EXHIBIT 10.1
TELENATIONAL COMMUNICATIONS INC.
STOCK PURCHASE AGREEMENT
BY AND AMONG
RAPID LINK, INCORPORATED
AND
APEX ACQUISITIONS, INC.
May 3, 2006
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 3,
2006 (the "Execution Date"), is entered into by and among Rapid Link,
Incorporated, a Delaware corporation ("Buyer"), and Apex Acquisitions,
Inc., a Delaware corporation (the "Stockholder") in its capacity as the sole
stockholder of Telenational Communications Inc., a Delaware corporation (the
"Company"). ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ are made a party to
this Agreement for purposes of Section 6.6 only.
RECITALS
A. The Company is engaged in the business of providing domestic and
international long-distance telephone services to end-user customers.
B. The Stockholder is the sole record and beneficial owner of all of
the issued and outstanding capital stock of the Company, consisting of 1,000
shares of common stock, $0.0001 par value per share (the "Company Shares").
C. Buyer desires to purchase all, but not less than all, of the
Company Shares, and Stockholder desires to sell all of the Company Shares,
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which all parties mutually acknowledge, the parties,
intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
Section 1.1 Definitions. For purposes of this Agreement,
capitalized terms not otherwise defined in this Agreement shall have the
following meanings:
"Actual Net Working Capital" shall mean the Net Working Capital as of
the Closing Date and as recorded on the Closing Balance Sheet.
"Affiliate" shall mean, as to any Person, any other Person controlled
by, under the control of, or under common control with, such Person. As
used in this definition, "control" shall mean possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday in the State of California.
"Buyer Common Stock" shall mean shares of Buyer's common stock. $0.001
par value per share.
"Buyer Shares" shall mean the Initial Stock Payment and the Contingent
Stock Payment.
"Closing Balance Sheet" shall mean the balance sheet of the Company,
dated as of the Closing Date.
"Current Assets" shall mean, in respect of any period, all assets
expected to be converted into cash or otherwise realized in the 12 months
following the balance sheet date and recorded as current assets in the
Financial Statements and the Closing Balance Sheet in accordance with
GAAP, including, but not limited to, cash and cash equivalents, accounts
receivable, notes receivable, interest receivable, prepaid expenses, and
current assets and any provisions recorded thereon.
"Current Liabilities" shall mean, in respect of any period, all
liabilities expected to be settled in the 12 months following the balance
sheet date and recorded as current liabilities in the Financial Statements
and the Closing Balance Sheet in accordance with GAAP, including, but not
limited to, accounts payable, accrued expenses, accrued payroll liabilities,
interest payable, deferred revenue and the current portion of any debt
obligations.
"Encumbrance" shall mean a mortgage, charge, pledge, lien, option,
restriction, claim, right of first refusal, right of preemption, third party
right or interest or other encumbrance or security interest of any kind or
similar right or any other matter affecting title.
"First Performance Period" shall mean the three-month period commencing
on the Closing Date.
"GAAP" shall mean, at any particular time, accounting principles
generally accepted in the United States of America, consistently applied on
a going concern basis and, with respect to interim financial statements,
subject to normal year-end adjustments.
"Material Adverse Effect" shall mean, with respect to a specified
party, any change or effect, as the case may be, that has, or is reasonably
likely to have, individually or in the aggregate, a material adverse impact
on the assets, business, prospects or financial position of such party and
its subsidiaries taken as a whole.
"Monthly Gross Profit" shall mean the Company's monthly gross margin
from all retail and wholesale sales, calculated on a combined basis, before
the Company's selling, general and administrative expenses. Monthly Gross
Profit shall be calculated in accordance with GAAP consistently applied and
in accordance with the historical accounting practices of the Company.
"Net Working Capital" shall mean (i) Current Assets minus (ii) Current
Liabilities.
"Person" shall mean an individual, company, partnership, limited
liability company, limited liability partnership, joint venture, trust
or unincorporated organization, joint stock corporation or other similar
organization, government or any political subdivision thereof, or any other
legal entity.
"Sale of the Buyer" means (i) any direct or indirect sale or exchange
by the stockholders of Buyer of all or substantially all of the capital
stock of Buyer, (ii) a merger in which Buyer is a party and in which the
stockholders of Buyer prior to such transaction do not retain at least a
majority of the beneficial interest in the voting stock of the surviving
entity after such merger, or (iii) a sale, transfer or other disposition in
any transaction or series of transaction of all or substantially all of the
assets of Buyer.
"Second Performance Period" shall mean the 12-month period commencing
on the Closing Date and ending on the first anniversary thereof.
"Target Net Working Capital" shall mean Net Working Capital equal to
$0.
"Taxes" shall mean all taxes, assessments, charges, duties, fees,
levies or other governmental charges, including but not limited to, all
federal, state, local, foreign or other income, profits, unitary, business,
franchise, capital stock, real property, personal property, intangible
taxes, withholding, Medicare, unemployment compensation, disability,
transfer, sales, use, excise and other taxes, assessments, charges, duties,
fees, or levies of any kind whatsoever (whether or not requiring the filing
of Tax Returns) and all deficiency assessments, additions to tax, penalties
and interest.
1.2 Construction.
(a) The headings and captions used herein are intended for
convenience of reference only, and shall not modify or affect in any manner
the meaning or interpretation of any of the provisions of this Agreement.
(b) As used herein, the singular shall include the plural, the
masculine and feminine genders shall include the neuter, and the neuter
gender shall include the masculine and feminine, unless the context
otherwise requires.
(c) The words "hereof," "herein," and "hereunder," and words of
similar import, when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement.
(d) All references herein to Sections, Schedules or Exhibits
shall be deemed to refer to Sections of and Schedules or Exhibits to this
Agreement, unless specified to the contrary. All Exhibits and Schedules to
this Agreement are integral parts of this Agreement as if fully set forth
herein.
(e) The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation."
(f) "To the knowledge of" or any similar phrase shall be deemed
to mean that a Person (i) is actually aware of a particular fact or matter
or (ii) could be expected to discover or otherwise become aware of that fact
or matter had they made reasonable inquiry of appropriate employees and
agents of the Company or other appropriate third parties, as the case may
be, with respect to the matter in question.
(g) As all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of
that party's role in drafting this Agreement.
ARTICLE II
PURCHASE AND SALE OF COMPANY SHARES; CLOSING
Section 2.1 Purchase and Sale of Company Shares. The Stockholder
hereby sells, transfers, assigns, and delivers to Buyer, and Buyer hereby
purchases, accepts, assumes, and receives, good and marketable title and
interest in and to the Company Shares, free and clear of any Encumbrances,
restrictive agreements, or adverse claims of any nature whatsoever.
Section 2.2 Purchase Price. The "Purchase Price" for the Company
Shares shall consist of:
(i) an amount of cash equal to $1,000,000, all of which shall be
payable in accordance with the provisions set forth in Section 2.4(a)
below (the "Initial Cash Payment");
(ii) up to 9,587,500 shares of Buyer Common Stock, subject to
adjustment as set forth in Section 2.3(a) below, and issuable to the
Stockholder in accordance with the provisions of Section 2.4(b) below
(the "Initial Stock Payment");
(iii) an amount of cash up to $500,000, subject to adjustment
as set forth in Section 2.3(b) and Section 2.5 below, and payable to
the Stockholder in accordance with the provisions of Section 2.4(c)
below (the "Contingent Cash Payment"); and
(iv) up to 9,587,500 shares of Buyer Common Stock, subject to
adjustment as set forth in Section 2.3(c) below, and such shares to be
issuable to the Stockholder in accordance with the provisions of
Section 2.4(d) below (the "Contingent Stock Payment").
In connection with all stock issuances hereunder, Buyer shall not be
required to issue any fractional shares or scrip. All fractional shares
shall be rounded up to the nearest whole number of shares of Buyer Common
Stock.
Section 2.3 Purchase Price Adjustments.
(a) Initial Stock Payment Adjustment. Within 30 days after the
Closing Date, Buyer's independent accountant shall determine the average
Monthly Gross Profit for the 12-month period ended December 31, 2005 (the
"Fiscal 2005 Average Monthly Gross Profit"). In the event that the Fiscal
2005 Average Monthly Gross Profit is less than $300,000 (the "Target Average
Monthly Gross Profit"), then the Initial Stock Payment shall be reduced by
an amount equal to 9,587,500 multiplied by a fraction whose numerator is the
Target Average Monthly Gross Profit less the Fiscal 2005 Average Monthly
Gross Profit and whose denominator is the Target Average Monthly Gross
Profit.
(b) Contingent Cash Payment Adjustment. Within 45 days after the
expiration of the First Performance Period, Buyer' independent accountant
shall determine the Company's average Monthly Gross Profit for the First
Performance Period (the "First Average Monthly Gross Profit"). In the event
that the First Average Monthly Gross Profit is less than the Target Average
Monthly Gross Profit, then the Contingent Cash Payment shall be reduced by
an amount equal to $500,000 multiplied by a fraction whose numerator is the
Target Average Monthly Gross Profit less the First Average Monthly Gross
Profit and whose denominator is the Target Average Monthly Gross Profit.
(c) Contingent Stock Payment Adjustment. Within 90 days after
the expiration of the Second Performance Period, Buyer's independent
accountant shall determine the Company's aggregate Monthly Gross Profit for
the Second Performance Period (the "Second Aggregate Monthly Gross Profit").
