AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement") is entered into
as of June 11, 1999 by and among RECOM MANAGED SYSTEMS, INCORPORATED, a Delaware
corporation ("RMSI"), Valley NETWORKING, a California corporation ("Valley"),
and XXXXX XXXXXX, an individual, the principal stockholder of Valley (the
"Principal Stockholder"). In consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, the parties
agree as follows:
ARTICLE I
SALE OF ASSETS
1.1 Assets to be Acquired. Subject to the terms and conditions of
this Agreement, Valley hereby assigns sells, transfers and delivers to RMSI, and
RMSI hereby purchases from Valley, all of the assets, properties and rights of
Valley which are listed, identified or otherwise described on Schedule 1.1
attached hereto (the "Acquired Assets) free and clear of all liens and
encumbrances except those referred to in Section 1.3 below.
1.2 Reserved
1.3 Accepted Liabilities. The Acquired Assets will be subject to
only the obligations and liabilities which are listed, identified or otherwise
described on Schedule 1.3 attached hereto (the "Accepted Liabilities"). Except
for the Accepted Liabilities, no obligations and liabilities of Valley of
whatever kind or nature shall be accepted or assumed by RMSI.
1.4 Purchase Price. The total purchase price (the "Purchase Price")
for the Acquired Assets shall be the aggregate sum, in cash, of $75,000, as
provided in Section 1.4.1 and 1.4.2, the amount of the Accepted Liabilities, the
amounts referenced in Section 1.4.5, and the stock referenced in Section 1.5.2.
Stockholder will also be entitled to an "Earnout" as provided in Section 1.4.4.
1.4.1 Cash. Pursuant to Section 1.5.3(a), RMSI shall pay
$25,000 to Valley concurrent with the execution hereof.
1.4.2 Cash at Close of Major Offering. At the close of a
public or private offering ("Major Offering") of no less than $4 million,
anticipated for the fourth quarter 1999, RMSI shall pay to Valley or Principal
Stockholder, at the discretion of Principal Stockholder, the sum of $50,000.
1.4.3 Acquisition of Network Routing Equipment. RMSI shall
invest up to $20,000 for the purpose of acquiring upgraded network routing
equipment and associated deposits for communications services. This is not
consideration for the sale of assets.
1.4.4 Earnout. Valley or Principal Stockholder, at the
discretion of Principal Stockholder, is entitled to additional compensation (the
"Earnout") based upon subsequent performance. For a period of three (3) years
from the date hereof, the Principal Stockholder shall receive fifty percent
(50%) of all net profits over four percent (4%) of gross revenue derived from
existing and new customer work obtained as a direct result of Principal
Stockholder's efforts, provided that Principal Stockholder has served as a full
time employee during each 12 month Earnout period, and that Earnout does not
exceed $100,000 per year. Earnout is computed and payable on the annual
anniversary of this Agreement for each of the three years. If RMSI terminates
Principal Stockholder's employment without cause as described in his employment
agreement at any time during the three year period, Principal Stockholder
remains entitled to an Earnout for the remainder of the three year period. Such
Earnout shall be computed using the above formula based on net profits realized
from the average of the most recent three (3) months multiplied by the number of
months remaining in the Earnout period. If Principal Stockholder is terminated
without cause the Earnout to which he should be entitled shall not be less than
the equivalent of $50,000 per year when computed on an annual basis.
1.4.5 Debt Payments. Each month, for a period of 18 months,
RMSI shall pay Principal Stockholder on behalf of Valley $13,500 for
disbursement to creditors of Valley (the "Creditors") for the claims outstanding
as of the date hereof (based on the list of creditors which is attached hereto
as Schedule 1.4.5 (the "Creditor List")). RMSI shall continue to make such
payments until all debts are fully retired or until the closing of the Major
Offering at which time RMSI will payoff the debt balance, not to exceed total
payments of $243,000.
1.5 Other Obligations.
1.5.1 Valley Obligations. Concurrently with the execution
of this Agreement, Valley shall deliver to RMSI all instruments of ownership or
title to the Acquired Assets as may be requested by RMSI.
1.5.2 Stock. Concurrently with the execution of this
Agreement, RMSI shall deliver certificates representing an aggregate of 5,000
shares of Common Stock, without par value, of RMSI (the "RMSI Common Stock") to
Principal Stockholder.
