Seller
is not disproportionate to the impact on Seller’s peer companies, (b) any
adverse change, effect, event, occurrence, state of facts or development
generally affecting the industry in which Seller participates, (c) changes
in
applicable Law or GAAP, (d) any change resulting from the execution and delivery
of this Agreement or announcement of the transactions contemplated hereby or
the
identity, business or operations of Purchaser, or (e) any action taken by Seller
with Purchaser’s consent or compliance by Seller with the terms of, or the
taking of any action contemplated or permitted by, this Agreement.
“Material
Contract”
is
defined in Section 5.11(a).
“Most
Recent Balance Sheet”
is
defined in Section 5.6(a).
“Most
Recent Balance Sheet Date”
means
December 31, 2006.
“Notice
of Disagreement”
is
defined in Section 3.3(c).
“Ordinary
Course of Business”
means
any action taken if: (i) such action is consistent with past practice including
as to amount and frequency and is taken in the course of normal day-to-day
operations; and (ii) such action complies with Law in all material respects.
“Party”
means
a
party to this Agreement.
“Patent”
means
any United States or foreign patent, any application for a United States or
foreign patent, or any continuation, continuation-in-part, division, renewal,
extension (including any supplemental protection certificate), reexamination
or
reissue thereof.
“Pension
Plan”
means
any “employee pension benefit plan,” as defined in Section 3(2) of
ERISA.
“Permit”
means
any federal, state or local, domestic or foreign, governmental consent,
approval, order, authorization, certificate, filing, notice, permit, concession,
registration, franchise, license or right.
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“Permitted
Liens”
means
the following, to the extent not securing Indebtedness: (i) statutory Liens
for
Taxes not yet due or payable; (ii) Liens for assessments and other governmental
charges or Liens of landlords, carriers, warehousemen, mechanics and repairmen
incurred in the Ordinary Course of Business, in each case, for sums not yet
due
and payable or due but not delinquent or being contested in good faith by
appropriate proceedings; and (iii) Liens incurred in the Ordinary Course of
Business in connection with workers’ compensation, unemployment insurance and
other types of social security.
“Person”
means
an individual, corporation, partnership, limited liability company, joint
venture, association, trust, Governmental Entity, unincorporated organization
or
other entity.
“Price
Ceiling”
is
defined in Section 3.4.
“Price
Floor”
is
defined in Section 3.4.
“PTO”
means
the United States Patent and Trademark Office.
“Purchase
Price”
is
defined in Section 3.1.
“Purchase
Price Adjustment”
is
defined in Section 3.3(b).
“Purchase
Shares”
is
defined in Section 3.1.
“Purchased
Assets”
are
defined in Section 2.1.
“Purchaser”
is
defined in the caption of this Agreement.
“Purchaser
Certificate”
is
defined in Section 8.3(a).
“Purchaser
Indemnifiable Loss”
is
defined in Section 9.2.
“Purchaser
Indemnified Party”
is
defined in Section 9.2.
“Release
Date”
is
defined in Section 3.1.
“Representatives”
means,
with respect to a Person, such Person’s legal, financial, internal and
independent accounting and other advisors and representatives.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Seller”
is
defined in the caption of this Agreement.
“Seller
Certificate”
is
defined in Section 8.2(a).
“Seller
Indemnified Party”
is
defined in Section 9.3.
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“Seller
Intellectual Property”
means
all Intellectual Property owned, used, under development or filed by or licensed
to Seller.
“Stock
Consideration”
is
defined in Section 3.1.
“Subsidiary”
means,
with respect to any Person, another Person (i) of which 50.0% or more of any
class of capital stock is owned or controlled, directly or indirectly, by such
first Person, or (ii) of which such first Person is a general
partner.
“Tax”
means
any United States federal, state, local and foreign income, profits, franchise,
license, capital, transfer, ad
valorem,
wage,
severance, occupation, import, custom, gross receipts, payroll, sales,
employment, use, stamp, alternative or add-on minimum, environmental,
withholding and any other tax, duty, assessment or governmental tax charge
of
any kind whatsoever, imposed or required to be withheld by any taxing authority,
including any interest, additions to tax, or penalties applicable or related
thereto.
“Tax
Return”
means
any return, declaration, report, claim for refund, or information return or
statement or other form relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
“Third
Party Claim”
means
any suit, proceeding, claim or demand by a Person other than a Person from
which
indemnification may be sought under Article VIII.
“Trading
Market”
means
whichever of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which
the Common Stock is listed or quoted for trading on the date in
question.
“WARN
Act”
means
the Worker Adjustment and Retraining Notification Act of 1991.
ARTICLE
II
SALE
AND PURCHASE OF ASSETS
2.1 Sale
of Purchased Assets.
(a) Upon
the
terms and conditions contained in this Agreement, at Closing, Seller shall
sell,
assign, convey, transfer and deliver to Purchaser and Purchaser shall purchase,
acquire and accept from Seller, free and clear of all Liens (other than
Permitted Liens) all of Seller’s right, title and interest in and to all
tangible assets, intellectual property and intangible assets used in the
Business other than the Excluded Assets (as hereinafter defined), including,
but
not limited to, all equipment, inventory, accounts receivable, prepaid assets,
and Contracts used in connection with the operation of the Business
(collectively, the “Purchased
Assets”).
The
Purchased Assets do not include those assets of Seller identified on
Exhibit
B-1
(the
“Excluded
Assets”).
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(b) As
of the
Closing Date, Purchaser shall assume all rights, obligations and liabilities
with respect to the Purchased Assets from and after the Closing Date (including
the obligation to perform warranty service based upon product sales prior to
the
Closing Date) in conformity with the representations and warranties of Seller
except: (i) any Tax or other obligation or liability arising out of or based
upon the transactions contemplated by this Agreement or incurred by Seller
by
reason of preparation of this Agreement; (ii) any obligation or liability under
any Contract that is assigned by Seller to Purchaser: (A) if failure to obtain
a
required consent to assignment by Seller to Purchaser deprives Purchaser of
the
enjoyment of any of Seller’s rights thereunder; (B) if such Contract is not
assigned by Seller to Purchaser as a result of Section 2.3 or otherwise; or
(C)
if Seller is in material default thereunder; (iii) any obligation or liability
arising out of the Excluded Assets or the Indebtedness; and (iv) any obligation
or liability arising out of or in connection with the use or ownership of the
Purchased Assets by Seller prior to the Closing Date, unless expressly assumed
by Purchaser in this Agreement (the “Assumed
Obligations”).
(c) Upon
the
terms and conditions contained in this Agreement, at Closing, simultaneously
with the execution of this Agreement, Purchaser has assumed and agreed to pay,
perform and discharge all non-affiliated, third party accounts payable and
accrued expenses of the Seller related to the Purchased Assets incurred in
the
Ordinary Course of Business (collectively, the “Assumed
Liabilities”),
all
of which as of the date hereof are identified on Exhibit
B-2.
The
Assumed Liabilities do not include the Indebtedness or any other liabilities
of
Seller, all of which are hereinafter referred to as the “Excluded
Liabilities”.
(d) Except
for the Assumed Liabilities and Assumed Obligations, Purchaser has not assumed,
incurred liability for, or become obligated to pay, perform or otherwise
discharge any liabilities or obligations of Seller of any nature, absolute,
accrued, asserted or unasserted, contingent or otherwise, existing as of the
Closing Date or arising out of or relating to the use or operation by Seller
of
the Purchased Assets or conduct of the Business prior to the Closing
Date.
2.2 Delivery
of Purchased Assets.
With
respect to any of the Purchased Assets that cannot be physically delivered
to
Purchaser because they are in possession of third parties, or otherwise, Seller
shall give irrevocable instructions to the party in possession, with copies
to
Purchaser, that all right, title and interest therein have been vested in
Purchaser and that such assets are to be held for Purchaser’s exclusive use and
benefit.
2.3 Third-Party
Consent.
Except
as set forth in Section
2.3
of the
Disclosure Schedule, to the extent that the assignment by Seller to Purchaser
of
any Contract to be assigned to Purchaser hereunder shall require the consent
of
a party other than Seller, which has not been obtained by the Closing Date,
this
Agreement shall not constitute an agreement to assign such Contract if an
attempted assignment without such consent would constitute a breach thereof
unless Purchaser before or on the Closing Date waives such consent in writing.
Nothing in this Section 2.3 shall limit any rights Purchaser may have against
Seller for failure to obtain such consent.
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ARTICLE
III
PURCHASE
PRICE
3.1 Purchase
Price.
In
consideration of the sale, conveyance, assignment and transfer of the Purchased
Assets, at the Closing, Purchaser shall pay to Seller $7,000,000 (the
“Purchase
Price”).
The
Purchase Price shall be payable by Purchaser through the delivery to Seller
of
cash in an amount equal to up to $1,000,000 (the “Cash
Consideration”)
and
shares (the “Stock
Consideration”)
of
Purchaser’s common stock par value $0.001 per share (the “Common
Stock”),
subject to the Holdback set forth in Section 3.2 below and subject to adjustment
of the Purchase Price pursuant to Section 3.3 below. The number of shares of
Common Stock issuable to the Seller as the Stock Consideration (the
“Purchase
Shares”)
shall
be determined by dividing the difference between $7,000,000 and the Cash
Consideration by the closing price (the “Closing
Price”)
of the
Common Stock on the American Stock Exchange on the trading day immediately
preceding the Closing Date, subject to adjustment pursuant to Section 3.4 below.
Seller shall notify Purchaser in writing prior to the Closing of the exact
amount of Cash Consideration to be received by Seller at Closing.
3.2 Holdback.
Purchaser shall issue to Seller but withhold from delivery at the Closing
Purchase Shares having an aggregate value of $3,000,000 valued at the Closing
Price and rounded to the nearest whole share (the “Holdback
Shares”).
The
Holdback Shares shall be maintained in an escrow account (the “Escrow
Account”)
pursuant to the Master Escrow Agreement. The Holdback Shares then remaining
in
the Escrow Account, minus that number of Holdback Shares having a value equal
to
the total value of all demanded (and unpaid and unresolved) obligations of
Seller required to be funded from the Holdback Shares (collectively, the
“Holdback
Obligations”),
shall
be released to Seller (or in accordance with Seller’s written instructions) on
the first anniversary of the Closing Date (the “Release
Date”).
The
Holdback Shares shall be available to fund the obligations of Seller pursuant
to
Section 9.2 hereof in accordance with the procedures set forth in the Master
Escrow Agreement, and, at Seller’s election, any obligation that Seller may have
under Section 3.3(b).
3.3 Purchase
Price Adjustment.
(a) Within
sixty (60) days of the Closing (the “Delivery
Date”),
Purchaser shall deliver to Seller a calculation as of the Closing Date, prepared
in accordance with GAAP, of the amount, if any, by which the Current Assets
of
Seller exceed the Current Liabilities of Seller (“Closing
Date Net Working Capital”).
(b) In
the
event Closing Date Net Working Capital is less than $1,204,434.00 (the
“Baseline
Net Working Capital”),
Seller shall be required to refund to Purchaser the amount by which Baseline
Net
Working Capital exceeds Closing Date Net Working Capital. In the event Closing
Date Net Working Capital is more than the Baseline Net Working Capital,
Purchaser shall be required to pay to Seller the amount by which Closing Date
Net Working Capital exceeds Baseline Net Working Capital. Any amounts owed
pursuant to this Section 3.3(b) shall be due and payable within thirty (30)
days
of the Delivery Date, unless disputed in accordance with Section 3.3(c). The
adjustment to the Purchase Price provided for in this Section is hereinafter
referred to as the “Purchase
Price Adjustment.”
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(c) Seller
shall have twenty (20) business days from the Delivery Date to deliver a written
notice of disagreement to Purchaser (a “Notice
of Disagreement”).
During such period, Purchaser shall make the books and accounting records
relating to the Business (including work papers) and appropriate accounting
personnel reasonably available to the Seller. Any such Notice of Disagreement
shall specify in reasonable detail the nature of any disagreement so asserted.
If no Notice of Disagreement is delivered within such twenty (20) business
day
period, the Closing Date Net Working Capital amount shall become final and
binding upon the parties. Following delivery of a Notice of Disagreement, the
parties shall attempt to resolve any differences that they may have with respect
to any matter specified in the Notice of Disagreement. If the parties fail
to
reach a written agreement with respect to all such matters within 60 days of
the
Notice of Disagreement, then all such matters as specified in the Notice of
Disagreement as to which such written agreement has not been reached (the
“Disputed
Matters”)
shall
be submitted to and reviewed by an arbitrator (the “Arbitrator”)
selected by Seller and Purchaser. The Arbitrator shall act promptly (in no
event
to exceed 20 days) to resolve all Disputed Matters and his or her decision
with
respect to all Disputed Matters shall be final and binding upon the parties.