In the event that the Company's Second Aggregate Monthly Gross Profit is
less than $3,600,000 (the "Target Aggregate Monthly Gross Profit"), then
the Contingent Stock Payment shall be reduced by a number of shares to be
determined as follows:
(i) the product obtained by multiplying $3,000,000 by a
fraction whose numerator is the Target Aggregate Monthly Gross Profit
less the Second Aggregate Monthly Gross Profit and whose denominator is
the Target Aggregate Monthly Gross Profit;
(ii) divided by the volume weighted average closing price
per share of Buyer Common Stock as reported on the Over-the-Counter
Bulletin Board (or any other securities exchange or inter-dealer
quotation system on which the Buyer Common Stock is then listed) for
the 15 consecutive trading days ending on the day prior to the first
anniversary of the Closing Date (the "Per Share Price"); provided,
however, that such Per Share Price shall be not less than $0.13 per
share and not greater than $0.25 per share.
(d) Each computation of actual Monthly Gross Profit provided for
in this Section 2.3 shall be made by Buyer's independent accounting firm
(the "Computation"). Upon completion of each Computation by Buyer's
independent accounting firm, the Computation shall be delivered to the
Stockholder. The Stockholder shall have 30 days from the date on which
such Computation is delivered to it to review the Computation (the "Review
Period"). If the Stockholder disagrees in any respect with any item or
amount shown or reflected in such Computation, the Stockholder may, on or
prior to the last date of the Review Period, deliver a written notice to
Buyer setting forth, in reasonable detail, each disputed item or amount
and the basis for the Stockholder's disagreement therewith, together with
supporting calculations (the "Dispute Notice"). The Dispute Notice shall
set forth the Stockholder's position as to the proper amount for each
disputed item. If no Dispute Notice is received by Buyer with respect
to the Computation on or prior to the last day of the Review Period, such
Computation shall be deemed accepted by the Stockholder (the "Final
Computation").
Within 30 days after Buyer's receipt of a Dispute Notice, Buyer and
the Stockholder shall endeavor in good faith to resolve the items in dispute
with respect to the Computation. If Buyer and the Stockholder are unable to
resolve the items in dispute within 30 days after the Dispute Notice is
received by Buyer, Buyer and the Stockholder shall jointly contact, and
shall retain the services of KBA Group, LLP (the "Accounting Firm").
The Accounting Firm retained by Buyer and the Stockholder shall conduct a
review of the Computation, any related work papers of Buyer's independent
accounting firm with respect to the Computation, the Dispute Notice and
any supporting documentation as the Accounting Firm in its sole discretion
deems necessary or appropriate, and the Accounting Firm shall conduct such
hearings or hear such presentations by the parties hereto as the Accounting
Firm in its sole discretion deems necessary or appropriate. The Accounting
Firm shall be bound by the provisions of this Section 2.3 in its
determination of the Calculation.
The Accounting Firm shall, as promptly as practicable and in no event
later than 60 days following the date of its retention, deliver to the
Stockholder and Buyer a report (the "Adjustment Report") which the
Accounting Firm shall, after considering all matters set forth in the
Dispute Notice and review of the related materials provided by Buyer,
Buyer's independent accounting firm and the Stockholder, determine what
adjustments, if any, should be made to the Computation, subject to the
requirement that the Computation be determined in accordance with the
provisions of this Section 2.3. The Adjustment Report shall set forth, in
reasonable detail, the Accounting Firm's determination with respect to each
of the disputed items or amounts specified in the Dispute Notice, and the
revisions, if any, to be made to the Computation, together with supporting
calculations. The Stockholder shall pay one-half, and Buyer shall pay one-
half, of the fees and expenses of the Accounting Firm incurred in connection
with the matters referred to in this Section 2.3 The Adjustment Report
setting forth the Final Computation shall be final and binding upon Buyer
and the Stockholder.
Section 2.4 Payment of Purchase Price.
(a) Initial Cash Payment. Within five Business Days after the
Closing, upon surrender to Buyer of certificates representing all and not
less than all of the Company Shares, Buyer shall pay to the Stockholder the
Initial Cash Payment. The Initial Cash Payment will be payable by means
of wire transfer to the account specified in writing to Buyer by the
Stockholder not less than five Business Days before the Closing Date.
(b) Initial Stock Payment. Within five Business Days after the
later to occur of (i) the delivery of the Final Computation of the Fiscal
2005 Average Monthly Gross Profit and (ii) the Closing, Buyer shall issue
and deliver to the Stockholder certificates, registered in the name of the
Stockholder, representing a number of shares of Buyer Common Stock equal to
the Initial Stock Payment, as adjusted pursuant to Section 2.3(a) above.
(c) Contingent Cash Payment. In respect of the First Performance
Period, within five Business Days after delivery of the Final Computation of
the First Average Monthly Gross Profit, Buyer shall pay to the Stockholder
an amount in cash equal to the Contingent Cash Payment, as adjusted pursuant
to Section 2.3(b) above and Section 2.5 below.
(d) Contingent Stock Payment. In respect of the Second
Performance Period, within five Business Days after the delivery of the
Final Computation of the Second Aggregate Monthly Gross Profit, Buyer shall
deliver to the Stockholder certificates representing the Contingent Stock
Payment, as adjusted pursuant to Section 2.3(c) above.
Section 2.5 Working Capital Adjustment. The Purchase Price shall be
subject to adjustment by the amount (the "Adjustment Amount"), if any, that
the Actual Net Working Capital of the Company as reflected in the Closing
Balance Sheet is less than the Target Net Working Capital. Within 60 days
after the Closing Date, Buyer's independent accountants shall perform a
review of the financial statements of the Company for the period beginning
December 31, 2005 and ended the Closing Date, including a balance sheet (the
"Closing Balance Sheet"). The Closing Balance Sheet shall be prepared based
on the same accounting principles, assumptions and methodologies as those
used to prepare the Balance Sheet (as hereinafter defined). The Closing
Balance Sheet shall be delivered to the Stockholder and Buyer within 60 days
after the Closing Date. Upon delivery of the Closing Balance Sheet, the
Purchase Price will be decreased, but not increased, by the Adjustment
Amount. The Adjustment Amount shall be computed by subtracting the Target
Net Working Capital from the Actual Net Working Capital. In the event the
Adjustment Amount is negative, the Purchase Price shall be reduced by such
amount and the Contingent Cash Payment shall be reduced by such amount.
Section 2.6 Provisions Relating to the Buyer Common Stock.
(a) As of the Closing Date and subject to the restrictions set
forth in Section 2.6(b), Stockholder shall have all rights with respect to
the shares of Buyer Common Stock issued to and beneficially owned by the
Stockholder, including voting rights and dividend rights, as all other
holders of Buyer Common Stock.
(b) The Buyer Shares issued pursuant to this Agreement shall not
be registered under the Securities Act of 1933, as amended (the "Securities
Act"). Any sale, assignment, gift, pledge, disposal, or other transfer of
the Buyer Shares must be made in compliance with the Securities Act. Each
certificate representing Buyer Shares shall bear substantially the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE APPLICABLE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE REQUIREMENTS OF ALL SUCH LAWS.
(c) The Buyer Shares shall be issued to the Stockholder with the
following rights:
(i) Piggyback Registration Rights. If at any time for a
period of three years after the date hereof Buyer shall determine
to register any of its shares of Buyer Common Stock on its own
behalf under the Securities Act, Buyer shall include in such
registration statement all of the Buyer Shares for registration
therewith, on terms and conditions that are standard and customary
with respect to such registrations.
(ii) Demand Registration Right. At any time following the
consummation of a transaction constituting a Sale of Buyer, but in
no event later than the third anniversary of the Closing Date, the
Stockholder may demand registration under the Securities Act of
all or any portion of the Buyer Shares beneficially owned by the
Stockholder.
(iii) Transferability to Successors. The registration
rights provided in this Section 2.6(c) shall inure for the benefit
of the successors in interest of the Stockholder, whether by
merger, consolidation or acquisition.
This Section 2.6(c) shall survive the Closing.
(d) Transfers Pursuant to Rule 144. Buyer shall use its
commercially reasonable best efforts to take all action as may be reasonably
required as a condition to the availability of Rule 144 under the Securities
Act (or any successor exemptive rule hereinafter in effect) with respect to
the Buyer Shares. Buyer agrees to provide to the Stockholder upon written
notice (A) a written statement by Buyer as to its compliance with the
reporting requirements of Rule 144, (B) a copy of the most recent annual
report or quarterly report of Buyer as filed with the Securities and
Exchange Commission (the "SEC"), and (C) such other reports and documents as
a stockholder of Buyer may reasonably request in availing itself of any rule
or regulation of the SEC allowing a stockholder of Buyer to sell any of its
shares of Buyer Common Stock without registration under the Securities Act.
Buyer further agrees to use its commercially reasonable best efforts to
facilitate and expedite transfers of Buyer Shares pursuant to Rule 144 under
the Securities Act, which efforts shall include, but not be limited to,
timely notice to its transfer agent to expedite such transfer(s) of the
Buyer Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Except as set forth in the Disclosure Schedule attached to this
Agreement, which is incorporated by reference herein (the "Disclosure
Schedule"), the Stockholder hereby represents and warrants to Buyer as
follows:
Section 3.1 Organization and Qualification; Stockholder.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, has
all requisite power and authority to own, lease, and operate its properties
and to carry on its business as it is now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of
its properties makes such qualification necessary, other than where the
failure to be so duly qualified and in good standing would not have a
Material Adverse Effect.
(b) Stockholder is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, has
all requisite power and authority to own, lease, and operate its properties
and to carry on its business as it is now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of
its properties makes such qualification necessary, other than where the
failure to be so duly qualified and in good standing would not have a
Material Adverse Effect.