1.5.3 Subsequent Actions. If, at any time after the date
hereof, RMSI shall consider or be advised that any other actions or documents
are necessary or desirable to vest, perfect, or confirm of record or otherwise
in RMSI the right, title, or interest in, to, or under any of the rights,
properties, or assets of Valley which become rights, properties or assets of
RMSI as a result of, or in connection with, the transactions contemplated hereby
("Transaction") or otherwise to carry out this Agreement, the officers and
directors of RMSI shall be authorized to execute and deliver, in the name and on
behalf of Valley, or otherwise, all deeds, bills of sale, assignments,
assurances, and customer bank checks or drafts payable to Valley, and to take
and do, in the name and on behalf of Valley or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect, or confirm any and
all right, title, and interest in, to, and under such rights, properties, or
assets in RMSI or otherwise to carry out this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Valley. Valley and the
Principal Stockholder hereby jointly and severally make the following
representations and warranties to RMSI:
2.1.1 Due Incorporation and Valid Existence; Articles and
Bylaws. Valley is a corporation duly incorporated and validly existing under the
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laws of the State of California. Valley has all requisite corporate power and
corporate authority to own, operate, and lease its property and to carry on its
business as it is now being conducted.
2.1.2 Reserved
2.1.3 Subsidiaries. Valley has no equity ownership interest
in any corporation, partnership, limited liability company or other legal
entity.
2.1.4 Corporate Authority; Governmental Authorization.
Valley has the corporate power and corporate authority to execute and deliver
this Agreement and to consummate the Transaction. This Agreement and the
Transaction have been duly and validly authorized by the board of directors and
stockholders of Valley and this Agreement constitutes the valid and binding
obligation of Valley enforceable in accordance with its terms. No declaration,
filing, or registration with, or notice to, or authorization, consent, or
approval of, any governmental or regulatory body or authority, other than those
which are referred to in this Agreement or have been obtained, is necessary for
the execution and delivery of this Agreement by Valley or the consummation by
Valley of the Transaction.
2.1.5 Financial Statements. Schedule 2.1.5 attached hereto
includes complete copies of Valley's most recent balance sheets and statements
of income, stockholders' equity and cash flows (collectively, the "Valley Annual
Financial Statements"). As of their respective dates, the Valley Annual
Financial Statements presented fairly the financial position, results of
operations and cash flows of Valley as of the dates and for the periods
indicated therein in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated (except
as otherwise indicated therein or in Schedules of Valley attached hereto (the
"Valley Schedules")). Other than to the extent disclosed or accrued for in the
Valley Balance Sheet or the notes thereto or set forth in Schedule 2.1.5, there
are no material liabilities or obligations of Valley of any nature (whether
accrued, absolute, contingent or otherwise) except: (a) as disclosed, reflected,
reserved against or contemplated in the Valley Balance Sheet and the notes
thereto, (b) for items disclosed in the Schedules hereto and (c) for liabilities
and obligations incurred in the ordinary course of business consistent with past
practice since the date of the Valley Balance Sheet and which are not material.
2.1.6 Litigation. No litigation, claim, proceeding or
governmental investigation is pending for which Valley or Principal Stockholder
has been served or otherwise notified or, to the best knowledge of Valley or
Principal Stockholder, threatened or asserted against Valley or Principal
Stockholder, or the officers or directors thereof in their capacities as such,
or Valley's or Principal Stockholder's properties or business including, but not
limited to, claims, litigation or proceedings under product and/or services
warranties or guarantees. There are no orders, judgments or decrees of any court
or of any governmental agency or instrumentality (whether federal, state, local
or foreign) to which Valley or Principal Stockholder is a party which
specifically apply to Valley or Principal Stockholder or any of their
properties, assets or operations. There is no litigation pending against any
other person by Valley or Principal Stockholder.
2.1.7 Absence of Changes. Between the date of the Valley
Balance Sheet and the date hereof:
(a) Valley has conducted business in the ordinary
course and in substantially the same manner as heretofore.
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(b) Valley has not sustained any material loss or
damage to or interference with its business from fire, explosion, flood, or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree.