The
fees and expenses of the Arbitrator incurred in resolving the Disputed Matters
shall be borne equally by the Seller and Purchaser. Any adjustment required
pursuant to this Section 3.3 shall be paid (i) if payable by Seller, at Seller’s
election by either or a combination of (A) wire transfer to a bank account
designated by Purchaser, or (B) surrender of Holdback Shares valued at the
Closing Price, and (ii) if payable by Purchaser, by the issuance of additional
Purchase Shares, in each case within five (5) days of final determination
thereof of the adjustment.
3.4 Adjustment
to Number of Holdback Shares.
(a) The
number of Holdback Shares released to the Seller on the Release Date may be
adjusted, or additional Purchase Shares issued, as result of a change in the
price of the Common Stock prior to the Release Date. If the volume-weighted
average closing price of the Common Stock for the twenty trading days
immediately prior to the Release Date (the “Twenty
Day VWAP”)
(i)
exceeds $4.50 (the “Price
Ceiling”),
then
the maximum aggregate number of shares released to the Seller from the Escrow
Account on the Release Date shall be 666,667 shares of Common Stock; (ii) is
less than the Price Floor, then the maximum aggregate number of shares issuable
to the Seller, inclusive of Holdback Shares released to Seller from the Escrow
Account, on the Release Date shall be the number of shares determined by
dividing $3,000,000 by the Price Floor; or (iii) is between the Price Floor
and
the Price Ceiling, then the maximum aggregate number of shares issuable to
the
Seller, inclusive of Holdback Shares released to Seller from the Escrow Account,
on the Release Date shall be the number of shares determined by dividing
$3,000,000 by the Twenty Day VWAP. The “Price
Floor”
shall
be calculated by subtracting from the Closing Price the difference between
the
Price Ceiling and the Closing Price.
(b) Notwithstanding
the foregoing, in the event that the calculation set forth in the second
sentence of this Section 3.4 would otherwise require Seller to forego receipt
from the Escrow Account of any Holdback Shares, Seller shall have the option
of
satisfying such obligation in whole or in part through payment to Purchaser
of
cash in an aggregate amount equal to the aggregate number of Holdback Shares
required to be foregone multiplied by the lesser of (i) the Twenty-Day VWAP;
or
(ii) the Price Ceiling. Seller may exercise the foregoing option by written
notice to Purchaser on or before the Release Date, with such cash payment to
be
received by Purchaser by wire transfer of immediately available funds within
five (5) business days thereafter.
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(c) In
each
of the foregoing cases, the aggregate number of shares of Common Stock issued
to
Seller from the Escrow Account on the Release Date shall be reduced by the
Holdback Obligation, if any.
(d) Purchaser
covenants and agrees to (i) take such actions as may be necessary or appropriate
to ensure that it has at all times sufficient authorized but unissued shares
of
its Common Stock to be able to make any additional issuance of Purchase Shares
to Seller that may be necessitated by an adjustment under clauses (ii) or (iii)
of paragraph (a), and (ii) that any such additional issuance of Purchase Shares
to Seller by virtue of an adjustment set forth in clauses (ii) or (iii) of
paragraph (a) will occur on the Release Date.
ARTICLE
IV
THE
CLOSING
4.1 The
Closing.
The
transactions contemplated hereby (the “Closing”)
shall
take place at the offices of Xxxxx & Xxxxxxxxx LLP, 0000 Xxxxxxxxxxx Xxxxxx,
XX, Xxxxx 0000, Xxxxxxxxxx, X.X. 00000 on a date specified by the parties
hereto, which date shall be no later than the second Business Day after
satisfaction or waiver of the conditions set forth in Article VIII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions at Closing) or at
such
other date or place as the parties may agree (the “Closing
Date”).
4.2 Closing
Deliveries.
(a) At
the
Closing, Seller shall deliver to Purchaser:
(i) The
Xxxx
of Sale, attached as Exhibit
C
hereto;
(ii) The
Assignment and Assumption Agreement relating to the Assumed Obligations and
the
Assumed Liabilities, attached as Exhibit
D
hereto;
(iii) Minutes
of Meetings or Actions by Written Consent of the Stockholders and Board of
Directors of Seller authorizing the execution of this Agreement and the other
agreements and documents necessary or desirable in connection therewith and
the
consummation of the transactions contemplated hereby;
(iv) Incumbency
Certificate;
(v) Executed
Amendment to Articles of Incorporation in form suitable for filing evidencing
the change of the name of Seller’s corporation from “Smart Systems
International”;
(vi) The
Noncompetition and Nonsolicitation Agreement by and between Purchaser and the
Seller, attached as Exhibit
E
hereto;
(vii) The
Master Escrow Agreement;
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(viii) The
Registration Rights Agreement by and between Purchaser and the Seller, attached
as Exhibit
F
hereto;
(ix) Third
party consents and consents from Governmental Entities the failure of which
to
obtain would be reasonably expected to result in a Material Adverse
Change;
(x) The
Seller Certificate;
(xi) Evidence
reasonably satisfactory to Purchaser that all Liens against the Purchased Assets
have been released, or will be released as of the Closing, other than
obligations under capital leases, and Liens securing such obligations, which
are
included in the Purchased Assets or are included in the Assumed
Liabilities;
(xii) All
books
and records of Seller other than any books and records included in the Excluded
Assets; provided that,
Purchaser shall maintain such books and records for a period of six (6) years
following the Closing Date throughout which period Seller and its
Representatives shall be afforded free and full access to tax and accounting
records of the Business relating to periods prior to the Closing Date and shall
be permitted to make extracts from and copies of such records;
(xiii) All
other
documents necessary to vest title to, and ownership of, the Purchased Assets
in
Purchaser or effectuate the transactions contemplated by this Agreement, in
a
form reasonably satisfactory to Purchaser.
(b) At
the
Closing, Purchaser shall deliver to Seller:
(i) (A)
the
Cash Consideration by wire transfer of immediately available funds to, or for
the account of, Seller in accordance with Seller’s written instructions provided
to Purchaser not less than 3 Business Days prior to the Closing; and (B) the
Stock Consideration, less the Holdback Shares, which shall be distributed
pursuant to the terms of the Master Escrow Agreement.
(ii) The
Purchaser Certificate;
(iii) The
Assignment and Assumption Agreement;
(iv) Incumbency
Certificate;
(v) The
Master Escrow Agreement; and
(vi) The
Registration Rights Agreement.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF SELLER
Except
as
disclosed on the Disclosure Schedule, Seller hereby represents and warrants
to
Purchaser that each of the representations, warranties and statements contained
in the following sections of this Article V is true and
correct.
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5.1 Organization
and Standing.
Seller:
(a) is a corporation duly organized, validly existing and in good standing
under
the Laws of the State of Nevada; (b) has all requisite corporate power and
authority to own its properties, carry on its business as now being conducted
and as contemplated by this Agreement; and (c) is duly qualified or licensed
to
do business and is in good standing in each jurisdiction in which the nature
of
its business or the ownership, leasing or operation of its properties makes
such
qualification or licensing necessary, which jurisdictions are listed in
Section
5.1
of the
Disclosure Schedule, except to the extent that the failure to be so qualified
or
licensed would not reasonably be expected to result in a Material Adverse
Change. Seller has made available to Purchaser complete and correct copies
of
its Constitutive Documents, as amended, to date. Seller is not in violation
of
any of the provisions of its articles of incorporation or bylaws.
5.2 Power
and Authority; Binding Agreement.
Seller
has all requisite power and authority to execute and deliver this Agreement,
to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Seller and,
assuming due execution and delivery by the other parties hereto, constitutes
a
valid and binding obligation of Seller, enforceable against it in accordance
with its terms.
5.3 Noncontravention.
(a) Other
than as set forth in Section
5.3(a)
of the
Disclosure Schedule, the execution and delivery by Seller of this Agreement,
the
consummation of the transactions contemplated by this Agreement and the
compliance by Seller with the provisions of this Agreement do not and will
not
conflict with, or result in any violation or breach of, or default (with or
without notice or lapse of time or both) under, or give rise to a right of,
or
result in, termination, cancellation or acceleration of any obligation or to
a
loss of a material benefit under, or result in the creation of any Lien in
or
upon any of the Purchased Assets under, or give rise to any increased,
additional, accelerated or guaranteed rights or entitlements under, any
provision of: (i) the Constitutive Documents; (ii) any Material Contract to
which Seller is a party or bound by or the Purchased Assets are bound by or
subject to; or (iii) any (A) Law, or (B) Judgment, in each case, applicable
to
Seller, its properties or assets other than in the cases of (ii) and (iii)
above, any such conflicts, violations, breaches, defaults, rights, entitlements,
losses or Liens that have not given rise to, or would not reasonably be
anticipated to give rise to, an event constituting a Material Adverse
Change.
(b) No
consent, approval, order or authorization of, registration, declaration or
filing with, or notice to, any Governmental Entity is required by or with
respect to Seller in connection with the execution and delivery by Seller of
this Agreement, the consummation by Seller of the transactions contemplated
hereby or the compliance by Seller with the provisions of this Agreement, except
for such consents, approvals, orders, authorizations, registrations,
declarations, filings and notices, the failure of which to be obtained or made
individually or in the aggregate would not impair in any material respect the
ability of Seller to perform its obligations under this Agreement and will
not
result in a Material Adverse Change.
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5.4 Compliance
with Laws.
Seller
is and has been, in compliance with all applicable Laws and Judgments of any
Governmental Entity applicable to its businesses or operations other than where
any noncompliance has not given rise to, and would not reasonably be anticipated
to give rise to, an event constituting a Material Adverse Change. Seller has
not
received a written notice or other written communication (or, to the Knowledge
of Seller, any oral notice or other communication) that is currently pending
alleging a possible violation by Seller of any applicable Law or Judgment of
any
Governmental Entity applicable to Seller’s businesses or
operations.
5.5 Permits.
Seller
validly holds and has in full force and effect, or has taken appropriate steps
to obtain or renew, all material Permits necessary for it to own, lease or
operate its properties and assets and to carry on its businesses as now
conducted. Seller is in compliance in all material respects with the terms
and
conditions of all such Permits and there has occurred no material default (with
or without notice or lapse of time or both) or material violation of, or under,
or event giving to any other Person any right of termination, amendment or
cancellation of, any such Permit. To Seller’s Knowledge, none of such Permits
will be subject to suspension, modification, revocation or nonrenewal as a
result of the consummation of the transactions contemplated hereby or the
execution and delivery of this Agreement. No proceeding is pending or, to
Seller’s Knowledge, threatened seeking the revocation or limitation of any
Permit. Section
5.5
of the
Disclosure Schedule lists each Permit of a material nature issued or granted
to
or held by Seller. All of the Permits listed on Section
5.5
of the
Disclosure Schedule are held in the name of Seller, and none are held in the
name of any Seller employee or agent or otherwise on behalf of
Seller.
5.6 Financial
Statements.
(a) Section
5.6(a)
of the
Disclosure Schedule sets forth the unaudited balance sheet of Seller as of
December 31, 2006 (the “Most
Recent Balance Sheet”),
December 31, 2005 and December 31, 2004, together with the related unaudited
statements of income for the twelve months ended December 31, 2006, December
31,
2005 and December 31, 2004 (collectively, the “Financial
Statements”).
The
Financial Statements: (i) are consistent with the books and records of Seller;
(ii) have been prepared in accordance with GAAP; (iii) present fairly the
financial condition and results of operations of Seller as of the respective
dates thereof and for the periods referred to therein in all material
respects,
except,
with respect to clauses (i), (ii) and (iii) above, for normal year-end audit
adjustments and for the absence of footnote disclosure.
(b) All
accounts receivable of Seller, whether reflected on the Most Recent Balance
Sheet or otherwise, are current and arose from valid transactions in the
Ordinary Course of Business. Seller has received no notice and Seller has no
Knowledge that any of Seller’s accounts receivable will not be collectible in
full, net of any reserves shown on the Most Recent Balance Sheet.
(c) All
accounts payable of Seller, whether reflected on the Most Recent Balance Sheet
or otherwise, are current and arose from valid transactions in the Ordinary
Course of Business.
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5.7 Absence
of Changes or Events.
Except
as set forth in Section
5.7
of the
Disclosure Schedule, since December 31, 2006:
(a) Seller
has conducted its business only in the Ordinary Course of Business;
(b) there
has
occurred no Material Adverse Change, nor any change, circumstance, development,
state of facts, event or effect that would reasonably be expected to result
in a
Material Adverse Change;
(c) Seller
has not adopted a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring or other reorganization of Seller;
(d) Seller
has not changed in any material respect any of the accounting policies or
methods used by it;
(e) Seller
has not incurred loss of, or significant injury to, any of its assets or the
Purchased Assets whether as a result of any natural disaster, labor trouble,
accident, other casualty or otherwise;
(f) Seller
has not mortgaged, pledged or subjected to any Lien (other than Permitted Liens)
any of its assets or the Purchased Assets;
(g) Seller
has not sold, exchanged, transferred or otherwise disposed of any of its assets,
except in the Ordinary Course of Business;
(h) Seller
has not canceled any debts or claims;
(i) Seller
has not reserved for or written down the value of any assets or written off
as
uncollectible any accounts receivable, except in the Ordinary Course of Business
and none of which, individually or in the aggregate, would result in a Material
Adverse Change;
(j) Seller
has not made, or committed to make, any capital expenditures in excess of
$10,000 individually or $50,000 in the aggregate; and
(k) Seller
has not made any agreement to do any of the foregoing, other than negotiations
with Purchaser and its Representatives regarding the transactions contemplated
by this Agreement.