(c) The Stockholder beneficially and of record owns, in the
aggregate, 1,000 shares of Company common stock, $0.0001 par value per
share (the "Company Common Stock"), which represents all of the issued
and outstanding capital stock of the Company, free and clear of any
Encumbrances, limitations on voting rights, charges, and all other adverse
claims. Schedule 3.1(c) sets forth the name of each officer, director and
stockholder of the Stockholder.
Section 3.2 Governing Documents. The Stockholder has furnished
to Buyer true, complete, and correct copies of (a) the certificate of
incorporation and bylaws of the Company, each as amended or restated to
the date of this Agreement (the "Company Governing Documents") and (b) the
certificate of incorporation and bylaws of Stockholder, each as amended or
restated to the date of this Agreement. The Company is not in violation of
any material provision of the Company Governing Documents and the Company
Governing Documents remain in full force and effect.
Section 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of 1,000
shares of Company Common Stock, all of which are issued and outstanding. No
shares of Company Common Stock are reserved for any purpose. Each of the
outstanding shares of Company Common Stock is duly authorized, validly
issued, and fully paid and non-assessable, and has not been issued in
violation of (nor are any of the authorized shares of Company Common Stock
subject to) any preemptive or similar rights under the Company Governing
Documents, federal or state securities laws, or any agreement to which the
Company is a party or by which it is bound.
(b) The Company does not (i) directly or indirectly own, (ii)
have any agreement to purchase or otherwise acquire, or (iii) hold any
interest convertible into or exchangeable or exercisable for, any equity
interest in any Person.
(c) There are no options, warrants, or other rights, agreements,
arrangements, or commitments of any character to which the Company is a
party or by which it is bound relating to the issued or unissued Company
Common Stock or other securities of the Company or obligating the Company
to grant, issue, or sell any shares of Company Common Stock or other
securities. There are no agreements, arrangements, or commitments of any
character (contingent or otherwise) pursuant to which any Person is or may
be entitled to receive any payment based on the revenues or earnings, or
calculated in accordance therewith, of the Company. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of any shares of Company Common Stock.
(d) There are no obligations, contingent or otherwise, of the
Company to (i) repurchase, redeem, or otherwise acquire the capital stock or
other securities of the Company; or (ii) provide material funds to, or make
any material investment in (in the form of a loan, capital contribution, or
otherwise), or provide any guarantee with respect to the obligations of any
Person.
Section 3.4 Authority. The Stockholder has full power and authority
to execute and deliver this Agreement and the other documents contemplated
by this Agreement (the "Ancillary Agreements") to which the Stockholder
is a party, to perform the obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. This Agreement
and the Ancillary Agreements to which the Stockholder is a party have been
duly executed and delivered by the Stockholder and, assuming the due
authorization, execution, and delivery of this Agreement and the Ancillary
Agreements by Buyer, constitute the legal, valid, and binding obligations
of the Stockholder, enforceable in accordance with their respective terms,
subject to the general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
Section 3.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.5(a) of the Disclosure
Schedule, the execution and delivery of this Agreement and the Ancillary
Agreements by the Stockholder do not, and the consummation of the
transactions contemplated hereby and thereby shall not, (i) conflict with
or violate the Company Governing Documents; (ii) to the knowledge of the
Stockholder, conflict with or violate in any material respect any federal,
state, foreign, or local law, statute, ordinance, rule, regulation, order,
judgment, or decree (collectively, "Laws") applicable to the Company or by
which any of its properties is bound or subject; or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to any other Person any
rights of termination, amendment, acceleration, or cancellation of, or
require payment under, or result in the creation of an Encumbrance on any
of the properties or assets of the Company pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which the Company is a
party or by or to which any of its properties is bound or subject.
(b) Except as set forth in Schedule 3.5(b) of the Disclosure
Schedule, the execution and delivery of this Agreement and the Ancillary
Agreements by the Stockholder do not, and the consummation of the
transactions contemplated hereby and thereby shall not, require either
the Company or the Stockholder to obtain any consent, license, permit,
approval, waiver, authorization, or order of, or to make any filing with or
notification to, (i) any governmental or regulatory authority, foreign or
domestic (federal, state, or local) (collectively, "Governmental Entities")
or (ii) any party to any Contract.
Section 3.6 Permits; Compliance. The Company is in possession
of all material franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals, and
orders necessary to own, lease, and operate its properties and to carry on
its business as it is now being conducted and currently proposed to be
conducted (collectively, the "Company Permits"), and there is no action,
proceeding, or investigation pending or, to the knowledge of the
Stockholder, threatened regarding suspension or cancellation of any of
the Company Permits. Except for instances that would not have a Material
Adverse Effect on the Company, the Company is not in conflict with or in
default or violation of (a) any Law applicable to the Company or by or to
which any of its properties is bound or to which it may be subject or (b)
any of the Company Permits. Neither the Stockholder nor the Company has
received any written notice with respect to possible conflicts, defaults,
or violations of Laws from any Governmental Entity.
Section 3.7 Financial Statements.
(a) The Company has delivered to Buyer the Company's (i) audited
balance sheet as of December 31, 2005 (the "Balance Sheet") and the related
income statement and cash flow statement for the period ended December 31,
2005, (ii) unaudited balance sheet as of February 28, 2006 and the related
income statement and cash flow statement for the two-month period ended
February 28, 2006, and (iii) any notes relating thereto (collectively, the
"Financial Statements"). The Financial Statements are attached hereto as
Schedule 3.7 of the Disclosure Schedule, are complete and correct in all
material respects and have been prepared in accordance with GAAP
consistently applied. The Financial Statements present fairly the financial
condition, operating results and cash flows of the Company as of the dates
and during the periods indicated therein. Except to the extent reflected or
reserved against or disclosed in the Financial Statements, or as listed on
Schedule 3.7(a) of the Disclosure Schedule, the Company has no liabilities
or obligations of any kind, known or unknown, whether accrued, absolute,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business consistent with past practices of the Company since
December 31, 2005 that will be reflected on the Closing Balance Sheet to
be prepared and presented to the Stockholder and Buyer after the Closing
in accordance with Section 2.5 hereof.
(b) No part of any receivable or other amount shown or reflected
in the Financial Statements as being due to the Company has been written
off, written down, waived or released for an amount less than the book value
by the Company.
(c) Since December 31, 2004, the Company's business has not
been materially affected by the loss of any customer, or of any source of
supply or by the cancellation or loss of any order or contract nor, to the
Stockholder's knowledge, are there any circumstances likely to lead thereto.
(d) The Company and the Stockholder have disclosed to Buyer (i)
all significant deficiencies known to the Company and the Stockholder in the
design or operation of internal controls which could adversely affect the
Company's ability to record, process, summarize and report financial data
and has identified for Buyer any material weaknesses in internal controls,
and, (ii) to the Stockholder's knowledge any fraud, whether or not material,
that involves management or other employees who have a significant role in
the Company's disclosure controls and procedures.
(e) The Company and the Stockholder have disclosed on Schedule
3.7(e) of the Disclosure Schedule any significant changes in internal
controls or in other factors that could significantly affect internal
controls during or subsequent to any of the periods covered by the
Financial Statements, including any corrective actions taken with
regard to significant deficiencies and material weaknesses.
Section 3.8 Absence of Certain Changes. Since December 31, 2005,
except as set forth on Schedule 3.8 of the Disclosure Schedule, and except
for transactions contemplated by this Agreement, the Company has conducted
its business only in the ordinary course and consistent with past practice,
and has not:
(a) suffered any Material Adverse Effect;
(b) incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business and
consistent with past practice (including obligations or liabilities arising
from one transaction or a series of related or similar transactions, and
all periodic installments or payments under any lease or other agreement
providing for periodic installments or payments, as a single obligation
or liability), or increased, or experienced any change in any assumptions
underlying or methods of calculating any bad debt, contingency or other
reserves;
(c) declared, set aside or paid any non-cash dividend or
distribution in respect of shares of Company Common Stock or other
securities of the Company or redeemed, purchased or otherwise acquired
any shares of Company Common Stock or other securities of the Company;
(d) issued, delivered, or sold, or authorized the issuance,
delivery or sale of, any share of Company Common Stock or any option or
rights with respect thereto, or modification or amendment of any right of
any holder of outstanding shares of Company Common Stock or options with
respect thereto;
(e) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent, known or unknown, or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities or obligations
reflected or reserved against in the Balance Sheet or incurred in the
ordinary course of business and consistent with past practice since
December 31, 2005;
(f) permitted or allowed any of the assets or properties of the
Company to be subjected to any Encumbrance except for (i) warehousemen's,
mechanics', materialmen's, repairmen's or other like liens arising in the
ordinary course of business consistent with past practice securing sums
which are not overdue, (ii) pledges or deposits to secure obligations under
worker's compensation laws or similar legislation, (iii) deposits to secure
public or statutory obligations of the Company or (iv) deposits to secure
surety, appeal or customs bonds in the ordinary course of business
consistent with past practice (collectively "Permitted Liens");
(g) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable with a value greater than
$25,000;
(h) canceled any debts, or waived any claims or rights of
substantial value;
(i) sold, transferred or otherwise disposed of any of its
properties or assets, except in the ordinary course of business and
consistent with past practice;
(j) disposed of or permitted to lapse any rights to the use of
any patent, trademark, trade name or copyright, or disposed of or disclosed
to any Person other than an Affiliate any invention, discovery, know-how,
trade secret, formula, process or other intellectual property not
theretofore a matter of public knowledge;
(k) granted any general increase in the compensation of employees
of the Company (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any employee of the Company in
excess of merit increases consistent with past practice, and no such
increase is customary on a periodic basis or required by agreement or
understanding;
(l) made any capital expenditure or commitment for capital
expenditures, other than those capital expenditures or commitments that
have been paid in full;
(m) made any change in any method of accounting or accounting
practice or failed to maintain the books and records of the Company in the
ordinary course of business and consistent with past practice;
(n) failed to maintain any of its properties or equipment in
good operating condition and repair, subject to ordinary wear and tear;
(o) failed to maintain in full force and effect all existing
policies of insurance at least at such levels as were in effect prior to
such date or canceled any such insurance or, to its knowledge, taken or
failed to take any action that would enable the insurers under such policies
to avoid liability for claims arising out of occurrences prior to the
Closing; or
(p) agreed in writing or otherwise to take any action with
respect to any of the matters described in this Section 3.8.