(c) There has not been any material adverse change
in the business, financial condition, results of operations or properties of
Valley or the prospects of Valley's business as conducted or contemplated to be
conducted by Valley.
(d) Valley has not purchased or otherwise acquired
property at a material cost, sold, leased or otherwise disposed of property
material to the business, or made any material expenditure except in the
ordinary course of business.
(e) Valley has not incurred any material debt or
other material liabilities.
(f) Valley has not paid any special bonuses or
remuneration to any officer, director or employee, increased the salary or wage
rate or other remuneration of any officer or employee, or entered into any
written employment contracts.
(g) Valley has not declared or paid any dividend
or made any other distribution with respect to its capital stock, has not paid
interest with respect to its debt, and has not purchased, redeemed, retired or
otherwise acquired its own capital stock or debt.
(h) Valley has not issued, sold or given any
option or right to purchase any of its capital stock.
(g) No liens or encumbrances have been created on
or with respect to the Acquired Assets.
2.1.8 Tax Matters. Valley and the Principal Stockholder
have timely and duly filed all tax returns required to be filed by them, and all
such tax returns were when filed correct and complete in all material respects.
Valley has duly paid all taxes due and payable, whether or not shown on any tax
Return, and has made adequate provision on its books in accordance with GAAP for
the payment of all taxes which have accrued but are not yet due and payable
including taxes for any period that ends on or before the date hereof and for
any period that begins before the date hereof and ends after the date hereof to
the extent such taxes are attributable to the portion of any such period ending
on the date hereof. There are not any asserted or, to the knowledge of Valley,
any unasserted deficiencies with regard to taxes or tax returns of Valley, and
no claim has been made by any jurisdiction in which Valley does not or has not
filed tax returns that Valley is or may be subject to taxation by the
jurisdiction. There are no agreements, waivers or consents providing for an
extension of time with respect to the assessment of any taxes against Valley or
any other agreements, waivers or consents agreed to by Valley issued to, with,
or for the benefit of, any taxing authority or jurisdiction. There are no liens
for taxes upon the Acquired Assets except for statutory liens for current taxes
not yet due and payable. Valley has not received any outstanding notice of audit
and it is not undergoing any audit of tax returns. Valley has complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of taxes and has withheld all amounts required by
law to be withheld from the wages or salaries of employees and independent
contractors, and is not liable for any taxes for failure to comply with such
laws, rules and regulations. True and correct copies of all tax returns filed by
Valley have been made available to RMSI.
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2.1.9 Compliance with Laws and Orders. Valley and the
Principal Stockholder have complied with all laws, regulations, and orders
applicable to it and to its assets or the conduct of its business, other than
where the failure to comply could not reasonably be expected to have a material
adverse effect on Valley or the Principal Stockholder. Valley or the Principal
Stockholder has not received notice of any alleged violation of any laws,
regulations or orders relating to Valley, its assets or the conduct of its
business or the Principal Stockholder.
2.1.10 Contracts and Commitments; Absence of Defaults;
Violation of Agreements. Schedule 2.1.10 attached hereto contains a list of all
of the contracts or agreements included in the Acquired Assets to which Valley
is a party or by which Valley or any of its properties is subject or bound, and
which are material to the business or activities of Valley, in the following
categories ("Contracts"): (a) notes, mortgages, deeds of trust, loan agreements,
security agreements, guaranties, debentures, indentures, credit agreements and
similar evidences of indebtedness; (b) contracts or agreements with any
director, officer, stockholder or other affiliate of Valley; (c) leases of real
property under which Valley is the lessor or the lessee and leases of equipment
or other personal property under which Valley is the lessor or the lessee; (d)
license agreements with respect to the sale of Valley's services or products;
(e) contracts or agreements (other than compensation arrangements with at-will
employees) each providing for payments in the aggregate to or by Valley in
excess of $50,000; (f) any single contract or agreement relating to any
commitment for capital expenditures in excess of $50,000; and (g) any contract
or agreement not falling within any of the foregoing categories but nevertheless
material to Valley. Except as set forth in Schedule 2.1.10, (x) all material
provisions of the Contracts are valid, binding and enforceable in accordance
with their terms; (y) Valley or the Principal Stockholder is not in default
under or in violation of any material provision of any of the Contracts to which
it is a party or by which it or any of its properties is subject or bound (with
or without the lapse of time or the giving of notice or both) which default
would have a material adverse effect on Valley; and (z) Valley has not received
written notice of alleged nonperformance or other noncompliance with respect to
its obligations under any of the Contracts nor any written notice that any of
the Contracts may be totally or partially terminated or suspended by the other
parties thereto. Except as disclosed in Schedule 2.1.10, neither the execution
and delivery by Valley of this Agreement nor the consummation by it of the
transaction contemplated herein will (a) conflict with, violate, result in a
breach of or constitute a default under (i) Valley's certificate or articles of
incorporation or bylaws or (ii) any of the Contracts or (b) result in the
creation of any lien or encumbrance upon the assets of Valley.