5.8 Undisclosed
Liabilities.
Seller
does not have any liabilities, obligations or commitments of any nature (whether
known or unknown, absolute, accrued, contingent, liquidated or otherwise),
except: (i) liabilities, obligations or commitments which are appropriately
reflected or reserved against in the Most Recent Balance Sheet; (ii)
liabilities, obligations or commitments which have been incurred in the Ordinary
Course of Business and consistent with past practice since the Most Recent
Balance Sheet Date; (iii) liabilities, obligations or commitments disclosed
in
the Disclosure Schedule; and (iv) express performance obligations under the
contracts, agreements and standard product warranty of Seller.
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5.9 Assets
other than Real Property.
(a) Section
5.9(a)
of the
Disclosure Schedule sets forth a list of each tangible personal property asset
owned or leased by Seller and that is material to the Business, specifying
for
each asset whether such asset is owned or leased. Seller is the true and lawful
owner or lessee of and has good and valid title to, or a valid leasehold
interest in, all personal property (tangible or intangible) reflected on the
Most Recent Balance Sheet or thereafter acquired, except inventory that has
been
sold or otherwise disposed of in the Ordinary Course of Business since the
Most
Recent Balance Sheet Date and not in violation of this Agreement, in each case
free and clear of all Liens (other than Permitted Liens).
(b) Except
as
set forth in Section
5.9(b)
of the
Disclosure Schedule, all material tangible personal property of Seller is
located at the offices of Seller at 0000 X. Xxxxxxxx Xxxxx, Xxx Xxxxx, Xxxxxx.
Except as set forth in Section
5.9(b)
of the
Disclosure Schedule, all material personal property of Seller is free from
material defects Known to Seller and is in good working order. All material
tangible leased personal property of Seller is in good working order, ordinary
wear and tear excepted.
5.10 Real
Property.
Section
5.10
of the
Disclosure Schedule lists all real property and interests in real property
leased by or to Seller (each, a “Leased
Property”).
Seller has delivered or made available to Purchaser complete and accurate copies
of all such leases, including any subleases, and any operating agreements
relating thereto. With respect to each Leased Property, except as set forth
in
Section
5.10
of the
Disclosure Schedule: (i) Seller has good and valid title to the leasehold estate
relating thereto, free and clear of all Liens (other than Permitted Liens and
Liens which would not reasonably be expected to materially impair the current
uses or the occupancy by Seller of such Leased Property), leases, assignments,
subleases, easements, covenants, rights of way and other similar restrictions
of
any nature whatsoever, other than those identified in the leases and operating
agreements provided to Purchaser; (ii) the lease relating to such Leased
Property is in writing and is a valid and binding obligation of Seller, in
full
force and effect; (iii) the lease relating to such Leased Property will,
immediately following the Closing Date and upon the receipt of any applicable
consent of the lessor, continue to be valid and binding obligation of Seller,
in
full force and effect; (iv) Seller is not and, to the Knowledge of the Seller,
no other party to the lease relating to such Leased Property is, in breach
or
violation of, or in default under, such lease; (v) all facilities included
in
such Leased Property are supplied with utilities and other services adequate
for
the operation of such facilities in the manner currently used by Seller; (vi)
all rents due on the lease relating to such Leased Property have been paid;
(vii) the current use by Seller of the facilities located on such Leased
Property does not violate any local zoning or similar land use requirement
or
other Law in any material respect;
and
(viii) all necessary third party consents, approvals, filings and registrations
required to be obtained by Seller with respect to such leases in connection
with
the transactions contemplated by this Agreement or otherwise, have been made
or
obtained or will be obtained prior to the Closing, other than where the failure
to make or obtain such consent, approval, filing or registration would not
be
reasonably expected to result in a Material Adverse Change.
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5.11 Contracts.
(a) Section
5.11(a)
of the
Disclosure Schedule lists the following Contracts to which Seller is a party
or
is bound by (each such Contract, whether or not set forth in such section of
the
Disclosure Schedule, a “Material
Contract”):
(i) employment
or consulting Contract, or any employee collective bargaining agreement or
other
Contract with any labor union or any Seller employee;
(ii) Contract
not to compete or otherwise restricting the development, manufacture, marketing,
distribution or sale of any products or services by Seller;
(iii) Contract
containing any “non-solicitation” or “no-hire” provision that restricts Seller
in any manner;
(iv) Contract
containing any provision that purports to apply to or restrict Seller from
engaging in any line of business anywhere in the world;
(v) Contract
with or involving the Seller’s stockholders or any Affiliate of Seller’s
stockholders other than Seller to the extent that any such Contract will
constitute an Assumed Obligation;
(vi) lease,
sublease or similar Contract with any Person under which Seller is a lessor
or
sublessor of, or makes available for use to any Person, (A) any Leased Property,
or (B) any portion of any premises otherwise occupied by Seller;
(vii) lease
or
similar Contract with any Person under which (A) Seller is lessee of, or holds
or uses, any machinery, equipment, vehicle or other tangible personal property
owned by any Person (other than any Contracts that individually do not involve
the payment by or to Seller of more than $50,000 in any twelve-month period
and
in the aggregate do not involve the payment by or to Seller of more than
$100,000 in any twelve-month period), or (B) Seller is a lessor or sublessor
of,
or makes available for use by any Person, any tangible personal property owned
or leased by Seller;
(viii) Contract
for the purchase or sale of products or the furnishing or receipt of services:
(A) calling for performance over a period of more than one (1) year; (B)
requiring or otherwise involving payment by or to Seller of more than $50,000
in
any twelve-month period (or, together with all other Contracts of such type
not
otherwise required to be listed under this Section 5.11(a)(viii), more than
$100,000 in the aggregate in any twelve-month period); (C) in which Seller
has
granted manufacturing rights, “most favored nation” pricing provisions or
marketing or distribution rights relating to any products or territory; or
(D)
in which Seller has agreed to purchase or sell a minimum quantity of goods
or
services or has agreed to purchase or sell goods or services exclusively from
a
certain party;
(ix) Contract
for the disposition of any assets or business of Seller other than sales of
inventory in the Ordinary Course of Business, or any agreement for the
acquisition, directly or indirectly, of the assets or business of any other
Person other than the purchase of inventory in the Ordinary Course of
Business;
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(x) Contract
for any joint venture or partnership;
(xi) Contract
granting a third party any license to any Seller Intellectual Property, or
pursuant to which Seller has been granted by a third party any license to any
Intellectual Property other than “off the shelf” or other standard widely
commercially available software products, or any other license, option or other
Contract relating in whole or in part to Seller Intellectual Property or the
Intellectual Property of any other Person;
(xii) Contract
(other than trade debt incurred in the Ordinary Course of Business) under which
Seller has borrowed any money from, or issued any note, bond, debenture or
other
evidence of Indebtedness to, any Person;
(xiii) Contract
(including so called “take or pay” or “keep well” agreements) under which (A)
any Person has directly or indirectly guaranteed Indebtedness, liabilities
or
obligations of Seller, or (B) Seller has directly or indirectly guaranteed
Indebtedness, liabilities or obligations of any Person (in each case other
than
endorsements for the purpose of collection in the Ordinary Course of
Business);
(xiv) Contract
(other than trade debt incurred in the Ordinary Course of Business) under which
Seller has, directly or indirectly, made any advance, loan, extension of credit
or capital contribution to, or other investment in, any Person;
(xv) mortgage
or other Lien upon any Leased Property, other than Permitted Liens and Liens
which would not materially impair the current uses or the occupancy by Seller
of
such Leased Property;
(xvi) Contract
providing for indemnification of any Person by Seller other than any agreement
of indemnification entered into in connection with the sale or license of
software products in the Ordinary Course of Business;
(xvii) Contract
providing that Seller or any current Seller employee maintain the
confidentiality of any information, or providing for any Person to maintain
the
confidentiality of any information material to Seller or the
Business;
(xviii) Contract
involving a research or development collaboration or similar arrangement;
(xix) Contract
granting any third party a security interest in any of the Seller’s
assets;
(xx) Contract
giving any party the right to renegotiate or require a reduction in price or
refund of payments previously made in connection with the business of the
Seller; and
(xxi) Contract
not entered into in the Ordinary Course of Business and requiring a payment
of
greater than $50,000 in any twelve-month period and not otherwise disclosed
under items (i) through (xx) above.
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(b) Except
as
set forth in Section
5.11(b)
of the
Disclosure Schedule, each Contract is in full force and effect, and is valid
and
binding upon Seller and, to Seller’s Knowledge, any other party thereto.. True
and complete copies of each Material Contract (and a written summary of the
terms of any oral Material Contracts) have been delivered or made available
to
Purchaser. Except as set forth in Section
5.11(b)
of the
Disclosure Schedule, there is no material default, material violation or
material breach under any Contract by Seller or, to the Knowledge of Seller,
by
any other party thereto, and no event has occurred or condition exists that
with
the lapse of time or the giving of notice or both would constitute a material
default, material violation or material breach thereunder by Seller or, to
the
Knowledge of Seller, any other party thereto, except to the extent such default,
violation or breach would not individually or in the aggregate cause a Material
Adverse Change. Except as set forth in Section
5.11(b)
of the
Disclosure Schedule, no notice, waiver, consent or approval is required (or
the
lack of which would give rise to a right of termination, cancellation or
acceleration of, or entitle any party to accelerate, whether after the giving
of
notice or lapse of time or both, any obligation under the Contracts) under
or
relating to any Contract in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby the failure to give or obtain which would cause a Material
Adverse Change.
5.12 Intellectual
Property.
(a) Section
5.12(a)
of the
Disclosure Schedule sets forth a true and complete list of all Seller
Intellectual Property as defined in parts (i) through (vi) of the definition
of
Intellectual Property and a true and accurate description or summary of the
Intellectual Property as defined in parts (vii) through (viii ) of such
definition.
(b) Except
as
set forth in Section
5.12(b)
of the
Disclosure Schedule, Seller owns or has valid licenses to use, on an exclusive
basis, free and clear of all Liens or any other claims, including, without
limitation, any claim of ownership or other right by any inventor on any Patent
(other than Patents licensed from such inventor), all Seller Intellectual
Property that is material to Seller or the operation of the Business as
currently conducted or as expected to be conducted in the future. Seller has
received no claims or demands by any other Person pertaining to any Seller
Intellectual Property, and no proceedings have been instituted, or are pending
or, to the Knowledge of Seller, threatened, which challenge the rights of Seller
in respect thereof.
(c) Except
as
set forth in Section
5.12(c)
of the
Disclosure Schedule, all Seller Intellectual Property, other than that which
is
licensed to Seller and other than Seller Intellectual Property under
development, has been properly assigned to Seller.
(d) Except
as
set forth in Section
5.12(d)
of the
Disclosure Schedule, Seller does not pay or receive any royalty to or from
anyone with respect to any Seller Intellectual Property, nor has Seller licensed
anyone to use any Seller Intellectual Property.
(e) Except
as
set forth in Section
5.12(e)
of the
Disclosure Schedule, all rights of Seller in and to Seller Intellectual Property
will be unaffected by the transactions contemplated hereby. Except as set forth
in Section
5.12(e)
of the
Disclosure Schedule, Seller has not given or received any written (or, to
Seller’s Knowledge, other) notice of any pending conflict with, or infringement
of the rights of others with respect to, any Intellectual Property or with
respect to any license of the Seller Intellectual Property.
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(f) Except
as
set forth in Section
5.12(f)
of the
Disclosure Schedule, Seller is not subject to any Judgment with respect to,
nor
has it entered into or is it a party to any Contract which restricts or impairs
the use of, any Seller Intellectual Property. To the Knowledge of Seller, no
Seller Intellectual Property, and no services or products sold or contemplated
for sale by Seller, conflicts with or infringes upon any Issued Patent of any
third party, Seller is not infringing any Issued Patent owned by any third
party
and none of the activities presently being conducted by Seller is infringing
the
Issued Patent rights of any third party.
(g) Except
as
set forth in Section
5.12(g)
of the
Disclosure Schedule, Seller has not entered into any consent, indemnification,
forbearance to xxx or settlement agreement with respect to Intellectual Property
and no claims have been asserted in writing (or, to Seller’s Knowledge, other
than in writing) by any Person with respect to the validity or enforceability
of, or Seller’s ownership of or right to use, the Seller Intellectual
Property.