Section 3.9 Litigation.
(a) Except as set forth in Schedule 3.9(a) of the Disclosure
Schedule, there is no action, suit, claim, investigation or proceeding,
whether at Law or in equity (a "Claim"), pending or, to the knowledge of the
Stockholder, threatened that questions the validity of this Agreement or the
Ancillary Agreements or any action taken or to be taken by the Company or
the Stockholder in connection with the consummation of the transactions
contemplated hereby or thereby or which seeks to prohibit, enjoin or
otherwise challenge any of the transactions contemplated hereby or thereby.
(b) Schedule 3.9(b) of the Disclosure Schedule sets forth an
accurate and complete list, and a brief description (setting forth the names
of the parties involved, the court or other Governmental Entity involved,
the relief sought and the substantive allegations and the status thereof),
of each Claim pending or, to the knowledge of the Stockholder, threatened
against or affecting the Company or the Stockholder. None of the pending or
threatened Claims set forth on Schedule 3.9(b) of the Disclosure Schedule,
if adversely determined, would individually or in the aggregate, result in a
Material Adverse Effect. To the knowledge of the Stockholder no event has
occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any Claim,
other than those listed on Schedule 3.9(b) of the Disclosure Schedule.
Except as set forth in Schedule 3.9(b) of the Disclosure Schedule, there is
no outstanding or, to the knowledge of the Stockholder, threatened judgment,
injunction, judgment, order or consent or similar decree or agreement
(including, without limitation, any consent or similar decree or agreement
with any Governmental Entity) against, affecting or naming the Company or
the Stockholder.
(c) To the Stockholder's knowledge, except as disclosed in
Schedule 3.9(c) of the Disclosure Schedule, there is no claim (whether based
on statute, negligence, breach of warranty, strict liability or any other
theory) pending or, to the knowledge of the Stockholder, threatened relating
directly or indirectly to any product manufactured or sold, or any services
performed, by the Company.
Section 3.10 Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 3.10(a) of the Disclosure Schedule is a
complete and correct list of all "employee benefit plans" (as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all
plans or policies providing for "fringe benefits" (including, without
limitation, vacation, paid holidays, personal leave, employee discount,
educational benefit, or similar programs), and each other bonus, incentive,
compensation, deferred compensation, profit sharing, stock, severance,
retirement, health, life, disability, group insurance, employment, stock
option, stock purchase, stock appreciation right, supplemental unemployment,
layoff, consulting, or any other similar plan, agreement, policy, or
understanding (whether written or oral, qualified or nonqualified, currently
effective or terminated), and any trust, escrow, or other agreement related
thereto that (i) is or has been established, maintained, or contributed to
by the Company or any ERISA Affiliate (as hereinafter defined) or with
respect to which the Company or any ERISA Affiliate has any liability, or
(ii) provides benefits, or describes policies or procedures applicable, to
any officer, employee, director, former officer, former employee, or former
director of the Company or any ERISA Affiliate, or any dependent thereof,
regardless of whether funded (each, an "Employee Plan", and collectively,
the "Employee Plans"). For purposes of this Agreement, "ERISA Affiliate"
means, as appropriate, the Company and each Person or other trade or
business, whether or not incorporated, that is or has been treated as a
single employer or controlled group member with each pursuant to Section
414 of the Internal Revenue Code of 1986, as amended (the "Code"), or ERISA
Section 4001.
(b) No written or oral representations have been made to any
employee or officer or former employee or officer of the Company promising
or guaranteeing any coverage under any employee welfare plan for any period
of time beyond the end of the current plan year (except to the extent of
coverage required under Code Section 4980B), and no Employee Plan provides
benefits to any employee of the Company, any ERISA Affiliate, or any
employee's dependents after the employee terminates employment other than as
required by Law. The consummation of the transactions contemplated by this
Agreement shall not accelerate the time of payment or vesting, or increase
the amount of compensation (including amounts due under Employee Plans) due
to any employee, officer, former employee, or former officer of the Company.
(c) Except as set forth on Schedule 3.10(c) of the Disclosure
Schedule, all employees of the Company are terminable at will, and to the
knowledge of the Stockholder, there are no binding commitments, written
or oral, to any present or former director, officer, agent, or employee
concerning his or her term, condition, or benefits of employment by the
Company other than as set forth in Schedule 3.10(c) of the Disclosure
Schedule.
(d) With respect to each Employee Plan, the Stockholder has
furnished to Buyer true, correct, and complete copies (to the extent
applicable or existing) of (i) the plan documents and summary plan
description; (ii) the most recent determination letter received from the
Internal Revenue Service (the "IRS"); (iii) the annual reports required to
be filed for the two most recent plan years of each such Employee Plan;
(iv) all related trust agreements, insurance contracts, or other funding
agreements that implement such Employee Plan; and (v) all other documents,
records, or other materials related thereto requested by Buyer.
(e) Set forth on Schedule 3.10(e) of the Disclosure Schedule
is a complete list of all employee pension benefit plans maintained by the
Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate contributes or has any liability ("Employer Contribution
Plans"). Each Employer Contribution Plan meets the qualification
requirements of the Code in form and operation, and such Employer
Contribution Plan, and each trust (if any) forming a part thereof,
have received a favorable determination letter from the IRS as to the
qualification under the Code of such Employer Contribution Plan and the
tax-exempt status of such related trust, and, to the knowledge of the
Stockholder, nothing has occurred since the date of such determination
letter that could be expected to adversely affect the qualification of such
Employer Contribution Plan or the tax-exempt status of such related trust.
(f) Neither the Company, nor any ERISA Affiliate, nor any plan
fiduciary of any Employee Plan, has engaged in any transaction in violation
of Section 406(a) or (b) of ERISA or any "prohibited transaction" (as
defined in Section 4975(c)(1) of the Code) that could subject the Company,
any ERISA Affiliate, or Buyer to any Taxes, penalties, or other liabilities
resulting from such prohibited transaction. No condition exists that would
subject the Company, any ERISA Affiliate, or Buyer to any excise tax,
penalty tax, or fine related to any Employee Plan.
(g) There are no agreements that shall or may provide payments
to any officer, employee, stockholder, or highly compensated individual that
shall be "parachute payments" under Code Section 280G that are nondeductible
to the Company, or subject to Tax under Code Section 4999 for which the
Company or any ERISA Affiliate would have withholding liability.
(h) There is no Employee Plan that is or was subject to Part 3 of
Title I of ERISA or Title IV of ERISA; each Employee Plan has been operated
in all material respects in compliance with ERISA, the Code, and all other
applicable Laws; none of the Employee Plans is or was a "multiple employer
plan" or "multi-employer plan" (as described or defined in ERISA or the
Code), nor has the Company or any ERISA Affiliate ever contributed or been
required to contribute to any such plan; there are no material unfunded
liabilities existing under any Employee Plans; and each Employee Plan that
has not been terminated could be terminated as of the Closing Date without
any material liability to Buyer, the Company, or any ERISA Affiliate. All
required contributions to the Employee Plans have been made timely.
(i) The Company is not now (nor has ever been) a party to any
collective bargaining or other labor union contract, and the Company is not
in negotiations concerning a collective bargaining agreement. The Company
is in material compliance with all applicable Laws respecting employment,
employment practices, and wages and hours. There is no pending or, to the
knowledge of the Stockholder, threatened labor dispute, strike, or work
stoppage against the Company that may interfere with the business activities
of the Company. Neither the Company nor any of its representatives or
employees has committed any unfair labor practices in connection with the
operation of the Company's business, and there is no pending or, to the
knowledge of the Stockholder, threatened charge or complaint against the
Company by the National Labor Relations Board or any comparable Governmental
Entity.
(j) Schedule 3.10(j) of the Disclosure Schedule sets forth, and
the Stockholder has provided to Buyer true and correct copies of, each of
the following with respect to the Company: (i) all employment agreements
with officers or employees; (ii) any severance agreements, programs,
policies, plans, or arrangements, whether or not written; (iii) all
agreements with consultants obligating the Company to make annual cash
payments in an amount exceeding $10,000; and (iv) all non-competition
agreements.
(k) The Company has not amended or taken any other action
with respect to any of its Employee Plans or any of the plans, programs,
agreements, policies, or other arrangements described in this Section 3.10
since December 31, 2005.
Section 3.11 Taxes.
(a) All returns and reports (the "Tax Returns") of or with
respect to any Tax that are required to be filed by or with respect to the
Company or its business or activities have been duly and timely filed. All
Taxes that have been or are due have been timely paid in full, except Taxes
that are being contested in good faith by appropriate proceedings and for
which the Company shall have set aside on its books adequate reserves. The
Company is not subject to taxation by any jurisdiction where it does not
file Tax Returns, except where the failure to do so would not have a
Material Adverse Effect on the Company. All withholding Tax requirements
imposed on or with respect to the Company have been satisfied in full in all
respects. No penalty, interest, or other charge is due with respect to the
late filing of any such Tax Return or late payment of any such Tax.