2.1.11 Insurance. Schedule 2.1.11 attached hereto contains a
list of all insurance policies or binders maintained by Valley, covering any
property or asset of, or otherwise insuring, Valley. All such policies and
binders are in full force and effect, all premiums with respect thereto covering
all periods up to and including the date hereof have been paid (other than
retrospective premiums which may be payable with respect to comprehensive
general liability, medical and workers, compensation insurance policies), and no
notice of cancellation or termination has been received with respect to any such
policy or binder.
2.1.12 Employee Benefit Matters. Valley maintains no
"employee pension benefit plans" (as defined in section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), "employee welfare
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benefit plans" (as defined in Section 3(1) of ERISA), bonus, stock option, stock
purchase, deferred compensation plans or arrangements, and other employee fringe
benefit plans (all of the foregoing being herein called "Benefit Plans")
maintained, or contributed to, by Valley for the benefit of any employees of
Valley.
2.1.13 Title to and Condition of Acquired Assets; Year 2000
Problem Avoidance.
(a) Valley has good and marketable title to all of
its assets, properties and rights, free and clear of all mortgages, liens,
claims, security interests, easements, rights of way, pledges, restrictions,
charges or encumbrances of any nature whatsoever (collectively, "Liens"), except
for liabilities disclosed on the Valley Balance Sheet or as otherwise disclosed
in this Agreement. All of the tangible personal assets included in the Acquired
Assets have been maintained in all material respects in accordance with
generally accepted industry practice. The tangible personal assets included in
the Acquired Assets are in all material respects in good operating condition and
repair, ordinary wear and tear excepted. The leased personal property included
in the Acquired Assets is in all material respects in the condition required of
such property by the terms of the leases applicable thereto. The Acquired Assets
include all of the assets, properties and rights which are necessary in order
for the business conducted by Valley prior to the date hereof to be continued in
substantially the same manner by RMSI after the date hereof.
(b) To the best of it's knowledge, all computers
and/or computer software used by Valley in connection with its business and
activities have been programmed or reprogrammed to avoid or eliminate the "Year
2000 problem". For purposes of this Section, the Year 2000 problem is a problem
stemming from the prior programming practice of designating years by two digits
(for example, 98 for 1998). Computers programmed this way will read the year
2000 as year 00, which will not compute, thereby causing errors in and possible
failure of the computer system.
2.1.14 Employment and Contract Labor Agreements.
(a) Valley is not bound by or subject to (and none
of its properties is bound by or subject to) any written or oral, express or
implied, employment contract, commitment or arrangement with any employee
relating to compensation or benefits other than salary arrangements with at-will
employees and benefit arrangements pursuant to the Benefit Plans. Information
with respect to current compensation of Valley's employees has been provided to
RMSI.
(b) Except for consultants who from time to time
provide technical support to Valley customers, Valley is not bound by or subject
to (and none of its properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any person who is
not an employee of Valley relating to services to be provided to or on behalf of
Valley. RMSI shall have the right to obtain copies of any Valley consulting
agreement and enter into similar agreements with any Valley consultant.
2.1.15 Accounts Receivable; Prepaid Expenses. All accounts
receivable of Valley have arisen from bona fide transactions in the ordinary
course of business, and adequate reserves or allowances have been provided with
respect to such accounts receivable as reflected in the Valley Financial
Statements. All prepaid expenses of Valley have been incurred in the ordinary
course of business. No counterclaims or offsetting claims or defenses to the
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collection of such receivables or to the prepaid expenses that are material in
the aggregate to the current consolidated face amount of such receivables or
such prepaid expenses are pending or, to the knowledge of Valley, threatened.