(h) Seller
has the right to use, without infringing, on the rights of others, all customer
lists, designs, manufacturing or other processes, computer software, systems,
data compilations, research results and other information or trade secrets,
domain names and print and electronic publications used in connection with
Seller’s business as presently conducted.
(i) Seller
has obtained work-for-hire agreements and intellectual property assignments
from
all Seller employees and contractors of Seller necessary to establish and
preserve, for the benefit of Seller, any Seller Intellectual Property and
exercises reasonable care with respect to the dissemination of any Seller
Intellectual Property.
(j) To
the
Knowledge of Seller, no third party has infringed upon or misappropriated any
Seller Intellectual Property.
(k) No
written or oral, formal or informal notice of any proceeding charging Seller
with infringement of any intellectual property rights of any other Person has
been received by Seller and, to the Knowledge of Seller, no such proceeding
is
threatened. To the Knowledge of Seller, Seller is not making any unauthorized
use of any confidential information or trade secrets of any Person, including,
without limitation, any customer of Seller, or any Seller employee.
5.13 Litigation.
Except
as set forth in Section
5.13
of the
Disclosure Schedule, there is no Legal Proceeding that is pending or to the
Knowledge of Seller threatened against Seller. Seller is not operating under
and
is not subject to any Judgment, writ, injunction or award of any Governmental
Entity, court, judge, justice, magistrate, or arbitrator, including any
bankruptcy court or judge. There are no unsatisfied Judgments outstanding
against Seller.
5.14 Taxes.
(a) All
Tax
Returns required to be filed by, or including, Seller have been timely filed
and
all Taxes owed by Seller (whether or not shown on any Tax Return) have been
timely paid.
Except
as set forth in Section
5.14(a)
of the
Disclosure Schedule, no Tax Return of Seller, or that includes Seller, is
required to be filed on or before the date that is ninety (90) days after the
Closing. Seller and any Person that files Tax Returns with Seller are not
delinquent in the payment of any assessment or governmental charge with respect
to such Tax Returns.
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(b) All
Tax
Returns filed by, or including, Seller are true, correct and complete in all
material respects. The assets, deferred Tax amounts, Tax charges, Tax accruals
and reserves for all Taxes with respect to Seller reflected on the Most Recent
Balance Sheet are adequate to represent fully realizable tax assets and to
cover
all Tax liabilities payable or anticipated to be payable in respect of all
periods or portions thereof ending on or before the date hereof. The Tax Returns
of Seller or any Person that files Tax Returns with Seller have never been
examined by the IRS or any other Taxing authority and neither Seller nor any
Person that files Tax Returns with Seller is the subject of any Tax audit
(including notification or upcoming Tax audit) with respect to such Tax Returns
nor has any Governmental Entity conducted an investigation or audit of, or
any
claim or proceeding in respect of, Seller in respect of Taxes within the past
four (4) years and, to Seller’s Knowledge, no such audits, claims or proceedings
are threatened. No Liens for Taxes have been filed against Seller or any Person
that files Tax Returns with Seller.
(c) Section
5.14(c)
of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed or required to be filed with respect to Seller for the last four
(4) fiscal years for which Tax Returns have been filed, including all Tax
Returns filed on a consolidated, combined or unitary basis, along with a list
of
entities whose activities are included in such filings. There are no actions,
suits, proceedings, audits, investigations or claims now pending or, to Seller’s
Knowledge, proposed against Seller, or any Person that files Tax Returns with
Seller, concerning the Tax liability of Seller.
(d) Except
as
set forth in Section
5.14(d)
of the
Disclosure Schedule, there are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax assessment or
deficiency with respect to Seller, and Seller has not requested any extension
of
time within which to file any Tax Return, which Tax Return has not yet been
filed. Except as set forth in Section
5.14(d)
of the
Disclosure Schedule, Seller has not, within the last seven (7) years, paid
or
become liable to pay any material penalty, fine, surcharge or interest relating
to Tax. There are no Liens with respect to Taxes upon any of the properties
or
assets, real or personal, tangible or intangible of Seller (other than for
Taxes
not yet due and payable).
(e) Seller
has withheld and paid all Taxes required by Law to have been withheld and paid
and has complied in all respects with all rules and regulations relating to
the
withholding or remittance of Taxes (including, without limitation, employee
related Taxes).
(f) Seller
is
not a party to any Contract that is an Assumed Obligation or an Assumed
Liability and that, individually or collectively, would give rise to any payment
(whether in cash or property) that would not be deductible pursuant to Sections
162(a)(1), 162(m), 162(n) or 280G of the Code.
(g) Seller
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
in
a taxable period ending on or before the close of business on 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.
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(h) Since
Seller’s formation, Seller has not constituted either a “distributing
corporation” or a “controlled corporation” (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution qualifying for tax free treatment
under Section 355(a) of the Code.
(i) Seller
is
not, and has never been, a real property holding company within the meaning
of
Section 897 of the Code.
(j) No
claim
has ever been made in writing (or, to the Knowledge of Seller, other than in
writing) that is currently pending by an authority in a jurisdiction where
Seller, or any Person that files Tax Returns with Seller, does not file Tax
Returns that Seller or such Person is or may be subject to Tax in that
jurisdiction.
(k) Seller
is
not a party to any Tax allocation, indemnity or sharing Contract.
(l) Seller
does not have any liability for Taxes of any Person (i) under Treasury
Regulation Section 1.1502-6, (ii) as transferee or successor, (iii) by Contract,
or (iv) otherwise. Seller has not been a member of an “affiliated group” (as
that term is defined in the Code). Seller is not now, nor during the last four
(4) years has it been a party to or bound by any Contract, agreement, governing
document or other arrangement (whether or not written and including any
arrangement required or permitted by Law) which (i) affords any other Person
the
benefit of any net operating loss, net capital loss, investment Tax credit,
foreign Tax credit, charitable deduction, or any other Tax credit or Tax
attribute (including deductions and credits relating to alternative minimum
Taxes), (ii) requires or permits the transfer or assignment of income, revenues,
receipts or gains, or (iii) grants any power of attorney with respect to any
matter relating to Taxes.
(m) Seller
has disclosed on its federal income Tax Returns all positions taken therein
that
could give rise to a substantial understatement of federal income Tax within
the
meaning of Section 6662 of the Code.
(n) Section
5.14(n)
of the
Disclosure Schedule sets forth: (i) a list of all jurisdictions (whether foreign
or domestic) to which any Tax is or has been properly payable by or with respect
to Seller during the past four (4) years; (ii) all rulings or determinations
obtained by or with respect to Seller from any Governmental Entity responsible
for the imposition of any Tax; (iii) all Tax Returns of Seller for periods
ending after December 31, 2003 and all other Tax Returns with respect to which
the applicable period for assessment under applicable Laws, after giving effect
to extensions or waivers, has not expired; (iv) all material items of income,
gain, deduction or loss, or similar items, whether or not recognized or
incurred, resulting from any intercompany transaction to which Seller is party;
(v) a list of all pending Tax audits or inquiries; and (vi) any Tax reserves
included in the “Deferred Taxes” or similar line item in any balance sheets of
Seller included in the Financial Statements, separately identified and itemized
by dollar amount.
(o) Seller’s
inventory and receivables are accurately valued for Tax purposes in all material
respects.
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(p) Seller
has not participated in or cooperated with any international boycott within
the
meaning of Section 999 of the Code or been requested to do so in connection
with
any transaction or proposed transaction.
(q) Section
5.14(q)
of the
Disclosure Schedule lists all Tax abatement, Tax reduction, or similar
agreements or programs to which Seller is a party.
(r) Seller
is
not a foreign person within the meaning of Section 1445 of the
Code.
(s) Except
as
set forth in Section
5.14(s)
of the
Disclosure Schedule, Seller has not agreed nor is it required to make any
adjustment under Section 481(a) of the Code by reason of a change in method
of
accounting or otherwise that will affect the liability of Seller for
Taxes.
(t) Except
as
set forth in Section
5.14(t)
of the
Disclosure Schedule, Seller has not (i) participated or engaged in any
transaction, or taken any Tax Return position, described in Treasury Regulations
Section 301.6111-2(b)(2) (or any corresponding or similar provision of state,
local or foreign Tax law), or (ii) participated or engaged in any “reportable
transaction” within the meaning of Treasury Regulations Section 1.6011-4 (or any
corresponding or similar provision for state, local or foreign Tax
law).
(u) Seller
will not be required to include any item of income in, or exclude any item
of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any: (i) “closing agreement” as
described in Code Section 7121 (or any corresponding or similar provision of
state, local or foreign Tax law) executed on or prior to the Closing Date;
(ii)
intercompany transaction or excess loss account described in Treasury
Regulations under Code Section 1502 (or any corresponding or similar provision
of state, local, or foreign Tax law); (iii) installment sale or open transaction
disposition made on or prior to the Closing Date; or (iv) prepaid amount
received on or prior to the Closing Date.
5.15 Insurance.
The
insurance policies owned and maintained by Seller and the coverage amounts
thereunder are listed on Section
5.15
of the
Disclosure Schedule. The insurance policies maintained by Seller comply with
any
requirements to maintain insurance set forth in any contract or agreement to
which Seller is a party. Except as set forth on Section
5.15
of the
Disclosure Schedule, there is no claim pending under any such policy as to
which
coverage has been questioned, denied or disputed by the underwriter of such
policy. To the Knowledge of Seller, there has been no notice of cancellation
or
termination (or any other threatened termination) of, or premium increase with
respect to, any such policy.
5.16 Warranty
and Product Liability Matters.
(a) Section
5.16
of the
Disclosure Schedule sets forth (i) a list of all product liability claims
(excluding warranty claims) made against Seller since January 1, 2003; and
(ii)
a summary of warranty claims made against Seller, together with the annual
cost
associated with such warranty claims, for each of the two (2) most recent full
fiscal years.
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(b) Seller’s
products have no known design or manufacturing defects which individually or
in
the aggregate would result in a Material Adverse Change to Seller, the Business
or the Purchased Assets, and such products in all material respects comply
with,
and meet the current standards of, federal, state, local and foreign codes,
laws, regulations and statutes dealing with such products. Other than as set
forth in Section
5.16(b)
of the
Disclosure Schedule, no claims of product liability, whether in the nature
of
strict liability or negligence claims (but excluding product warranty claims),
in respect of Seller’s products or services are pending or, to Seller’s
Knowledge, threatened.
(c) Seller
has used commercially reasonable efforts to limit Seller’s liability for
warranty and product liability claims.
5.17 Benefit
Plans.
(a) Section
5.17(a)
of the
Disclosure Schedule contains a list of all Benefit Plans, with a description
of
any Benefit Plans not in writing, maintained or contributed to by Seller or
any
ERISA Affiliate. Seller has delivered or made available to Purchaser true and
complete copies of each Benefit Plan (including amendments since the most recent
restatement). To the extent applicable to Seller’s Benefit Plans, Seller has
also made available to Purchasesr true and complete copies of each (i) the
annual report (Form 5500) filed with the IRS or the Department of Labor with
respect to each Benefit Plan (if any such report was required) for the preceding
plan year; (ii) the most recent summary plan description (and any summary of
material modifications since the most recent summary plan description) for
each
Benefit Plan for which such a summary plan description is required and any
summaries or other material communications distributed to participants for
each
Benefit Plan whether or not required to provide a summary plan description;
(iii) all personnel, payroll and employment manuals and policies; (iv) each
trust agreement, recordkeeping or other third party agreement and group annuity
Contract relating to any Benefit Plan; (v) all notices that were given by Seller
or any Benefit Plan to the IRS, the Pension Benefit Guaranty Corporation, the
Department of Labor, the Securities and Exchange Commission, the Equal
Employment Opportunity Commission, or any Governmental Entity relating to a
Benefit Plan; and (vi) all notices that were given by the IRS, the Pension
Benefit Guaranty Corporation, the Department of Labor, the Securities and
Exchange Commission, the Equal Employment Opportunity Commission, or any other
Governmental Entity to Seller relating to any Benefit Plan.
(b) Each
Benefit Plan has been operated and administered in all material respects in
accordance with its terms and applicable laws, including but not limited to,
ERISA and the Code.
(c) Seller
has no Pension Plans.
(d) No
Benefit Plan is or has ever been (or has ever been the successor or transferee
of) a “multiemployer plan” (as defined in Section 3(37) of ERISA) or a “defined
benefit plan” (as defined in Section 3(35) of ERISA).
-25-
(e) Seller
has never established, maintained or contributed to, or had an obligation to
maintain or contribute to or has or had any liability with respect to, any
“voluntary employees’ beneficiary association” (within the meaning of Section
501(c)(9) of the Code), any organization or trust described in Sections
501(c)(17) or 501(c)(20) of the Code or any “welfare benefits fund” described in
Section 419(e) of the Code.