(b) Except as set forth on Schedule 3.11(b) of the Disclosure
Schedule, there is not in force any extension of time with respect to the
due date for the filing of any Tax Return of or with respect to the Company
nor any waiver or agreement for any extension of time for the assessment,
collection, or payment of any Tax of or with respect to the Company.
(c) There are no pending audits, actions, proceedings,
investigations, disputes, or claims with respect to or against the Company
for or with respect to any Taxes; no assessment, deficiency, or adjustment
has been assessed or proposed with respect to any Tax Return of or with
respect to the Company; and, to the knowledge of the Stockholder, there is
no reasonable basis on which any claim for material Taxes can be asserted
against the Company, other than those disclosed (and to which are attached
true and complete copies of all audit or similar reports) on Schedule
3.11(c) of the Disclosure Schedule. The Stockholder has delivered to Buyer
correct and complete copies of all Tax Returns, examination reports, and
statements of any deficiencies assessed against or agreed to by the Company
during the past five years.
(d) Neither the Company nor the Stockholder is a party to any
written Tax allocation or sharing agreements or any unwritten Tax allocation
or sharing arrangements. The Company is not liable for the Taxes of any
Person under federal, state, foreign, or local Law as a transferee,
successor, by contract, or otherwise.
(e) Except for inchoate statutory liens for current Taxes not yet
due, no liens for Taxes exist upon the assets of the Company.
(f) The Company shall not be required to include any amount in
income for any taxable period beginning after December 31, 2005 as a result
of a change in accounting method for any taxable period ending on or before
December 31, 2005 or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
(g) Except as set forth on Schedule 3.11(g) of the Disclosure
Schedule, no property of the Company is held in an arrangement for which
partnership Tax Returns are being filed, and the Company does not own any
interest in any controlled foreign corporation (as defined in Section 957 of
the Code), passive foreign investment company (as defined in Section 1296 of
the Code), foreign trust, or other Person the income of which is required to
be included in the income of the Company.
(h) No property of the Company is "tax-exempt use property"
(within the meaning of Section 168(h) of the Code) or "tax-exempt bond
financed property" (within the meaning of Section 168(g)(5) of the Code).
(i) Except as set forth on Schedule 3.11(i) of the Disclosure
Schedule, none of the transactions contemplated by this Agreement shall
result in any Tax liability or the recognition of any item of income or
gain to the Company.
(j) The Company has not made an election under Section 341(f) of
the Code, and it is not a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii).
Section 3.12 Certain Business Practices. To the knowledge of the
Stockholder, neither the Company nor any director, officer, stockholder,
agent, or employee of the Company has: (a) used any funds on behalf of the
Company for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; (b) made any unlawful payment 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, as amended; or (c) made any other
unlawful payment.
Section 3.13 Brokers; Other Transactions. No broker, finder, or
investment banker is entitled to any brokerage, finders, or other fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or
the Stockholder. The Stockholder is not a party or subject to any actual
or prospective agreement, arrangement, or understanding, written or oral,
express or implied, involving any transaction that is inconsistent with the
Stockholder's execution and delivery of this Agreement.
Section 3.14 Insurance. Schedule 3.14 of the Disclosure Schedule
lists all insurance policies currently in effect under which the Company
is a beneficiary or an insured. As of the date of this Agreement, the
Stockholder is not aware of any notice that any of the policies listed on
Schedule 3.14 of the Disclosure Schedule have been or shall be canceled
prior to its scheduled termination date, or would not be renewed
substantially on the same terms now in effect if the insured party requested
renewal or has received notice from any of its insurance carriers that any
insurance premiums shall be subject to increase in an amount materially
disproportionate to the amount of the increases with respect thereto (or
with respect to similar insurance) in prior years. The Company is not in
default under any such policy and all premiums due and payable with respect
to such coverage have been paid or accrued.
Section 3.15 Properties, Contracts; Leases and Other Agreements; Bank
Accounts.
(a) The Company has good and valid title to, or a valid leasehold
interest in, all of the properties and assets owned by it or used in the
operation of the Company's business, including, without limitation, each
item of equipment and other personal property, tangible, intangible or
otherwise, included as an asset in the Balance Sheet (other than inventory
and equipment disposed of in the ordinary course of business since December
31, 2005) and to each item of personal property, acquired since December 31,
2005, free and clear of any Encumbrances except (x) Permitted Liens, and (y)
as set forth in Schedule 3.15(a) of the Disclosure Schedule. Schedule
3.15(a) of the Disclosure Schedule contains a detailed list as of December
31, 2005 of all machinery, equipment, vehicles, furniture and other personal
property owned or used by the Company in the operation of its business,
having an original cost of $10,000 or more.
(b) The Company does not own any real estate. All leasehold
interests for real property and any material personal property used by the
Company in its business are held pursuant to lease agreements which are
valid and enforceable in accordance with their terms, the agreements for
which are listed on Schedule 3.15(b) of the Disclosure Schedule. To the
knowledge of the Stockholder, all such properties comply in all material
respects with all applicable private agreements (to which the Company is a
party), zoning requirements and other Laws relating thereto and there are no
condemnation proceedings pending or, to the knowledge of the Stockholder,
threatened with respect to such properties. The Company has not assigned or
subleased its interests under such leases or the assets covered thereby.
Each such lease has been duly and validly executed, is in full force and
effect and constitutes the valid and binding agreement of the Company
thereto.
(c) Except as set forth on Schedule 3.15(c) of the Disclosure
Schedule, and excluding trade accounts payable incurred in the ordinary
course of business and payable to Persons other than Affiliates of the
Company, the Company does not have any liabilities for borrowed funds,
extensions of credit or other advances that are subject to repayment whether
pursuant to a written agreement, oral understanding or course of conduct,
and whether reflected on the Financial Statements as indebtedness, accounts
payable or otherwise, and any such liability set forth on Schedule 3.15(c)
of the Disclosure Schedule may be prepaid at any time without premium or
penalty.
(d) Except as set forth in Schedule 3.15(d) of the Disclosure
Schedule, the Company is not currently a party to any agreements, contracts
or commitments relating to the acquisition of the assets or capital stock of
any other business enterprise.
(e) Except as set forth in Schedule 3.15(e) of the Disclosure
Schedule, the Company is not a party to any agreements, loans, contracts,
leases, guarantees, letters of credit, lines of credit or commitments of
the Company not referred to elsewhere in this Agreement which:
(i) involve potential payments by the Company or incurring
by the Company of costs or obligations, of more than $10,000 in the
aggregate;
(ii) involve payments based on profits of the Company;
(iii) relate to the future purchase of goods or services
in excess of the requirements of the business of the Company at current
levels or for normal operating purposes;
(iv) include powers of attorney or grants of agency by the
Company;
(v) cannot be canceled by the Company without penalty or
premium on no more than 30 days notice;
(vi) were not made in the ordinary course of business; or
(vii) otherwise materially affect the business of the
Company or financial condition of the Company.
(f) Except as set forth in Schedule 3.15(f) of the Disclosure
Schedule, no current contracts material to the business of the Company are
terminable or are subject to modification by reason of the consummation of
the transactions contemplated by this Agreement and the Ancillary Agreements
and the Company has not received notice of any potential termination or
modification of such contracts.
(g) Except as set forth in Schedule 3.15(g) of the Disclosure
Schedule, to the knowledge of the Stockholder, the Company is not in
default, technical or otherwise, of any real estate lease, equipment lease,
loan or credit agreement, or any other contract or agreement to which the
Company is a party , and to the knowledge of the Stockholder no event or
condition has occurred or exists which, with the passage of time, giving of
notice or both, would cause any party to be in default thereunder.
(h) Set forth on Schedule 3.15(h) of the Disclosure Schedule is
an accurate and complete list showing the name and address of each bank,
securities broker, mutual fund, investment company, investment adviser or
other financial institution or similar Person with which the Company has an
account, including the account or box number and the names of all Persons
authorized to draw thereon or have access thereto.
(i) Except as set forth on Schedule 3.15(i) of the Disclosure
Schedule all material contracts and agreements to which the Company is a
party ("Contracts") (i) are valid and enforceable in accordance with their
respective terms, subject to the general principles of equity, regardless of
whether considered in a proceeding in equity or at law; (ii) no Default (as
hereinafter defined) exists under any Contract either by the Company or, to
the knowledge of the Stockholder, by any other party thereto; (iii) neither
the Company nor the Stockholder is aware of the assertion by any third party
of any claim of Default or breach under any of the Contracts; and (iv)
neither the Company nor the Stockholder has knowledge of any present
intention on the part of any significant currently existing customer or
supplier or other business partner of the Company to either (A) terminate or
significantly adversely change its current existing business relationship
with the Company either now or in the foreseeable future, or (B) fail to
renew or extend its current existing business relationship with the Company
at the end of the term of any existing contractual arrangement such entity
may have with the Company. For purposes of this Agreement, the term
"Default" means, with respect to any Contract, (x) any material breach of or
default under such Contract, (y) any event, other than the normal passage of
time, which would (either with or without notice or lapse of time or both)
give rise to any right of termination, cancellation or acceleration of any
obligation to repay with respect to such Contract, or (z) any event, other
than the normal passage of time, which would result in either a significant
increase in the obligations or liabilities of, or a loss of any significant
benefit to, the party in question under such Contract.
(j) Set forth on Schedule 3.15(j) of the Disclosure Schedule is
an accurate and complete list showing all Contracts whereby the Company is
providing products or services of any kind to a third party where the value
of such Contract equals or exceeds $25,000.
(k) Except as set forth on Schedule 3.15(k) of the Disclosure
Schedule, the Company has not granted any right of first refusal or similar
right in favor of any third party with respect to any material portion of
its properties or assets or entered into any non-competition agreement or
similar agreement restricting its ability to engage in any business in any
location.