2.1.16 Officers, Directors and Affiliates. Principal
Stockholder is the sole officer, director, and stockholder of Valley. No other
affiliates exist.
2.1.17 Brokers and Finders. Neither Valley nor any officer,
director, stockholder or employee of Valley has employed any broker, finder or
investment banker, or incurred any liability for any brokerage or investment
banking fees, commissions or finder's fees, in connection with the Transaction.
2.1.18 Full Disclosure. The foregoing representations and
warranties, taken as a whole, do not contain an untrue statement of a material
fact or omit to state any material fact necessary to make any such
representations and warranties not misleading. Any exceptions or matters
described in any Exhibit or Valley Schedule hereto shall, however, be treated as
exceptions or qualifications, as applicable, to all representations and
warranties of Valley and the Principal Stockholder contained in this Article II.
2.2 Representations and Warranties of RMSI. RMSI hereby makes to
Valley and the Principal Stockholder the following representations and
warranties:
2.2.1 Due Incorporation and Valid Existence. RMSI is a
corporation duly incorporated and validly existing under the laws of the State
of Delaware and is duly qualified and in good standing as a foreign corporation
in each jurisdiction where the properties owned, leased, or operated, or the
business conducted, by it require such qualification, except where the failure
to qualify would not have a material adverse effect on RMSI. RMSI has all
requisite corporate power and corporate authority to own, operate, and lease its
property and to carry on its business as it is now being conducted and as it
will be conducted after the date hereof.
2.2.2 Due Authorization. The RMSI Common Stock to be issued
at the date hereof has been duly authorized, and when issued will be duly and
validly issued, fully paid and nonassessable.
2.2.3 Corporate Authority; Governmental Authorization. RMSI
has the corporate power and corporate authority to execute and deliver this
Agreement and to consummate the Transaction. This Agreement has been duly and
validly authorized by the board of directors of RMSI, and constitutes the valid
and binding obligation of RMSI, enforceable in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors rights generally and except that the availability of the equitable
remedies of specific performance and injunctive relief are subject to the
discretion of the court before which any proceeding may be brought.
2.2.4 Financial Statements. Schedule 2.3.4 attached hereto
includes RMSI's consolidated balance sheet at December 31, 1998 and the
consolidated statements of income, stockholders' equity and cash flow for the
period through December 31, 1998 (the "RMSI Financial Statements"). As of such
date, the RMSI Financial Statements presented fairly the financial position of
RMSI in accordance with GAAP applied on a consistent basis (except as otherwise
indicated therein or in the RMSI Schedules).
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2.2.5 Absence of Changes. Between the date of the RMSI
Financial Statements and the date hereof there has not been any material adverse
change in the business, financial condition, results of operations or properties
of RMSI.
ARTICLE III
COVENANTS
3.1 Covenants of Valley and the Principal Stockholder. Valley and
the Principal Stockholder each jointly and severally covenants and agrees with
RMSI as follows:
3.1.1 Non-Compete; Non-Solicitation.
(a) Non-Compete. Subject to the last sentence of
this Section 3.1.1, and only for so long as Principal Stockholder is an employee
of RMSI, Valley and the Principal Stockholder agree that for a period of two
years from the date of this Agreement (the "Noncompetition Period"), each of
them shall not directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any business
competing with the businesses of RMSI or its affiliates as such businesses exist
at any time during the Noncompetition Period (a "Competitive Business"). Nothing
herein shall prohibit Valley and the Principal Stockholder from (i) being a
passive owner of not more than 5% of the outstanding stock of any class of a
corporation which is publicly traded, so long as Valley and/or the Principal
Stockholder have no active participation in the business of such corporation,
(ii) consulting with or rendering services for any division or subsidiary of a
business competing with the businesses of RMSI or its affiliates provided that
(x) such division or subsidiary is not itself engaged in a Competitive Business,
and (y) Valley and/or the Principal Stockholder do not consult with, render
services to, or otherwise assist the Competitive Business, or (iii) being the
owner of and engaging in business activities with respect to the "Teamwork" and
"Backdrop" software.