(f) Except
as
set forth in Section
5.17(f)
of the
Disclosure Schedule, Seller has not offered to provide health or life insurance
coverage to any individual, or to the family members of any individual, for
any
period extending beyond the termination of the individual’s employment by
Seller, except to the extent required by the health care continuation (also
known as “COBRA”) provisions of ERISA and the Code or similar state benefit
continuation Laws. Each Benefit Plan that is a group health plan, as such term
is defined in Section 5000(b)(1) of the Code, complies in all material respects
with Sections 601 et seq. and 701 et seq. of ERISA and Section 4980B and
Subtitle K of the Code.
(g) Except
as
set forth on Section
5.17(g)
of the
Disclosure Schedule, neither the execution and delivery of this Agreement,
nor
the consummation of the transactions contemplated hereby will give rise to
any
limitation on the ability of Seller to amend or terminate any Benefit
Plan.
(h) Except
as
set forth on Section
5.17(h),
Seller
does not have any Benefit Plan in which non-United States employees participate
and is not required to maintain any such plan.
(i) Since
Seller’s formation, no Person is or has been an ERISA Affiliate.
(j) Seller
has never been subject to the jurisdiction of the WARN Act.
(k) To
the
Knowledge of Seller, Seller has not engaged in a transaction in connection
with
which it could be subject either to a civil penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Code.
(l) Each
Benefit Plan maintained by Seller may be unilaterally amended or terminated
by
Seller (with respect to Seller employees), without material liability or
penalty, subject to the vested rights of existing participants under the Benefit
Plans (with respect to Seller employees).
(m) Seller
does not have any Benefit Plan or any other agreement or arrangement under
which
Seller has any liability under a “nonqualified deferred compensation plan”
within the meaning of Section 409A of the Code and applicable Treasury guidance
thereunder (the “409A
Plans”)
which
does not comply with the requirements of Section 409A of the Code. None of
the
409A Plans has been materially modified within the meaning of Notice 2005-1
and
each 409A Plan has been operated in good faith compliance with the provisions
of
Section 409A of the Code and the Internal Revenue Service Notice 2005-1 during
calendar year 2005.
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(n) All
contributions to, and any payments from, each Benefit Plan that may have been
required to be made in accordance with the terms of such Benefit Plan, and,
where applicable, the laws of the jurisdiction that govern such Benefit Plan,
through the date hereof have been made in a timely manner. There are no unfunded
benefit obligations under any Benefit Plan which have not been accounted for
by
reserves, or otherwise fully accrued on the Most Recent Balance
Sheet.
(o) There
is
not now, and there are no existing circumstances that could give rise to, any
requirement for the posting of security with respect to a Benefit Plan or the
imposition of any Lien on the assets of Seller under ERISA or the
Code.
(p) There
does not now exist, and there are no existing circumstances that could result
in, any Controlled Group Liability that would be a liability of Seller following
the Closing. Without limiting the generality of the foregoing, Seller has not
engaged in any transaction described in Section 4069 of ERISA or any transaction
that constitutes a withdrawal under Section 4201 et seq. of ERISA.
(q) There
are
no pending or to Seller’s Knowledge threatened claims (other than routine claims
for benefits in the Ordinary Course of Business), lawsuits or arbitrations
which
have been asserted or instituted against the Benefit Plans, any fiduciaries
of
the Benefit Plans with respect to their duties to the Benefit Plans or the
assets of any of the trusts under any of the Benefit Plans which could
reasonably be expected to result in any material liability of
Seller.
(r) Section
5.17(r)
of the
Disclosure Schedule contains a description, as of the date hereof, of the
severance benefits that each of the employees of Seller immediatley prior to
the
Closing are eligible to receive, including the amount payable to each such
employee, under the severance arrangement described therein.
(s) Seller
is
not a party to any oral or written agreement with any Seller employee (i) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Seller of the nature of any
of
the transactions contemplated by this Agreement, or (ii) providing any term
of
employment or compensation guarantee.
(t) There
has
been no amendment to, written interpretation of or announcement of Seller
relating to, or change in employee participation or coverage under, any Benefit
Plan that would result in a material increase in the expense of maintaining
such
Benefit Plan above the level of the expense incurred in respect thereof for
the
fiscal year of Seller ended prior to the date hereof. Seller has no plan or
commitment, whether legally binding or not, to create any additional Benefit
Plan, or to modify or change any existing Benefit Plan that would affect any
employee or terminated employee of Seller.
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5.18 Employee
and Labor Matters.
(a) Seller’s
employees are not members of any union. There are no pending (or, to the
Knowledge of Seller), any basis for any charges against Seller or any current
or
former Seller employees (based on conduct relating to their employment by
Seller) before the Equal Employment Opportunity Commission or any other
Governmental Entity responsible for the prevention of unlawful employment
practices nor does any basis exist therefor. Seller has not received notice
of
the intent of any Governmental Entity responsible for the enforcement of labor
or employment Laws to conduct an investigation of Seller and, to the Knowledge
of Seller, no such investigation is in progress.
(b) Seller
has complied in all material respects with all applicable Laws relating to
employment and governing payment of minimum wages and overtime rates, the
withholding and payment of Taxes from compensation of employees and the payment
of premiums and/or benefits under applicable worker compensation Laws. Seller
has complied in all material respects with all laws governing the employment
of
personnel by United States companies and the employment of non-United States
nationals in the United States, including, but not limited to, the Immigration
and Nationality Act and its implementing regulations.
(c) There
is
no labor strike, slowdown, stoppage or lockout actually pending or to Seller’s
Knowledge, threatened against Seller. Seller is not a party to any collective
bargaining or other similar labor Contracts with respect to any Seller employee
and there is not pending any demand for recognition or any other request or
demand from a labor organization for representative status with respect to
Seller employee. No labor union has been certified by the National Labor
Relations Board as bargaining agent for any Seller employee. Seller has not
experienced a material work stoppage or other material labor difficulty during
the two-year period ended on the date hereof.
(d) To
the
Knowledge of Seller, no activity of any employee of Seller as or while an
employee of Seller has caused a violation of any employment Contract,
confidentiality agreement, patent disclosure agreement or the violation of
which
resulted or could be reasonably expected to result, in a Material Adverse
Change.
(e) Section
5.18(e)
of the
Disclosure Schedule contains a true and complete list of the names, positions
and current rates of compensation of all officers, directors and employees
of
Seller, as of the date hereof, showing each such person’s name, positions, and
annualized remuneration for the current fiscal year.
(f) As
of the
date hereof, Seller has not been notified in writing by any of its employees
that such employee intends to, or is considering, terminating such employee’s
employment with Seller, including in connection with or as a result, in part
or
in whole, of the transactions contemplated hereby or any other sale of Seller
or
its assets.
(g) Seller
has not engaged in any unfair labor practice within the meaning of the National
Labor Relations Act and has not violated any legal requirement prohibiting
discrimination of any kind or nature, including, but not limited to, on the
basis of race, color, national origin, sex, religion, age, marital status,
sexual orientation, current or former military service or physical or mental
disability in its employment conditions or practices that would result in any
material liability to Seller.
-28-
5.19 Environmental
Matters.
(a) Seller
is
and has been in compliance in all material respects with all applicable
Environmental Laws. No property (including soils, groundwater, surface water,
buildings or other structures) currently or formerly operated or leased by
Seller is or was contaminated with any Hazardous Material in violation of
Environmental Laws as a result of any act or omission of Seller or its employees
or agents or, to the Knowledge of Seller, any other Person. To Seller’s
Knowledge, there are no conditions existing on the property currently leased
by
Seller that would reasonably be expected to give rise to any material violation
of any Environmental Law by Seller or result in any material liability under
any
Environmental Law to Seller. Seller has generated, manufactured, received,
handled, used, processed, stored, treated, released, refined, discharged,
emitted, transported, imported and disposed of all Hazardous Materials in
material compliance with all applicable Environmental Laws.
(b) Seller
has received no notice of any pending, or to its Knowledge threatened, and
to
the Knowledge of Seller, there is no basis for any action, demand, claim, notice
of noncompliance, suit, investigation, inquiry or proceeding relating to any
liability under any Environmental Law, including but not limited to any
liability arising from or relating to the presence, generation, manufacture,
receipt, production, transportation, importation, use, treatment, refinement,
processing, handling, storage, discharge, release, emission or disposal of
any
Hazardous Material. Seller is not subject to any order, decree or injunction
of
any Governmental Entity and is not a party to any indemnity agreement or other
Contract with any third party relating to liability under any Environmental
Law
other than the lease for the Leased Property. To the Knowledge of Seller, there
are no circumstances involving activities and operations conducted by Seller
that would result in any material claims, liability, investigations, costs
or
restrictions on the ownership, use or transfer of any property under any
Environmental Law. Copies of all environmental reports, studies, assessments,
sampling data and other written documentation in the possession of Seller
relating to Seller’s compliance with Environmental Laws have been made available
to Purchaser.
(c) Seller
has received no notice that it has, in the course of its business, sent or
disposed of, otherwise had taken or transported, arranged for the taking or
disposal of (on behalf of itself, a customer or any other party) or in any
other
manner participated or been involved in the taking of or disposal or release
of
a Hazardous Material to or at a site that is contaminated by any Hazardous
Material or that, pursuant to any Environmental Law, (a) has been placed on
the
“National Priorities List,” the “CERCLIS” list, or any similar state or federal
list, or (b) is subject to or the source of a claim, an administrative order
or
other request to take “removal,” “remedial,” “corrective” or any other
“response” action, as defined in any Environmental Law, or to pay for the costs
of any such action at the site. To the Knowledge of Seller, any violation of
any
Environmental Law caused by the prior ownership, possession or use of any third
party of any property currently owned, leased or used by Seller that required
remediation pursuant to the order or directive of any Governmental Entity,
has
been remediated to the satisfaction of such Governmental Entity.
5.20 Transactions
with Affiliates.
Except
as set forth in Section
5.20 of
the
Disclosure Schedule, no Affiliate of Seller: (i) owns or has any interest in
any
of the Purchased Assets; (ii) has any claim or cause of action against Seller;
or (iii) owes any money to, or is owed any money by,
Seller.
-29-
5.21 Effect
of Transaction.
Except
as set forth in Section
5.21
of the
Disclosure Schedule, no lender, creditor, lessor, lessee, licensor, licensee,
employee, contractor, distributor, vendor, client, customer, supplier, Affiliate
or other Person having a relationship with Seller has informed Seller in writing
(or, to the Knowledge of Seller, other than in writing) and Seller has no
Knowledge that such Person intends to change such relationship (in part or
in
whole) because of the consummation of the transactions contemplated by this
Agreement.
5.22 Brokers.
Except
as set forth in Section
5.22
of the
Disclosure Schedule, Seller has not employed or entered into any Contract with
any investment banker, broker, finder, consultant or intermediary that would
be
entitled to any investment banking, brokerage, finder’s or similar fee in
connection with the transactions contemplated by this Agreement.
5.23 Disclosure.
None of
the representations or warranties made by Seller herein or in the Disclosure
Schedule, or any certificate or schedule furnished by Seller pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain any untrue statement of a material fact, or omits to state
any
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which made, not
misleading.
5.24 Certain
Business Practices.
Neither
Seller nor any managers, members, agents or employees of Seller, has: (i) used
any funds of Seller for unlawful contributions, gifts, entertainment or other
unlawful expenses related to political activity; (ii) made any unlawful payment
with Seller’s funds to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns or violated any provision
of the Foreign Corrupt Practices Act of 1977; or (iii) made any payment with
Seller’s funds in the nature of criminal bribery.
5.25 Ownership
and Condition of Assets.
Except
as set forth in Section
5.25
of the
Disclosure Schedule, Seller is the sole and exclusive legal and equitable owner
of, and has good and marketable title to, or a valid leasehold interest in,
the
Purchased Assets and such Purchased Assets are free and clear of all Liens
(other than the Permitted Liens). Except as set forth in Section
5.25
of the
Disclosure Schedule, no Person or Governmental Entity has an option to purchase,
right of first refusal or other similar right with respect to all or any part
of
Seller’s assets other than in the Ordinary Course of Business. Any assets
material to the business of Seller that are not owned by Seller or utilized
by
Seller pursuant to a lease, license or other agreement are set forth in
Section
5.25
of the
Disclosure Schedule.
5.26 Customers.
Section 5.26
of the
Disclosure Schedule sets forth for the year ended December 31, 2006, the
ten (10) largest customers of Seller by revenue generated. Seller has received
no notice that any of the customers set forth on Section 5.26
of the
Disclosure Schedule intend to terminate, materially reduce or otherwise
materially adversely modify its relationship with Seller; provided that nothing
in this representation shall be deemed a warranty of the existence, magnitude
or
timing of any future purchases by any customer of Seller or of any customer’s
business plans insofar as they may or may not involve Seller’s products or
services, nor shall this representation apply to any fluctuations in
ordering.
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5.27 Compliance
with United States Export Control and Antiboycott Laws.