Section 3.16 Intellectual Property. Schedule 3.16 of the Disclosure
Schedule sets forth a complete and correct list of each patent application,
trademark (whether or not registered), trademark application, trade name,
service ▇▇▇▇, copyright and other proprietary intellectual property
(including, without limitation, proprietary computer software, whether
in object or source form) owned or used by the Company (the "Company
Intellectual Property"). To the knowledge of the Stockholder, the Company
Intellectual Property, if any, is valid and enforceable, and the Company
has the exclusive right to use such Company Intellectual Property. To the
knowledge of the Stockholder, the current use by the Company of such Company
Intellectual Property, if any, does not infringe the rights of any other
Person, and no other Person is infringing the rights of the Company in any
such Company Intellectual Property.
Section 3.17 Environmental Matters. Except for matters disclosed in
Schedule 3.17 of the Disclosure Schedule: (a) the properties, operations,
and activities of the Company comply currently with, and have at all times
complied, in all material respects with, all applicable Environmental Laws
(as hereinafter defined); (b) the Company (or its properties or operations)
is not subject to any existing, pending, or, to the knowledge of the
Stockholder, threatened action, suit, claim, investigation, inquiry, or
proceeding by or before any Governmental Entity under any Environmental
Law; (c) there are no physical or environmental conditions existing on any
property used by the Company or resulting from any of its operations or
activities, past or present, at any location, that would give rise to any
on-site or off-site remedial obligations or other liabilities imposed under
any Environmental Laws or that would affect the soil, groundwater, surface
water, or human health; (d) to the knowledge of the Stockholder, there has
been no exposure of any Person or property to hazardous substances or any
pollutant or contaminant, nor has there been any release of hazardous
substances or any pollutant or contaminant into the environment, by the
Company or in connection with any of its properties or operations; and
(e) the Stockholder has made available to Buyer all internal and external
environmental audits and studies and all correspondence on environmental
matters in the possession of the Company relating to any of its current or
former properties or operations.
For purposes of this Agreement, the term "Environmental Laws" means any
and all Laws or orders of any Governmental Entity pertaining to health or
the environment currently in effect in any and all jurisdictions in which
the Company owns property or conducts business, including without
limitation, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended; the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended; any state Laws implementing the
foregoing federal laws; and all other environmental conservation or
protection Laws. For purposes of this Agreement, the terms "hazardous
substance" and "release" have the meanings specified in CERCLA and RCRA, and
the term "disposal" has the meaning specified in RCRA; provided, however,
that to the extent the Laws of the state in which the property is located
establish a meaning for "hazardous substance," "release," or "disposal"
that is broader than that specified in either CERCLA or RCRA, such broader
meaning shall apply.
Section 3.18 Licenses; Etc.
(a) Schedule 3.18(a) of the Disclosure Schedule contains a list
and description of all currently effective material permits, licenses, and
authorizations of and registrations and qualifications with, Governmental
Entities and self-regulatory organizations applicable to the business of the
Company.
(b) Except as set forth on Schedule 3.18(b) of the Disclosure
Schedule, none of the items required to be disclosed on Schedule 3.18(a) of
the Disclosure Schedule is terminable as the result of, has increased rights
or obligations as a result of, or becomes vested or accelerated by, or
otherwise requires the consent or other approval of any other Person with
respect to or as a result of, the transactions contemplated by this
Agreement. The Company is in compliance in all material respects under
all licenses and permits by which any of its properties or assets is bound
and, to the knowledge of the Stockholder, (i) no event has occurred that
constitutes a violation or breach of or a default (with the passage of time
or the giving of notice or both) in respect of any thereof, and (ii) each of
the other parties thereto or bound thereby has performed all the obligations
required to be performed by it to date and is not in default thereunder.
Each of the items required to be disclosed in Schedule 3.18(a) of the
Disclosure Schedule is in full force and constitutes a legal, valid, and
binding obligation of the Company and the other parties thereto, enforceable
in accordance with its terms, subject to the general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
Except as set forth on Schedule 3.18(b) of the Disclosure Schedule, the
Stockholder does not know of any material client or customer that intends to
terminate its relationship with the Company as a result of the consummation
of the transactions contemplated by this Agreement or any of the related
transactions. True and complete copies of all items required to be
disclosed on Schedule 3.18(a) of the Disclosure Schedule have been delivered
to Buyer.
Section 3.19 Contracts to Acquire an Interest in the Company. Other
than this Agreement, there are no contracts, agreements, understandings,
or other rights, whether written or oral, granted by the Company or the
Stockholder to any Person pursuant to which such Person may be entitled
to receive an equity interest in the Company or any payment with respect
thereto.
Section 3.20 Employees.
(a) Schedule 3.20(a) of the Disclosure Schedule sets forth an
accurate, correct, and complete list of all employees of the Company as of
the Execution Date, including name, title or position, the present annual
compensation or wage rate, any interests in any bonus or incentive
compensation plan, and any other perquisite or form of non-cash
compensation. To the knowledge of the Stockholder, no employee is subject
to a non-competition or any other form of agreement, whether written or
oral, that would prevent such employee from continuing as an employee of the
Company or Buyer, as the case may be, upon consummation of the transactions
contemplated by this Agreement or devoting his or her full talents,
knowledge, and efforts to the Company or Buyer, as the case may be,
upon consummation of the transactions contemplated by this Agreement.
(b) Schedule 3.20(b) of the Disclosure Schedule sets forth an
accurate and complete list of all loans, debts, and other obligations
(collectively, "Employee Loans") owed by any employee of the Company that
shall remain outstanding after the Closing.
Section 3.21 Securities Law Matters. The Stockholder represents and
warrants to Buyer the following:
(a) Stockholder is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act.
(b) Stockholder, by reason of its business and financial
experience, has the capacity to protect its interests in investments in
illiquid securities such as the Buyer Shares. Stockholder has carefully
evaluated its financial resources and investment position and the risks
associated with an investment in the Buyer Shares and is able to bear the
economic risk of such investment. Stockholder has adequate means for
providing for its current needs and contingencies and has no need for
liquidity in this investment. Stockholder's overall commitment to
investments that are not readily marketable is not disproportionate to its
net worth and Stockholder's investment in the Buyer Shares shall not cause
such overall commitment to become excessive.
(c) Stockholder has reviewed the merits of an investment in the
Buyer Shares with tax and legal counsel and an investment advisor to the
extent deemed advisable by Stockholder. Stockholder acknowledges that it
has been given a full opportunity to ask questions of and to receive answers
from the officers, agents, and representatives of Buyer concerning the terms
and conditions of the investment and the business of Buyer and to obtain
such other information as desired in order to evaluate an investment in the
Buyer Shares. Stockholder further acknowledges that it has relied solely
upon its own independent investigations, and has received no representation
or warranty from Buyer or any of its Affiliates, employees, or agents, other
than as set forth herein. Stockholder further acknowledges and understands
that no federal or state Governmental Entity has made any finding or
determination as to the fairness of an investment in, or any recommendation
or endorsement of, the Buyer Shares.
(d) Stockholder understands that the Buyer Shares to be issued
pursuant to this Agreement shall constitute "restricted securities" within
the meaning of Rule 144 under the Securities Act and may not be sold,
pledged, or otherwise transferred in the absence of an effective
registration statement pertaining thereto under the Securities Act and under
any applicable state securities laws or an exemption from the registration
requirements thereof. Stockholder further understands that each certificate
representing the Buyer Shares shall bear substantially the legend set forth
in Section 2.6(b) above.
(e) Stockholder acknowledges and agrees that the acquisition
of Buyer Shares shall be solely for Stockholder's account, and not for the
account of any other Person or with a view to any resale or distribution
thereof. Stockholder understands that the Buyer Shares have not been
registered under the Securities Act, or the securities laws of certain
states, in reliance upon specific exemptions from registration thereunder,
and agrees that the Buyer Shares may not be sold, offered for sale,
transferred, pledged, hypothecated or otherwise disposed of except in
compliance with the Securities Act and applicable state securities laws.
Stockholder further understands that, except as specifically set forth in
this Agreement, Buyer has no obligation to cause the Buyer Shares to be
registered under the Securities Act or to comply with any exemption under
the Securities Act.
(f) Stockholder understands that the representations and
warranties set forth in this Section 3.21 are being provided to determine
whether the Buyer Shares may be issued to Stockholder pursuant to Section
4(2) of the Securities Act and similar exemptions under applicable state
securities laws. Stockholder shall notify Buyer immediately of any change
in any such information occurring prior to the Closing.
Section 3.22 Debt Owed to Stockholder. As of the Execution Date,
there are no outstanding loans or other debt obligations due to the
Stockholder from the Company, and all debt obligations owed by the Company
to the Stockholder prior to Closing shall have been forgiven by the
Stockholder prior to the Closing Date.
Section 3.23 Accounts Receivable. All accounts receivable of the
Company that are reflected on the Balance Sheet or on the accounting records
of the Company as of the Execution Date (collectively, the "Accounts
Receivable") represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business of the
Company. Unless paid prior to the Closing Date, the Accounts Receivable
are or will be as of the Closing Date current and collectible net of the
respective reserves shown on the Balance Sheet or on the accounting records
of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice in accordance with GAAP). There is
no contest, claim, or right of set-off that are not reserved for under any
Contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable, as so reserved. Schedule 3.23
of the Disclosure Schedule contains a complete and accurate list of all
Accounts Receivable as of the date of the Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
Section 3.24 Inventory. All inventory of the Company consists of a
quality and quantity usable and salable in the ordinary course of business
of the Company, except for obsolete items and items of below standard
quality, all of which have been written off or written down to net
realizable value in the Balance Sheet or on the accounting records of the
Company as of the Execution Date, as the case may be. All inventories not
written off have been priced at the lower of cost or market on a first in,
first out basis. Schedule 3.24 of the Disclosure Schedule contains a
complete and accurate list of all inventory of the Company as of the date
of the Balance Sheet.