(b) Non-Solicitation. During the Noncompetition
Period and only for so long as Principal Stockholder is an employee of RMSI,
Valley and the Principal Stockholder shall not directly or indirectly through
another entity (i) induce or attempt to induce any employee of RMSI or any
affiliate to leave the employ of RMSI or such affiliate, or in any way interfere
with the relationship between RMSI or any affiliate and any employee thereof,
(ii) hire any individual who was an employee of RMSI or any affiliate at any
time during the Noncompetition Period, or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of RMSI or any affiliate
to cease doing business with RMSI or such affiliate, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and RMSI or any affiliate..
(c) Scope. If, at the time of enforcement of this
Section, a court shall hold that the duration, scope or area restrictions stated
herein are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope or area reasonable under such circumstances
shall be substituted for the stated duration, scope or area and that the court
shall be allowed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.
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(d) Specific Performance. In the event of the
breach or a threatened breach by Valley and/or Principal Stockholder of any of
the provisions of this Section, RMSI, in addition and supplementary to other
rights and remedies existing in its favor, may apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce or prevent any violations of the provisions
hereof (without posting a bond or other security).
3.1.2. Acquisition of RMSI Common Stock. In connection with
the acquisition of RMSI Common Stock by Principal Stockholder pursuant to
Section 1.5.2, Valley and Principal Stockholder represent and warrant to and
agree with RMSI as follows:
(a) Authority. Principal Stockholder has all
requisite power and authority to be issued and to receive the RMSI Common Stock.
All acts and other proceedings required to be taken by Valley to authorize the
receipt of the RMSI Common Stock by Principal Stockholder have been duly and
properly taken. No consent, approval, license, permit, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, is required to be obtained or made by Valley in connection
with the purchase by or issuance to Principal Stockholder of the RMSI Common
Stock or the delivery of the certificate(s) evidencing the RMSI Common Stock.
(b) Securities Act of 1933. The RMSI Common Stock
is being and will be acquired for investment only and not with a view toward any
public distribution thereof, and Principal Stockholder will not offer to sell or
otherwise dispose of the RMSI Common Stock in violation of any of the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), or any applicable state securities or "blue sky" laws, rules or
regulations.
(c) Purchase for Investment. Principal Stockholder
is acquiring the RMSI Common Stock pursuant to Section 1.5.3(c) for his own
account and not with a view to or for sale in connection with any distribution
of all or any part of the RMSI Common Stock or his interest in the RMSI Common
Stock. The offering and sale of the RMSI Common Stock hereunder are intended to
be exempt from registration under the 1933 Act by virtue of Section 4(2) or
Section 4(6) thereof and the provisions of Rule 506 of Regulation D promulgated
thereunder. Principal Stockholder will not, directly or indirectly, transfer,
offer, sell, pledge, hypothecate or otherwise dispose of all or any part of the
RMSI Common Stock or his interest in the RMSI Common Stock (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge of all or any part
thereof) except in a manner that does not violate the registration or any other
applicable provisions of the 1933 Act (or any other applicable federal
securities laws) or any applicable state securities laws. Principal Stockholder
must bear the economic risk of an investment in the RMSI Common Stock for an
indefinite period of time because, among other reasons, the offering and sale of
the RMSI Common Stock have not been registered under the 1933 Act and,
therefore, the shares of RMSI Common Stock cannot be sold unless they are
subsequently registered under the 1933 Act or an exemption from such
registration is available. Principal Stockholder is able to bear the economic
risk of an investment in the RMSI Common Stock, is able to hold the same
indefinitely, and can afford a complete loss of the investment in the RMSI
Common Stock. In addition, Principal Stockholder has adequate means for
providing for his current needs and contingencies and has no need for liquidity
in the RMSI Common Stock.