In each
case solely as it relates to the Purchased Assets:
(a)
Seller has at all times been in compliance with the requirements under any
Law
relating to export control and trade embargoes. No product sold or service
provided by Seller during the past five (5) years has been, directly or
indirectly, sold to or performed on behalf of any person listed on the Office
of
Foreign Assets Control Specially Designated Nationals List or similar list
or
any country that is the subject of an embargo or sanction by any Governmental
Entity.
(b)
Seller has not violated the antiboycott prohibitions contained in 50 U.S.C.
sect. 2401 et seq. or taken any action that may be penalized under Section
999
of the Code. During the past five (5) years, Seller has not been a party to,
been a beneficiary under or performed any service or sold any products to
customers in any country that engages in restricted trade practices or boycotts
prohibited by any Law.
5.28 Investment
Representations.
Seller
understands that the Purchase Shares have not been registered under the
Securities Act or the securities laws of any state or other jurisdiction. Seller
is acquiring the Purchase Shares for its own account for purposes of investment
and not for the account of any other Person, not for resale to any other Person,
and not with a view to or in connection with a resale or distribution of the
Shares. Seller has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment for the disposition of
the
Purchase Shares by Seller. Seller will not sell or otherwise dispose of any
shares of capital stock of Purchaser without registration under the Securities
Act and under any applicable state or other jurisdiction’s respective securities
laws, or an exemption therefrom.
5.29 Representations.
Except
for the representations and warranties of the Company expressly set forth in
this Article V, neither Seller nor any other Person makes any express or implied
representation or warranty on behalf of Seller in respect of the Business,
Seller, its assets and liabilities or otherwise (including those referred to
in
the uniform commercial code or in any statute or rule of law that can be limited
or waived and would otherwise be applicable to real property). In any event,
except as expressly set forth in this Article V, Seller makes no warranty of
merchantability, suitability, fitness for a particular purpose, or quality,
with
respect to any of the tangible assets of the company or subsidiary, or as to
the
condition or workmanship thereof or the absence of any defects therein, whether
latent or patent.
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to Seller as follows, as of the Closing
Date:
6.1 Organization
and Standing.
Purchaser is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Utah. Purchaser has all requisite corporate
power
and authority to own its properties and carry on its business as being now
conducted and as contemplated by this Agreement.
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6.2 Power
and Authority; Binding Agreement.
Purchaser has all requisite corporate power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder. The execution and delivery by Purchaser
of
this Agreement and the consummation by Purchaser of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
on the part of Purchaser, and no other proceedings on the part of Purchaser
are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and, assuming the due execution of this Agreement by the other parties
thereto, constitutes a valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms.
6.3 Noncontravention.
(a) The
execution and delivery by Purchaser of this Agreement, the consummation of
the
transactions contemplated hereby, and the compliance by Purchaser with the
provisions of this Agreement do not and will not conflict with, or result in
any
violation or breach of, or default (with or without notice or lapse of time
or
both) under, or give rise to a right of, or result in, termination, cancellation
or acceleration of any obligation or to a loss of a material benefit under,
or
result in the creation of any Lien in or upon any of the properties or assets
of
Purchaser under, or give rise to any increased, additional, accelerated or
guaranteed rights or entitlements under, any provision of (i) Purchaser’s
Certificate of Incorporation or Bylaws, (ii) any Contract material to
Purchaser’s business to which Purchaser is a party or bound by, (iii) any Law or
Judgment, with respect to Purchaser’s properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, breaches,
defaults, rights, losses, Liens or entitlements that individually or in the
aggregate are not likely to impair in any material respect the ability of
Purchaser to perform its obligations under this Agreement, or prevent or
materially impede or delay the consummation of the transactions contemplated
hereby.
(b) No
consent, approval, order or authorization of, registration, declaration or
filing with, or notice to, any Governmental Entity is required by or with
respect to Purchaser in connection with the execution and delivery by Purchaser
of this Agreement, the consummation by Purchaser of the transactions
contemplated by this Agreement or the compliance by Purchaser with the
provisions of this Agreement, except for such consents, approvals, orders,
authorizations, registrations, declarations, filings and notices, the failure
of
which to be obtained or made individually or in the aggregate would not impair
in any material respect the ability of Purchaser to perform its obligations
under this Agreement, or prevent or materially impede or delay the consummation
of the transactions contemplated hereby.
6.4 Brokers.
Purchaser has not employed or entered into any Contract with any investment
banker, broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement, pursuant to which Seller could
be
liable for the fee or commission of such investment banker, broker, finder,
consultant or intermediary, or for any similar fee or commission in connection
with this Agreement or the transactions contemplated hereby.
6.5 Consents.
No
consent, waiver, approval, order, permit or authorization of, or declaration
or
filing with, or notification to, any person or Governmental Entity is required
on the part of the Purchaser in connection with the execution and delivery
of
this Agreement or the compliance by the Purchaser with any of the provisions
hereof.
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6.6 Litigation.
There
is no Legal Proceeding pending or, to the knowledge of the Purchaser,
threatened, (a) that seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated by this Agreement or that
questions the validity of this Agreement, or any action taken or to be taken
by
the Purchaser in connection with the consummation of the transactions
contemplated hereby, or (b) to which Purchaser is or would be a party which,
if
determined adversely to Purchaser, could result in a material adverse change
in
Purchaser’s business, financial condition or results of operations.
6.7 Issuance
of the Securities.
The
Purchase Shares have been duly authorized and, when issued and paid for in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens other than
restrictions on transfer provided for in this Agreement or imposed by applicable
securities laws and shall not be subject to preemptive or similar rights of
stockholders. Assuming the accuracy of the representations and warranties of
Seller, the Purchase Shares will be issued in compliance with all applicable
federal and state securities laws.
6.8 Reports;
Accuracy of Information .
Purchaser has previously delivered or made available to Seller true and complete
copies of (a) its Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, (b) its Quarterly Reports on Form 10-Q for the fiscal quarter
ended September 30, 2006, and (c) its Definitive Proxy Statement on Schedule
14A
as filed on November 3, 2006, with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
As of
their respective dates, such reports and proxy statement (collectively, the
"Public
Filings")
(i) complied with all applicable provisions, rules and regulations of
federal securities laws and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary to make the statements contained therein, in light of the
circumstances in which such statements were made, not misleading.
6.9 No
Material Adverse Change
. Since
the date of the balance sheet included in Purchaser’s most recently filed report
on Form 00-X, Xxxxxxxxx has conducted its business in the ordinary course and
there has not occurred: (a) any material adverse change in the financial
condition, liabilities, assets or business of Purchaser; (b) any amendment
or change in the certificate of incorporation or bylaws of Purchaser, or any
proposal to so amend; (c) any damage to, destruction of or loss of any
assets of Purchaser (whether or not covered by insurance) that materially and
adversely affects, or could reasonably be expected to materially and adversely
affect, the financial condition or business of Purchaser; or (d) any sale
of a material amount of property of Purchaser, except in the ordinary course
of
business.
ARTICLE
VII
CERTAIN
COVENANTS
7.1 Conduct
of the Company.
From
the date of this Agreement until the Closing, Seller shall:
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(a) conduct
and operate its business in the Ordinary Course of Business;
(b) use
commercially reasonable efforts to (i) preserve its business organization
intact, (ii) maintain the services of its present officers and key employees,
and (iii) maintain existing relationships and the goodwill of its suppliers,
customers, lessors, creditors and others with whom it has business relations;
and
(c) use
commercially reasonable efforts to conduct its business so that at the Closing
(i) each representation or warranty of Seller that is qualified as to
materiality or a Material Adverse Change shall be true and correct, and that
is
not so qualified shall be true and correct in all material respects, (ii) no
covenant or agreement of Seller will be materially breached, and (iii) no
condition of the Agreement will remain materially unfulfilled by reason of
the
actions or omissions of Seller.
7.2 Prohibited
Actions.
Unless
otherwise provided for herein or previously approved in writing by Purchaser,
from the date hereof until the Closing Seller will not:
(a) make
or
authorize any capital commitment, capital expenditure or capital lease which
is
in excess of $10,000 individually or $50,000 in the aggregate;
(b) adopt
a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization other than (i) as may
be
necessary or appropriate to comply with Code Section 368(a)(1)(C) and the rules
and regulations promulgated thereunder, and (ii) to the extent that such
adoption or consummation would not cause Seller to be unable to fulfill its
obligations hereunder;
(c) take
any
action to change in any respect its accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable), except for changes
required by GAAP;
(d) to
the
extent that it could reasonably be expected to have a materially adverse effect
on any Purchased Asset or Assumed Obligation or Seller’s ability to perform its
obligations hereunder, enter into or agree to enter into any employment
agreement or increase the compensation or benefits payable or to become payable
to its directors, officers or employees (other than in the Ordinary Course
of
Business and which agreements or increases do not exceed 5% of total payroll
expense in the aggregate), grant any severance, retention or termination pay
to,
or enter into any severance agreement with, any director, officer or other
employee of the Company, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any such director, officer or employee, except
that the Company may make any amendments to Benefit Plans existing on the date
hereof to the extent necessary to maintain their compliance with applicable
laws;
(e) acquire,
including, without limitation, by merger, consolidation, acquisition of stock
or
assets or otherwise any equity interest in or any portion of the assets of,
or
by any other manner acquire any business or any Person or division
thereof;
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(f) sell,
lease, encumber (including by the grant of any option thereon) or otherwise
dispose of any material assets or property, except inventory in the Ordinary
Course of Business or pursuant to existing contracts or
commitments;
(g) enter
into any Contract or other agreement that limits the ability of the Company
to
compete in or conduct any line of business or compete with any Person in any
geographic area or during any period;
(h) enter
into any Material Contract other than in the Ordinary Course of Business, except
as necessary to carry out Seller’s obligations hereunder;
(i) mortgage,
pledge or subject to Liens, any of its property or assets, or agree to do
so;
(j) make,
rescind, or change any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability or audit, or file any
material amended Tax Return;
(k) sell,
assign, transfer, license or sublicense, pledge or otherwise encumber any of
the
Company Intellectual Property;
(l) fail
to
maintain in full force and effect insurance coverage substantially similar
to
the insurance coverage identified in Section
5.15
of the
Disclosure Schedule;
(m) adopt
any
new Benefit Plan;
(n) settle
any claims arising out of or in connection with any of the transactions
contemplated by this Agreement; or
(o) announce
an intention, agree or commit to do any of the foregoing.
7.3 Tax
Matters.
(a) Seller
shall file, within the time allowed by Law, all federal, state, local and
foreign tax returns with the appropriate jurisdictions, for all applicable
periods through the Closing Date, to include therein all information required
to
be contained therein relating to Seller for such period, and to pay all taxes,
interest and penalties with respect to Seller for such period in a manner
consistent with the nature of this transaction. Purchaser will be given
reasonable opportunity to review such tax returns prior to their filing. In
the
event that a position taken by Seller in any such return could reasonably be
expected to have a material adverse effect on Purchaser’s filing positions with
the applicable taxing authority, then such return would also be subject to
Purchaser’s prior approval, not to be unreasonably withheld.
(b) All
transfer, documentary, sales, use, registration and other such Taxes (including
all applicable real estate transfer or gains Taxes) and related fees (including
any penalties, interest and additions to Tax) incurred in connection with the
transactions contemplated hereby shall be paid by Seller, and Seller and
Purchaser shall cooperate in timely filing all Tax Returns as may be required
to
comply with the provisions of such Tax Laws. Purchaser and Seller will
reasonably cooperate with each other to lawfully minimize any such
Taxes.
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7.4 No
Shop.
(a) Neither
Seller nor any of its stockholders shall, nor shall either of them authorize
or
permit any of their Affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of Seller or its
stockholders or any of their Affiliates to, (i) solicit, initiate, or
intentionally encourage the submission of, any Acquisition Proposal (as
hereinafter defined), (ii) enter into any agreement with respect to any
Acquisition Proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any Person any information for the purpose
of responding to, facilitating the making of, or take any other action for
the
purpose of responding to, facilitating any inquiries or the making of, any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal other than the transactions contemplated hereby.
(b) For
purposes of this Agreement, “Acquisition
Proposal”
means
any proposal for a merger or other business combination involving the
acquisition of Seller by any Person other than Purchaser or any proposal or
offer to acquire in any manner, directly or indirectly, any of the equity
securities, voting securities or assets of Seller, other than the transactions
contemplated hereby.
(c) Seller
will, and except as otherwise provided in this Agreement, will cause its
Affiliates to, immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of this Agreement with
any
Persons (other than Purchaser and its Representatives) conducted heretofore
with
respect to any Acquisition Proposal, and will not pursue, directly or
indirectly, any Acquisition Proposal received on or prior to the date of this
Agreement from any Person (other than Purchaser and its Representatives).
Nothing in this Section 7.4 shall permit Seller to terminate this Agreement
(except as expressly provided in Article X) or affect any other obligations
of
Seller under this Agreement.