Section 3.25 No Undisclosed Liabilities. Except as set forth in
Schedule 3.25 of the Disclosure Schedule, the Company has no liabilities
or obligations of any nature, except for (i) liabilities or obligations
reflected or reserved against in the Balance Sheet, and (ii) current
liabilities incurred in the ordinary course of business of the Company
since the respective dates thereof, none of which are material.
Section 3.26 Ownership of Company Shares. The Company Shares are
owned of record and beneficially by the Stockholder and constitute all of
the securities owned of record or beneficially by the Stockholder and the
Stockholder has the right to sell, assign, transfer and deliver the Company
Shares. The Stockholder has sole voting power and sole dispositive power
with respect to all of the Company Shares. All of the Company Shares are
free and clear of all Encumbrances. As of the Closing, the Stockholder has,
and shall have as of the Closing Date, the ability to vote all of the
Company Shares entitled to vote on this Agreement and the transactions
contemplated hereby. Upon the Closing, Buyer will acquire good and valid
title to the Company Shares free and clear of any Encumbrances.
3.27 Relationships with Affiliates.
(a) Except as set forth in reasonable detail on Schedule 3.27(a)
of the Disclosure Schedule, no officer, director or employee of the Company
or the Stockholder or any of their respective Affiliates, or any immediate
family member of any of the foregoing, provides or causes to be provided to
the Company any assets, services or real property facilities, and the
Company does not provide or cause to be provided to any such officer,
director, employee, Stockholder or Affiliate, or any immediate family member
of any of the foregoing, any assets, services or real property facilities.
Except as set forth in reasonable detail on Schedule 3.27(a) of the
Disclosure Schedule, neither the Stockholder nor any of its Affiliates
(other than the Company) has any interest of any nature in any of the assets
used in connection with the operation of (or otherwise related to) the
business of the Company.
(b) Schedule 3.27(b) of the Disclosure Schedule sets forth a true
and complete list and brief description of all Contracts pursuant to which
the Stockholder or any of the Company's officers, directors or employees,
or their respective Affiliates or immediate family members, (i) have a
pecuniary interest in any supplier, vendor or customer of the Company or
any Person with which the Company is in competition (excluding shares of
publicly traded stock or securities aggregating less than three percent of
the outstanding shares thereof), (ii) is indebted to the Company, (iii) is
a party to any non-employment related Contract or transaction with the
Company, or (iv) have any debts, liabilities or obligations guaranteed by
the Company, or the Company is a surety or accommodation party with respect
thereto.
Section 3.28 Accuracy of Information. Neither the representations or
warranties of the Stockholder in this Agreement nor any statement contained
in the Disclosure Schedule, certificates or other written statements and
information furnished to Buyer or its representatives by or on behalf of
the Stockholder or the Company in connection with the negotiation, execution
and delivery of this Agreement and the Ancillary Agreements, and the
transactions contemplated hereby and thereby contain any material
misstatement of fact or omit to state a material fact or any fact necessary
to make the statements contained herein and therein, in light of the
circumstances under which such statements are made, not misleading. As of
the Execution Date, to the Stockholder's knowledge, there is no material
fact relating to the business, operations, financial condition or prospects
of the Company that has not been set forth or referred to in this Agreement,
the Ancillary Agreements or the Disclosure Schedule, certificates,
statements or information heretofore furnished to Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Stockholder as follows:
Section 4.1 Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware, and is
duly qualified and in good standing to do business as a foreign corporation
in each jurisdiction in which the failure to be so qualified and in good
standing would affect the validity or enforceability of this Agreement or
would have a Material Adverse Effect on Buyer.
Section 4.2 Authority. Buyer has all requisite corporate power
and authority to execute and deliver this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Ancillary Agreements by Buyer and the
consummation by Buyer of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of Buyer is necessary to authorize this
Agreement and the Ancillary Agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and, assuming
the due authorization, execution, and delivery of this Agreement and the
Ancillary Agreements by the Stockholder, constitute the legal, valid, and
binding obligations of Buyer, enforceable in accordance with their
respective terms, subject to the general principles of equity, regardless
of whether considered in a proceeding in equity or at law.
Section 4.3 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the
Ancillary Agreements by Buyer do not, and the consummation of the
transactions contemplated hereby and thereby shall not, (i) conflict with or
violate the organizational and governing documents of Buyer, in each case as
amended or restated as of the date of this Agreement (including, without
limitation, the certificate of incorporation or bylaws); (ii) to the
knowledge of Buyer, conflict with or violate any Laws applicable to Buyer or
by which any of its properties is bound or subject; or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of Buyer
pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, or other instrument or
obligation to which Buyer is a party or by or to which Buyer or any of
its properties is bound or subject.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements by Buyer does not, and the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements
shall not, require Buyer to obtain any consent, license, permit, approval,
waiver, authorization, or order of, or to make any filing with or
notification to, any Governmental Entity.
Section 4.4 Financial Ability to Close. Buyer, at Closing, shall
have the financial ability to perform its obligations under this Agreement.
Section 4.5 Public Filings. Buyer has made available to the
Stockholder true and complete copies of its annual report on Form 10-KSB for
the fiscal year ended October 31, 2005, its quarterly reports on Form 10-QSB
for the fiscal quarter ended January 31, 2006, all current reports on Form
8-K filed since January 1, 2006, and its proxy statement in connection with
the 2005 annual meeting of stockholders (collectively, the "SEC Documents")
and shall make available to the Stockholder any similar SEC Documents filed
with the SEC. As of their respective filing dates, each SEC Document
complied, or shall comply, in all material respects with the requirements of
the Securities Exchange Act of 1934, as amended, and as of their respective
dates none of the SEC Documents contained, or shall contain, any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 4.6 No Material Adverse Change. There has been no material
adverse effect on the business, operations, assets, financial condition, or
results of operations of Buyer or its ability to consummate the transactions
contemplated hereby since the annual report on Form 10-KSB for the period
ended October 31, 2005, except as may be disclosed by Buyer in any SEC
Document.
Section 4.7 Securities Law Compliance. Assuming the representations
and warranties of Stockholder set forth in Section 3.21 hereof are true and
correct, the issuance of the Buyer Shares pursuant to this Agreement shall
be exempt from the registration requirements of the Securities Act and all
applicable state securities or "Blue Sky" laws. Buyer has given the
Stockholder and its agents and representatives, and agrees to continue to
give the Stockholder and its agents and representatives through the Closing
Date, the opportunity to ask questions of, and receive answers from,
executive officers of Buyer concerning Buyer and the Buyer Shares.
ARTICLE V
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period between the
Execution Date and the Closing Date:
Section 5.1 General. Each of Buyer and the Stockholder will use
all commercially reasonable efforts to take all action and to do all things
necessary, proper, or advisable in order to consummate and make effective
the transactions contemplated by this Agreement.
Section 5.2 Operation of Business. Stockholder and the Company
shall use all commercially reasonable efforts to preserve substantially
intact the Company's business organization and present relationships with
its customers, suppliers and employees and to maintain all of its insurance
currently in effect. Neither the Stockholder nor the Company will take any
action that could reasonably be expected to have a Material Adverse Effect
on the Company or the transactions contemplated by this Agreement and the
Ancillary Agreements. From the Execution Date through the Closing Date,
without the prior written consent of Buyer, neither the Company nor the
Stockholder will engage in any practice, take any action, or enter into
any transaction outside the ordinary course of the Company's business or
inconsistent with past practice. Without limiting the generality of the
foregoing:
(a) The Company will not sell, lease, transfer, convey, assign
or otherwise dispose of any interest in any assets, tangible or intangible,
other than for a fair consideration in the ordinary course of the Company's
business, or as contemplated by this Agreement.
(b) The Company will not enter into any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) outside the ordinary course of the Company's business.
(c) The Company will not accelerate, extend, materially modify,
renew, terminate or cancel any agreement, contract, lease or license (or
series of related agreements, contracts, leases and licenses) involving more
than $10,000 to which the Company is a party or by which it is bound outside
the ordinary course of the Company's business, without the prior consent of
Buyer.
(d) The Company will not impose any Encumbrance upon any of its
assets, tangible or intangible.
(e) The Company will not make any capital expenditure (or series
of related capital expenditures) outside the ordinary course of the
Company's business.
(f) The Company will not make any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans and acquisitions) outside the
ordinary course of the Company's business.
(g) The Company will not issue any note, bond or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation involving more than $10,000
in the aggregate.
(h) The Company will not merge with any other Person, consolidate
or sell or consent to the sale of any of the material assets of the Company
or acquire any material assets outside the ordinary course of the Company's
business.
(i) The Company will not authorize or effect any change or
amendment in the Company Governing Documents.
(j) The Company will not declare or pay any dividend, or make
any distribution to the Stockholder, or repurchase or redeem any of its
outstanding capital stock.
(k) The Company will not issue or sell any shares of capital
stock of the Company or any other equity interest or any beneficial interest
therein (including, without limitation, any options or warrants).
(l) The Company will not, except as otherwise required by Law or
consistent with past practices, take any action with respect to the grant
of any severance or termination pay (other than pursuant to policies or
agreements of the Company as the case may be, in effect on the Execution
Date).
(m) The Company will not make any change in the key management
structure of the Company, including without limitation the hiring of
additional officers or the termination of existing officers.
(n) The Company will not make any material Tax elections.