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(d) Restrictive Legend. Each certificate
evidencing the RMSI Common Stock shall bear a restrictive legend substantially
in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT OR ANY APPLICABLE STATE
SECURITIES LAWS OR COMPANY HAS RECEIVED A SATISFACTORY
OPINION FROM COUNSEL REASONABLY ACCEPTABLE TO COMPANY
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ARTICLE IV
[RESERVED]
ARTICLE V
SURVIVAL AND INDEMNIFICATION
5.1 Survival. All representations and warranties and indemnification
of any party contained in this Agreement shall survive the execution and
delivery of this Agreement and the consummation of the Transaction until 18
months after the date hereof; provided, that the representations and warranties
contained in Section 2.1.8 hereof shall survive until six months after
expiration of the statutes of limitations applicable to the matters covered
thereby (including any extensions thereof). Notwithstanding the preceding
sentence, any representation or warranty in respect of which indemnity may be
sought under this Agreement shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence if a Claim Notice (or its
equivalent) with respect to a breach of such representation or warranty shall
have been given prior to such date.
5.2 Indemnification by Valley and the Principal Stockholder. From
and after the date hereof and subject to the limitations of this Article V,
Valley and the Principal Stockholder jointly and severally will indemnify and
hold harmless RMSI and their respective officers, directors, stockholders,
employees and agents (collectively, the "RMSI Indemnified Parties") from, for,
and against any Losses incurred by a RMSI Indemnified Party by reason of or
arising out of (a) any material inaccuracy in any representation or warranty or
the breach of any covenant of Valley and/or the Principal Stockholder made in
this Agreement, or (b) any obligations or liabilities of Valley and/or the
Principal Stockholder other than the Accepted Liabilities.
5.3 Indemnification by RMSI. From and after the date hereof and
subject to the limitations of this Article V, RMSI will indemnify and hold
harmless Valley and its officers and directors and the Principal Stockholder
(collectively, the "Valley Indemnified Parties") from, for, and against any
Losses incurred by a Valley Indemnified Party by reason of or arising out of (a)
any material inaccuracy in any representation or warranty or the breach of any
material covenant of RMSI made in this Agreement, or (b) any Accepted
Liabilities.
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5.4 Losses. As used in this Article V, the term "Losses" shall
include (a) all debts, liabilities and obligations; (b) all losses, damages
(including, without limitation, consequential damages), judgments, awards,
settlements, costs (including without limitation costs of complying with any
governmental order) and expenses (including, without limitation, interest
(including prejudgment interest in any litigated matter), penalties, court costs
and attorneys' and paralegals' fees and expenses in connection with any trial,
appeal, petition for review or administrative proceeding); and (c) all third
party demands, claims, suits, actions, costs of investigation, causes of action,
proceedings and assessments, whether or not ultimately determined to be valid.
5.5 Limitation of Liability. Neither Valley nor the Principal
Stockholder shall have any indemnity obligation for the first $5,000 of Losses
of the RMSI Indemnified Parties arising under Section 5.2, and payments with
respect to such Losses under Section 5.2 shall not exceed $50,000 in the
aggregate. RMSI's indemnity obligations under Section 5.3 shall be subject to
the same aggregate basket and cap.
5.6 No Rights Against Valley. The Principal Stockholder acknowledges
and agrees that the representations and warranties, covenants and agreements
made by Valley in this Agreement are for the sole use and benefit of RMSI, and
the Principal Stockholder hereby waives and releases any and all rights or
claims for Losses, or otherwise, which they may possess or have the right to
assert against Valley arising out of any inaccuracy in any representation or
warranty or the breach of any covenant of Valley made in this Agreement. This
Section shall not be deemed to limit the rights or claims of the Principal
Stockholder against Valley with respect to matters which are not related to the
representations, warranties or covenants of Valley in this Agreement.
ARTICLE VI
[RESERVED]
ARTICLE VII
MISCELLANEOUS AND GENERAL
7.1 Payment of Expenses. Each party shall pay its own
out-of-pocket legal, accounting (except as provided in Section 7.1), investment
banking, and other expenses incidental to this Agreement and the transactions
contemplated hereby, except as otherwise provided in Section 7.10.5 hereof. To
the extent required by SEC regulations, RMSI shall pay any expenses associated
with obtaining historical certified accounting statements of Valley.
7.2 Entire Agreement. This Agreement, including the Exhibits and
Schedules attached hereto and the other agreements referred to herein,
constitutes the entire agreement among the parties hereto and supersedes all
prior agreements and understandings, oral and written, among the parties hereto
with respect to the subject matter hereof.