7.5 Access.
Upon
reasonable notice, Seller shall afford Purchaser reasonable access at all
reasonable times throughout the period prior to the Closing, to Seller’s
properties, books, contracts and records, including Tax Returns filed and those
in preparation and the right to consult with the officers, employees,
accountants, counsel and other Representatives of Seller in order that Purchaser
may have a reasonable opportunity to make such investigation as it shall deem
necessary of the operations, properties, business, financial conditions and
prospects of Seller. During such period, Seller shall furnish promptly to
Purchaser all information concerning its business, properties and results of
operations as may reasonably be requested by Purchaser. Similarly, Purchaser
shall furnish promptly to Seller all information concerning the Business and
make available such of Purchaser’s personnel formerly employed by Seller as may
reasonably be requested by Seller in connection with the filing of Tax Returns
by Seller, the winding up of Seller’s operations or defense of indemnification
claims.
7.6 Name
Use.
Seller
shall take, on or before ten (10) Business Days after the Closing Date, any
and
all actions necessary, including, without limitation, amending Seller’s articles
of incorporation, to change Seller’s name to a name that does not include “Smart
Systems International” or words similar to or susceptible to confusion with the
words “Smart Systems International” or the name “Smart Systems International” or
any combination or abbreviation thereof. Seller shall not use an entity name
or
otherwise identify itself, its business or any of its products or services
so as
to include the words “Smart Systems International” or any other of Seller’s
trade names or any other name that has such a near resemblance thereto as would
reasonably be likely to cause confusion or mistake to the public notwithstanding
the foregoing.
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7.7 Accounts
Receivable.
Any
amounts received by Seller with respect to accounts receivable of Purchaser
from
the conduct of the Business following the Closing Date (and which accounts
receivable shall be the property of Purchaser) shall be remitted by Seller
to
Purchaser within thirty (30) business days of receipt. The Seller shall retain
any documentation of such payments. Nothing herein shall obligate Seller to
segregate any such funds or establish or maintain a segregated account for
such
funds.
7.8 Confidentiality.
Seller
and each of its Affiliates shall ensure that all confidential and proprietary
information concerning the Business which Seller, and each of its Affiliates,
any of their respective employees, attorneys, agents, investment bankers, or
accountants may now possess or may hereafter create or obtain relating to the
financial condition, results of operations, business, properties, assets,
liabilities or future prospects of the Business or relating to the assets of
Seller or any customer or supplier of Seller shall not be published, disclosed,
or made accessible by any of them to any other person or entity at any time
or
used by any of them without the prior written consent of Purchaser; provided,
however,
that
the restrictions of this provision shall not apply: (i) as may otherwise be
required by Law; (ii) as may be necessary or appropriate in connection with
the
enforcement of this Agreement; or (iii) to the extent such information shall
have otherwise become publicly available other than as the result of a breach
by
Seller or any of its Affiliates of their obligations under this Agreement.
The
restrictions of this Section 7.8 shall survive for a period of five (5) years
following the Closing.
At all
times prior to the Closing, Purchaser and its Affiliates shall be similarly
bound not to publish, disclose or make available confidential or proprietary
information concerning the Business or the Purchased Assets without Seller’s
prior written consent.
7.9 Publicity.
No
public announcement of this transaction shall be made without the express
written consent of Purchaser.
Seller
will be given reasonable opportunity to review and comment on any proposed
announcement of this transaction by Purchaser, provided that, (a) nothing herein
shall restrict Purchaser’s right to make any public announcement that, in the
opinion of Purchaser’s legal counsel, is required by applicable Law, in which
case Purchaser shall use its best efforts to provide such announcement to Seller
for review and comment as soon as practicable prior to its release, and (b)
in
no event will Seller be given less than two (2) business days to review any
proposed disclosure not falling under clause (a) of this proviso.
7.10 Further
Assurances.
From
time to time following the Closing, as and when requested by any Party, the
other Parties shall execute and deliver, or cause to be executed and delivered,
all such documents and instruments and shall take, or cause to be taken, all
such further or other actions as such other Party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement
and
the consummation of the transactions contemplated hereby.
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7.11 Employees.
Purchaser shall not be obligated to offer employment to any of Seller’s
employees in connection with the acquisition of the Purchased Assets, and such
acquisition shall not grant any employee of Seller a right of continued
employment with Purchaser. Notwithstanding the foregoing, with respect to any
of
Seller’s employees that Purchaser chooses to hire at or following the Closing,
Purchaser will give full credit in the calculation of any employee benefits
based upon length of service to the service of such employee to Seller or
Seller’s Affiliates and Purchaser will offer such benefits to hired employees
commensurate with those offered to similarly situated employees of Purchaser.
Seller agrees to cooperate with Purchaser in hiring any of Seller’s employees
Purchaser wants to hire. Seller agrees that it will pay all salaries, or other
employee benefits or other liabilities due or accrued in connection with the
employment through the Closing Date, other than any accrued vacation or PTO
of
any hired employees, the obligation to pay which is being expressly assumed
by
Purchaser under Section 2.1(c) above (whether such accrued vacation is carried
over to Purchaser with the consent of the hired employee or paid at or following
Closing with respect to hired employees that do not agree to carry over accrued
vacation). Except as set forth in this paragraph, Seller shall be solely
responsible for satisfying all obligations which may arise or which have arisen,
prior to the Closing, in connection with the employment of Seller’s employees
and/or the Seller’s termination of employees.
7.12 Seller
Lock-Up.
Notwithstanding anything in this Agreement to the contrary, Seller and its
transferees will not sell, dispose of, transfer, convey, pledge or hypothecate
more than 125,000 shares of Common Stock per day for a period of one year
following the Closing.
7.13 Filing
of Registration Statement on Form S-3.
Purchaser agrees to file a Registration Statement with the Commission covering
the distribution of the Purchase Shares no later than the earlier to occur
of
(i) the 120th
day
following the Closing Date, or (ii) May 15, 2007, and further agrees to use
its
reasonable best efforts to respond to any comments from the Commission and
cause
such Registration Statement to become effective with the Commission within
60
days of its filing, all as more fully provided in the Registration Rights
Agreement attached hereto as Exhibit
F.
ARTICLE
VIII
CONDITIONS
8.1 Conditions
to Each Party’s Obligations.
The
respective obligation of each party to consummate the transactions contemplated
hereby is subject to the fulfillment, satisfaction or waiver at or prior to
the
Closing of each of the following conditions:
(a) All
authorizations, consents, orders, declarations or approvals of, or filings
with,
or terminations or expirations of waiting periods imposed by any law or
Governmental Entity, necessary or required in order for the consummation of
any
of the transactions contemplated by this Agreement and which, if not obtained,
made or occurring, would make any of the transactions contemplated hereby
illegal or would result in a Material Adverse Change to Seller, shall have
been
obtained, made or occurred.
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(b) No
Governmental Entity or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which (i) is in effect, and (ii) has the
effect of making the transactions contemplated hereby illegal or otherwise
prohibiting or preventing the consummation of the transactions contemplated
hereby.
8.2 Conditions
to Purchaser’s Obligations.
Purchaser’s obligation to consummate the transactions contemplated hereby shall
be subject to the fulfillment or satisfaction of the following conditions,
any
of which may be waived in writing by Purchaser in whole or in part:
(a) The
representations and warranties of Seller contained in this Agreement that are
qualified as to materiality or Material Adverse Change shall be true and
correct, and that are not so qualified shall be true and correct in all material
respects on the date of this Agreement and on and as of the Closing Date, as
though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only
as
of the specified date). Purchaser shall have received a certificate dated as
of
the Closing Date and signed by an executive officer of Seller certifying that
the conditions specified in Section 8.2(a) and (b) have been satisfied (the
“Seller
Certificate”).
(b) Seller
shall have performed and complied in all material respects with all the
agreements and covenants contained herein that are required to be performed
by
it prior to or at the Closing.
(c) There
shall have occurred no effects, events, occurrences, developments or changes
that have resulted in, or are reasonably likely to result in, a Material Adverse
Change since the date of this Agreement, except for changes expressly
contemplated by this Agreement.
(d) Seller
shall have received all necessary consents, waivers, assignments, approvals,
or
transfers in form and substance reasonably satisfactory to Purchaser, from
all
Governmental Entities, and all Contracts, leases or agreements to which Seller
is a party, or that concern or relate to the Permits held by Seller, except
where the failure to receive such consent, waiver, assignment, approval or
transfer would not reasonably be expected, individually or in the aggregate,
to
result in a Material Adverse Change.
8.3 Conditions
to Seller’s Obligations.
Seller’s obligation to consummate the transactions contemplated hereby shall be
subject to the fulfillment or satisfaction of the following conditions, any
of
which may be waived in writing by Seller in whole or in part:
(a) The
representations and warranties of the Purchaser contained in this Agreement
that
are qualified as to materiality shall be true and correct, and that are not
so
qualified shall be true and correct in all material respects on the date of
this
Agreement and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date). Seller
shall have received a certificate dated as of the Closing Date and signed by
an
executive officer of Purchaser certifying that the conditions specified in
Section 8.3(a) and (b) have been satisfied (the “Purchaser
Certificate”).
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(b) Purchaser
shall have performed and complied in all material respects with all the
agreements and covenants contained herein that are required to be performed
by
it prior to or at Closing.
(c) There
shall have occurred no effects, events, occurrences, developments or changes
that have resulted in, or are reasonably likely to result in, a material adverse
change in Purchaser’s business, financial condition or results of operations
since the date of this Agreement, except for changes expressly contemplated
by
this Agreement.
ARTICLE
IX
INDEMNIFICATION
9.1 Survival.
The
representations and warranties of the Parties contained in this Agreement,
and
in any certificate, schedule or document delivered pursuant hereto shall be
deemed to have been relied on by the parties hereto, and shall survive the
Closing for a period of twelve (12) months; provided,
however,
that
the
representations and warranties contained in 5.14 (Taxes) and 5.19 (Environmental
Matters) shall survive the Closing and continue until 60 days after all
applicable statutes of limitation bar any claims of any kind or nature
regardless of the forum in which asserted.
9.2 Indemnification
of Purchaser.
(a)
Subject to Sections 9.4 and 9.5 hereof, Seller shall indemnify Purchaser, its
Affiliates and each of their respective officers, directors, employees,
stockholders, agents and Representatives (each, a “Purchaser
Indemnified Party”)
against, and hold each Purchaser Indemnified Party harmless from and against
(and the Purchaser Indemnified Parties shall be indemnified and held harmless
from the Holdback), any and all Losses suffered or incurred by such Purchaser
Indemnified Party, arising from, relating to or otherwise in connection with
the
following (collectively, the “Purchaser
Indemnifiable Loss”):
(i) any
breach of any representation or warranty of Seller contained in this Agreement
or in any other agreement or instrument executed and delivered by Seller
pursuant to this Agreement;
(ii) any
breach or failure to perform any covenant or agreement of Seller contained
in
this Agreement or any agreement or instrument furnished by Seller pursuant
to
this Agreement;
(iii) any
Excluded Asset;
(iv) any
Excluded Liability; or
(v) the
use
or operation of the Purchased Assets or the conduct of the Business prior to
the
Closing other than the Assumed Liabilities or the Assumed
Obligations.
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(b) Purchaser’s
aggregate remedy with respect to any and all Purchaser Indemnifiable Losses
shall in no event exceed 10.0% of the Purchase Price, other than to the extent
such Purchaser Indemnifiable Loss is determined by a court of competent
jurisdiction to be the result of material fraud by Seller, in which case, there
shall be no limitation on Purchaser’s right of recovery, or to the extent such
Purchaser Indemnifiable Loss is the result of any breach of the representations
and warranties of Seller pursuant to Section 5.26 (Ownership and Condition
of
Assets), in which case, Purchaser’s right of recovery shall be limited to the
Purchase Price. Notwithstanding the foregoing, Purchaser shall not be entitled
to indemnity under this Section 9.2 until aggregate Purchaser Indemnifiable
Losses exceed $100,000 (the “Indemnity
Basket”),
after
which all Purchaser Indemnifiable Losses (including those in the Indemnity
Basket) shall be recoverable (subject to the limitations set forth in the
preceding sentence).
(c) Other
than to the extent that Seller chooses, at its option, to satisfy any Purchaser
Indemnifiable Loss in whole or in part from other resources, Purchaser’s sole
source for payment of Purchaser Indemnifiable Losses shall be the Holdback
Shares held in the Escrow, save and except for (i) any Purchaser Indemnifiable
Loss that is the result of any breach of the representations and warranties
of
Seller pursuant to Section 5.26 (Ownership and Condition of Assets) in an amount
in excess of the value of the Holdback Shares (as calculated in the Master
Escrow Agreement), the excess of which Loss may be recovered outside of the
Escrow after maximum recovery has been made from the Escrow, and (ii) for any
claims permitted to be made after distribution of the Holdback
Shares.
9.3 Indemnification
of the Seller.