7.3 Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing express or implied in this Agreement is intended
or shall be construed to confer upon or give to a person, firm, corporation, or
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entity other than the parties hereto any rights or remedies under or by reason
of this Agreement or any transaction contemplated hereby.
7.4 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, and supplemented at any time prior to or at
the date hereof by written agreement among the parties.
7.5 Waiver. At any time prior to the date hereof a party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (b) waive any inaccuracies in the representations and
warranties of another party contained in this Agreement or any document
delivered by any other party pursuant hereto, and (c) waive compliance with any
of the agreements or conditions to the obligations of any other party contained
in this Agreement. Any extension or waiver by a party shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
7.6 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
7.7 Captions. The article, section, and paragraph captions herein
are for convenience of reference only, do not constitute a part of this
Agreement, and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
7.8 Notices. All notices, requests, demands, waivers, and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
facsimile or e-mail as follows:
If to Valley and the Principal Stockholder:
Valley Networking
0000 Xxxxxxxx Xxxx Xxxxx, Xxxxx X
Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
Attention: Xxxxx Xxxxxx
If to RMSI:
Recom Managed Systems, Inc.
0000 Xxxxxxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
Attention: Xxxx Xxxxxxxx
President
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With a copy to:
Xxxx & Xxxxx, LLP
Newport Gateway - Tower II
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers, and communications shall
be deemed to have been received on the date of confirmed delivery or on the
third business day after the mailing thereof.
7.9 Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California regardless of the laws
that might otherwise govern under applicable principles of conflicts of law.
7.10 Arbitration.
7.10.1 Good Faith Negotiations. In the event that any party
asserts that there exists any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement (a "Dispute"), such party shall
deliver a written notice to each other party involved therein specifying the
nature of the asserted Dispute and requesting a meeting to attempt to resolve
the same. If no such resolution is reached within ten (10) business days after
such delivery of such notice, the party delivering such notice of Dispute (the
"Disputing Person") may, within 45 business days after delivery of such notice,
commence arbitration.
7.10.2 Arbitration Rules. Except as provided in Section
7.10.4, arbitration shall be the sole procedure for resolution of Disputes
between Valley and/or Principal Stockholder and RMSI. The arbitration shall be
conducted in accordance with the California Code of Civil Procedure.
7.10.3 Arbitrators. The arbitration shall be conducted by a
single neutral arbitrator. The arbitration shall be conducted in Sacramento
County, California. Any submission of a matter for arbitration shall include
joint written instructions of the parties requiring the arbitrator to render a
decision resolving the matters submitted within sixty (60) days following the
submission thereof.
7.10.4 Decision or Award. Any decision or award of the
arbitrator shall be final and binding upon the parties to the arbitration
proceeding. The parties agree that the award may be enforced against the parties
to the arbitration proceeding or their assets wherever they may be found and
that a judgment upon the award may be entered in any court having jurisdiction
thereof.
7.10.5 Costs and Expenses. All out-of-pocket costs and
expenses incurred by any party in connection with the resolution of any
disagreement, dispute, controversy or claim pursuant to this Section 7.10
including, but not limited to, reasonable attorney's fees and disbursements,
shall be borne by the party incurring the same; provided, however, that the
arbitrator shall have the discretion to declare any party to the arbitration
proceeding as the "prevailing party" with respect to one or more of the issues
that were the subject of the arbitration and to require the other parties to the
arbitration to reimburse such "prevailing party" for some or all of its costs
and expenses to include attorneys' fees incurred in connection with such
proceeding.
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7.11 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
7.12 No Third Party Beneficiaries. Except as provided in Article V,
nothing in this Agreement is intended to confer rights or benefits on any third
party.
IN WITNESS WHEREOF, this Agreement of Purchase and Sale has been duly executed
and delivered by the parties hereto as of the date first set forth above.
RECOM MANAGED SYSTEMS, INC.
By: /S/ Xxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxx X. Xxxxxxxx, Xx.
Title: President
VALLEY NETWORKING CORPORATION
By: /S/ Xxxxx Xxxxxx
---------------------------------------
Name: Xxxxx Xxxxxx
Title: President
PRINCIPAL STOCKHOLDER:
/S/ Xxxxx Xxxxxx
---------------------------------------
Name: Xxxxx Xxxxxx
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