Purchaser shall indemnify Seller and its Affiliates and each of their respective
officers, directors, employees, stockholders, agents and Representatives (each
a
“Seller
Indemnified Party”)
against and hold each Seller Indemnified Party harmless from any and all Losses
suffered or incurred by any such Seller Indemnified Party arising from, relating
to or otherwise in connection with:
(a) any
breach, as of the Closing Date, of any representation or warranty of Purchaser
contained in this Agreement or any other agreement or instrument furnished
by
Purchaser to Seller pursuant to this Agreement;
(b) any
failure to perform any covenant or agreement of Purchaser contained in this
Agreement or any agreement or instrument furnished by Purchaser to Seller
pursuant to this Agreement;
(c) the
use
or operation of the Purchased Assets or the conduct of the Business following
the Closing;
(d) the
Assumed Obligations; and
(e) the
Assumed Liabilities.
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9.4 Indemnification
Claims.
(a) In
order
for an Indemnified Party to be entitled to any indemnification provided for
under Section 9.2 or 9.3 in respect of, arising out of or involving a Third
Party Claim, such Indemnified Party must notify the Indemnifying Party in
writing of the Third Party Claim within twenty (20) Business Days after receipt
by such Indemnified Party of notice of the Third Party Claim; provided,
however,
that
failure to give such notification shall not affect the indemnification provided
under Section 9.2 or 9.3 except to the extent the Indemnifying Party has been
actually prejudiced as a result of such failure. Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, within ten (10) Business Days
after the Indemnified Party’s receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating
to
the Third Party Claim. The Indemnifying Party alone shall conduct and control
the defense of such Third Party Claim and the Indemnified Party shall have
the
right to participate in the defense of such claim at its own expense; provided
that if Seller is the Indemnifying Party, it shall have the option but not
the
obligation to assume such defense by written notice to the Purchaser Indemnified
Party within ten (10) Business Days of receipt of notice of the Third Party
Claim from the Purchaser Indemnified Party, and if such defense is declined,
Seller shall have the right to participate in a non-controlling manner in the
defense of such claims at Seller’s own expense. The Indemnifying Party (or
Purchaser Indemnified Party if Seller has declined the defense of such claim)
shall not, without the prior written consent of the Indemnified Party (or Seller
if Seller has declined the defense of such claim) (such consent not to be
unreasonably delayed, withheld or conditioned), settle, compromise or offer
to
settle or compromise any such claim or demand (i) on a basis which would result
in the imposition of a consent order, injunction or decree that does not include
an unconditional release of the Indemnified Party for any liability arising
out
of such claim or demand or any related claim or demand, or (ii) regardless
of
any unconditional release of claims if Seller is the Indemnifying Party and
has
declined the defense of such claim. With respect to any Third Party Claim
subject to indemnification under this paragraph: (i) both the Indemnified Party
and the Indemnifying Party, as the case may be, shall keep the other Person
fully informed of the status of such Third Party Claim and any related
proceedings at all stages thereof where such Person is not represented by its
own counsel, and (ii) the parties agree (each at its own expense) to render
to
each other such assistance as they may reasonably require of each other and
to
cooperate in good faith with each other in order to ensure the proper and
adequate defense of any Third Party Claim (including, without limitation, making
such Person’s employees, consultants and records reasonably available to aid the
other Person in the defense of such Third Party Claim).
(b) In
order
for an Indemnified Party to be entitled to any indemnification provided for
under this Agreement other than in respect of, arising out of or involving
a
Third Party Claim, such Indemnified Party shall deliver notice of such claim
with reasonable promptness to the Indemnifying Party; provided,
however,
that
failure to give such notification shall not affect the indemnification provided
under Section 9.2 or 9.3 except to the extent the Indemnifying Party has been
actually prejudiced as a result of such failure. If the Indemnifying Party
does
not notify the Indemnified Party within twenty (20) Business Days following
its
receipt of such notice that the Indemnifying Party disputes its liability to
the
Indemnified Party, such claim specified by the Indemnified Party in such notice
shall be conclusively deemed a liability of the Indemnifying Party under Section
9.2 or 9.3 and the Indemnifying Party shall pay the amount of the Losses stated
in such notice to the Indemnified Party on demand (which in the case of a
Purchaser Indemnified Party shall include the release of Holdback Shares amounts
held in escrow pursuant to the Master Escrow Agreement to the extent that such
indemnity is not funded through other means pursuant to Section 9.2(c)) or,
in
the case of any notice in which the Losses (or any portion thereof) are
estimated, on such later date when the amount of such Losses (or such portion
thereof) becomes finally determined. Disputes regarding indemnification of
Losses under this Section 9.4 shall be resolved in the manner set forth in
Section 6 of the Master Escrow Agreement.
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(c) Notwithstanding
the foregoing, in no event will an Indemnified Party be entitled to
indemnification of any claim if notice of such claims is not delivered to the
Indemnifying Party prior to the expiration of the applicable survival period
set
forth in Section 9.1 above.
9.5 No
Double Recovery; Use of Insurance.
Notwithstanding anything herein to the contrary, no Indemnified Party shall
be
entitled to indemnification or reimbursement under any provision of this
Agreement for any amount to the extent such Indemnified Party has been
indemnified or reimbursed for such amount under any other provision of this
Agreement or otherwise. The amount of any indemnification payable under this
Agreement will be net of the receipt of any insurance proceeds paid or payable
to the Indemnified Party under any policies of insurance covering the Loss
giving rise to the claim. The Indemnified Party will use commercially reasonable
efforts to collect any such insurance and will account to the Indemnifying
Party
therefor. If, at any time subsequent to the Indemnified Party receiving an
indemnity payment for a claim under this Agreement, the Indemnified Party
receives payment in respect of the Loss underlying such claim through recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by or against another Person,
the
amount of such payment, less any costs, expenses or premiums incurred directly
in connection therewith, will promptly be repaid by the Indemnified Party to
the
Indemnifying Party.
9.6 Mitigation.
Each
party agrees to use reasonable efforts to mitigate any Loss that forms the
basis
of a claim hereunder.
9.7 Exclusive
Remedy.
The
exclusive remedy available to a party hereto with respect to the matters covered
by Sections 9.1 and 9.2 hereof shall be to proceed in the manner and subject
to
the limitations contained in this Article IX.
ARTICLE
X
TERMINATION
10.1 Termination.
This
Agreement may be terminated at any time prior to the Closing:
(a) by
mutual
written consent of Seller and Purchaser;
(b) by
either
Seller or Purchaser:
(i) if
the
transactions contemplated hereby shall not have been consummated within thirty
(30) days following the date of this Agreement; provided that the terminating
party shall not have breached in any material respect its obligations under
this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the transactions contemplated hereby by such date;
or
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(ii) if
any
Governmental Entity of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated hereby and such order,
decree or ruling or other action shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant to this
Section 10.1(a)(ii) shall not be available to any party who has not used its
commercially reasonable efforts to cause such order, decree or ruling to be
lifted.
(c) by
Purchaser if (i) the representations and warranties of Seller contained in
this Agreement shall not be true and correct in all material respects, or
(ii) Seller shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or material covenant of Seller to be performed or complied with by
it
under this Agreement, in each case, such that the conditions set forth in
Sections 8.2(a) or (b) would not be satisfied, and in the case of clause
(i) such untruth or incorrectness cannot be or has not been cured within
thirty (30) days after the giving of written notice to Seller, and, in the
case
of clause (ii) such failure cannot be or has not been cured within thirty
(30) days after the giving of written notice to Seller; or
(d) by
Seller
if (i) the representations and warranties of Purchaser contained in this
Agreement shall not be true and correct in all material respects, except to
the
extent that any breach (either individually or in the aggregate with all other
such breaches) would not have a material adverse effect on Purchaser; or
(ii) Purchaser shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or material covenant of Purchaser to be performed or complied with
by
it under this Agreement, in each case such that the conditions set forth in
Sections 8.3(a) or (b) would not be satisfied, and in the case of clause
(i) such untruth or incorrectness cannot be or has not been cured within
thirty (30) days after the giving of written notice to Purchaser, and, in the
case of clause (ii) such failure cannot be or has not been cured within
thirty (30) days after the giving of
written notice to Purchaser.
10.2 Effect
of Termination.
If this
Agreement is terminated pursuant to Section 10.1,
all
obligations of the Parties hereunder shall terminate, except for the obligations
set forth in Section 7.8 (Confidentiality) and 7.9 (Publicity), which shall
survive the termination of this Agreement, and except that no such termination
shall relieve any party from liability for any prior breach of this
Agreement.
ARTICLE
XI
MISCELLANEOUS
11.1 Entire
Agreement.
This
Agreement contains the entire agreement between the parties hereto with respect
to the transactions contemplated herein and shall not be modified or amended
by
an instrument in writing signed by or on behalf of the parties
hereto.
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11.2 Section
Headings; Interpretation.
Reference in this Agreement to a Section, Article, or Schedule, unless otherwise
indicated, shall constitute references to a Section or an Article of this
Agreement or a Section of the Disclosure Schedule, as the case may be. The
section headings and article titles contained in this Agreement are for
convenience of reference only and do not form a part thereof and shall not
affect in any way the meaning or the interpretation of this Agreement. Wherever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.” The words
“herein,” “hereinafter,” and “hereunder,” and words of similar import used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The singular of a term shall also
include the plural of that term and the plural shall also include the singular
and the masculine shall include the feminine, unless the context clearly
indicates otherwise.
11.3 Notices.
Any
notice hereunder shall be in writing and shall be deemed given if personally
delivered to the other party or if delivered by confirmed facsimile or if
deposited in the United States Mail, postage prepaid, certified or registered,
addressed to the parties as follows:
|
To
Seller:
|
Smart
Systems International
|
|
c/o
Xxxxxx X. Xxxxx
|
|
|
GFI
Energy Venture, LLC
|
|
|
00000
Xxx Xxxxxxx Xxxx., #000
|
|
|
Xxx
Xxxxxxx, XX 00000
|
|
|
Fax:
(000) 000-0000
|
|
|
With
copies to:
|
Xxxxx
X. Xxxxxx, Esq.
|
|
Xxxx
Xxxx
|
|
|
0000
Xxxxxxx Xxxx, Xxxxxx Xxxxx
|
|
|
Xxxx,
XX 00000
|
|
|
Fax:
(000) 000-0000
|
|
|
To
Purchaser:
|
Telkonet,
Inc.
|
|
00000
Xxxxxx Xxxxxxx Xxxxxxx
|
|
|
Xxxxxxxxxx,
Xxxxxxxx 00000
|
|
|
Attn:
Chief Executive Officer
|
|
|
Fax:
(000) 000-0000
|
|
|
With
copies to:
|
Xxxxx
X. Xxxxxx, Esq.
|
|
Xxxxx
& Xxxxxxxxx LLP
|
|
|
0000
Xxxxxxxxxxx Xxxxxx, X.X.
|
|
|
Xxxxx
0000
|
|
|
Xxxxxxxxxx,
X.X. 00000
|
|
|
Fax:
(000)
000-0000
|
or
to
such other address as any party notifies the other parties of in accordance
herewith.
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11.4 No
Presumption Against Drafter.
Each of
the parties hereto has jointly participated in the negotiation and drafting
of
this Agreement. In the event there arises any ambiguity or question of intent
or
interpretation with respect to this Agreement, this Agreement shall be construed
as if drafted jointly by all of the parties hereto and no presumptions nor
burdens of proof shall arise favoring any party by virtue of the authorship
of
any of the provisions of this Agreement.
11.5 Nonassignability.
This
Agreement shall not be assigned, by operation of law or otherwise. Subject
to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
11.6 No
Third Party Beneficiaries.
Except
as otherwise expressly provided in this Agreement, this Agreement is for the
sole benefit of the Parties and their permitted successors and assigns and
nothing herein expressed or implied shall give or be construed to give to any
Person, other than the Parties and such successors and assigns, any legal or
equitable rights hereunder.
11.7 Governing
Law.
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE
LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
OF SUCH STATE.
11.8 Severability.
If any
term or provision of this Agreement shall, to any extent, be held by a court
of
competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement or the application of such term or provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby and this Agreement shall be deemed
severable and shall be enforced otherwise to the full extent permitted by law;
provided, however, that such enforcement does not deprive any party hereto
of
the benefit of the bargain.
11.9 Counterparts.
This
Agreement may be executed in one or more counterparts each of which shall be
deemed to constitute an original and shall become effective when one or more
counterparts have been signed by each party hereto and delivered to the other
parties.
[Signature
Page Follows]
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IN
WITNESS WHEREOF,
the
Parties have caused this Agreement to be signed by their respective duly
authorized representatives as of the date first written above.
PURCHASER
TELKONET,
INC.
By:
/s/ Xxxxxx
X.
Xxxxxxx
Name:
Xxxxxx
X.
Xxxxxxx
Title:
CEO
SELLER
SMART
SYSTEMS INTERNATIONAL
By: /s/
Xxxxxxx X.
Xxxxx
Name:
Xxxxxxx X. Xxxxx
Title:
President & CEO
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