(o) The Company will not fail to maintain any material asset in
substantially its current state of repair, normal wear and tear excepted.
(p) The Company will not make any material change in its
accounting policies or practices.
(q) The Company will not waive, settle or release any claim or
cause of action.
(r) The Company will not declare or issue any bonus or other
such payments to, or increase the salary or wages of, whether or not in the
ordinary course of the Company's business, any management or executive
employees of the Company.
(s) The Company will not commit or agree to any of the foregoing.
Section 5.3 Access to Information. Upon reasonable notice and
subject to applicable Laws relating to the exchange of information, the
Company and the Stockholder shall afford to the officers, employees,
accountants, counsel and other representatives of Buyer, full access during
normal business hours during the period prior to the Closing Date, and in a
manner so as not to interfere with the normal business operations of the
Company, to all of its properties, books, contracts, commitments and records
for the purpose of updating any review of such items performed prior to the
Execution Date and, during such period, the Stockholder and the Company
shall make available all other information concerning its business,
properties and personnel as Buyer may reasonably request. It is the
intention of the parties hereto that Buyer shall conduct an examination of
the Company prior to the Closing Date in order to confirm compliance with
the representations, warranties and covenants set forth in this Agreement.
Section 5.4 Notice of Developments. The Stockholder will give
prompt written notice to the other parties of any material adverse
development in the Company's business, operations, financial condition or
results of operations. Each party hereto will give prompt written notice to
the other party of any material adverse development causing a breach of any
of such party's own representations and warranties set forth herein. No
disclosure by any party pursuant to this Section 5.4 shall be deemed to
amend or supplement any schedule hereto or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant, nor shall a
decision to close the transactions contemplated hereby be considered a
waiver in respect of any such matter.
Section 5.5 Exclusivity. In light of the consideration given and
the actions undertaken by Buyer prior to the execution of this Agreement,
neither the Stockholder nor the Company will (a) solicit, initiate or
actively encourage the submission of any proposal or offer from any Person
relating to the acquisition of any material equity interest in, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation or share exchange) or (b) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Stockholder will notify Buyer immediately if any Person makes any proposal
or offer with respect to any of the foregoing.
ARTICLE VI
COVENANTS; ADDITIONAL AGREEMENTS
Section 6.1 Stockholder Release. Effective as of the Closing Date,
the Stockholder, for the Stockholder and its officers, directors, employees,
stockholders, agents, representatives, successors, and assigns, hereby fully
and unconditionally releases and forever discharges and holds harmless the
Company and each of its officers, directors, employees, stockholders,
agents, representatives, successors, and assigns from any and all claims,
demands, losses, costs, expenses (including reasonable attorneys' fees and
expenses), obligations, liabilities, and/or damages (collectively, "Claims")
of every kind and nature whatsoever, whether or not now existing or known,
relating in any way, directly or indirectly, to the Company that the
Stockholder may now have or may hereafter claim against the Company or any
of its employees, officers, directors, successors, and assigns, arising
prior to the Closing; provided, however, that the foregoing release does not
in any way affect any Claims that the Stockholder may have that may arise
under this Agreement or the Ancillary Agreements.
Section 6.2 Consent of the Stockholder. For purposes of the state
corporate law governing the Company, this Agreement constitutes the written
consent of the Stockholder with respect to the sale of the Company Shares
and the business of the Company to Buyer, approving the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
Section 6.3 Information for Filings. Subject to the requirements
of Section 4.3(b) herein, the Stockholder shall furnish Buyer with all
information concerning the Stockholder and the Company as may be required
for inclusion in any application or filing made by Buyer to any Governmental
Entity in connection with the transactions contemplated by this Agreement.
Section 6.4 Publicity. Buyer and the Stockholder shall cooperate
with each other in the development and distribution of all news releases and
other public disclosures relating to the transactions contemplated by this
Agreement. Neither Buyer, on the one hand, nor Stockholder, on the other
hand, shall issue or make, or allow to have issued or made, any press
release or public announcement concerning the transactions contemplated by
this Agreement without the advance approval in writing of the form and
substance thereof by the other parties, unless otherwise required by
applicable legal or stock exchange requirements.
Section 6.5 Transaction Costs. Each of the Stockholder and Buyer
shall pay all attorneys', accountants', finders', brokers', investment
banking and other fees, costs and expenses incurred by such party in
connection with the preparation, negotiation, execution, and performance of
this Agreement or any of the transactions contemplated by this Agreement.
Section 6.6 Non-Competition.
(a) The Stockholder, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(each, a "Non-Compete Party," and collectively, the "Non-Compete Parties")
acknowledge and agree that this Agreement is entered into in connection
with the sale of a business and that, as part of the consideration and as a
material inducement for the execution of this Agreement and the purchase of
the business, Buyer has required that the Non-Compete Parties enter into
this Section 6.6. The Non-Compete Parties acknowledge and agree that Buyer
would not enter into this Agreement or purchase the business absent the Non-
Compete Parties' covenants contained in this Section 6.6. The Non-Compete
Parties also acknowledge that Buyer's acquisition of the business includes
the acquisition of special and confidential knowledge and information
known only to the Non-Compete Parties regarding the business, including
information regarding operations, plans, strategies, markets, methods of
competing, customers and potential customers, vendors and potential vendors,
suppliers, intellectual property, know-how, trade secrets, and other
information, which knowledge and information would provide invaluable
benefits to competitors and potential competitors of Buyer and the use,
loss, dilution, or impairment of which by the Non-Compete Parties or any
other Person could materially damage Buyer and the business acquired. The
Non-Compete Parties also acknowledge that the nature of the business is not
confined by geography and that current technology and business and
communications methods enable and shall enable the Non-Compete Parties
and their respective Affiliates to offer products and services and conduct
business with customers and potential customers and other Persons having
business dealings with Buyer related to the business without regard to
geographic location.
(b) Each of the Non-Compete Parties covenants and agrees
that, for a period beginning on the Closing Date and ending on the second
anniversary of the Closing Date (the "Non-Compete Applicable Date"), without
the written permission of Buyer, such Non-Compete Party shall not, directly
or indirectly, anywhere within the United States (the "Non-Compete Area"):
(i) engage (whether as owner, partner, stockholder, investor, adviser,
consultant, contracting party, or referring source, or otherwise) in any
business that is substantially similar to or in competition with the
business conducted by Buyer or its successors or Affiliates (including,
without limitation, the Company) at any time prior to the Non-Compete
Applicable Date (except that a Non-Compete Party may beneficially own less
than three percent of the common equity of a publicly traded entity); (ii)
solicit or attempt to solicit any competing business or competing employment
from any Person that the Non-Compete Party or any Person that was employed
by the Non-Compete Party called upon, solicited, or conducted business with
prior to the Non-Compete Applicable Date, including, but not limited to,
customers, clients, and prospective customers and clients of Buyer and its
successors or Affiliates (including, without limitation, the Company), in
each instance for the purpose of employing such services in a manner that
competes with the business of Buyer as set forth in Section 6.6(b)(i); or
(iii) recruit or hire, attempt to or assist in any attempt to recruit or
hire, or discuss employment or hiring with, any Person who is an employee of
Buyer or its successors or Affiliates (including, without limitation, the
Company).
(c) The Non-Compete Parties acknowledge that this Section 6.6 is
necessary to protect the interests of Buyer and its Affiliates and that the
restrictions and remedies contained in this Agreement are reasonable in
light of the consideration and other value that the Non-Compete Parties have
accepted pursuant to this Agreement. If any provision of this Section 6.6
should be found by any court of competent jurisdiction to be unreasonable by
reason of its being too broad as to the period of time, territory, or scope,
then, and in that event, such provision shall nevertheless remain valid and
fully effective, but shall be considered to be amended so that the period
of time, territory, or scope set forth herein shall be changed to be the
maximum period of time, the largest territory, or the broadest scope, as the
case may be, that would be found reasonable and enforceable by such court.
Section 6.7 Confidential Information.
(a) The Stockholder acknowledges that it and its officers,
directors, stockholders, employees, agents and representatives, have had
access to confidential information of the Company, and may in the future
have access to information proprietary to, used by, or in the possession of
Buyer and its Affiliates (including, without limitation, the Company), or
any of their respective customers or not generally known in the industry,
including, but not limited to, records regarding sales, price and cost
information, marketing plans, trade secrets, know-how, computer programs,
source code, intellectual property, customer names, customer lists, sales
techniques, distribution plans or procedures, and other material relating to
the business of Buyer and its Affiliates, including, without limitation, the
Company (the "Confidential Information"), and for the Stockholder and for
each Affiliate of the Stockholder (other than the Company), agrees for the
period equivalent to the non-competition covenant in Section 6.6, not to use
the Confidential Information other than for the sole benefit of Buyer or its
Affiliates or to disclose such Confidential Information to any Person that
is not an officer or employee (except that if, at such time, such
Confidential Information is subject to a policy of Buyer or its Affiliates
restricting disclosure to non-officers, Stockholder shall not disclose such
information to non-officers) of Buyer at the time of such disclosure,
without the prior written consent of Buyer; provided, however, that nothing
herein shall prevent the Stockholder from disclosing any such information
(i) pursuant to the order of any court or administrative agency or in any
pending legal or administrative proceeding, or otherwise as required by
applicable Law or compulsory legal process, (ii) to the extent that such
information becomes publicly available other than by reason of disclosure by
Stockholder in violation of this paragraph, and (iii) to Stockholder's legal
counsel and other experts or agents who are informed of the confidential
nature of such information. The Stockholder further acknowledges that this
covenant to maintain Confidential Information is necessary to protect the
goodwill and proprietary interests of Buyer and its Affiliates (including,
without limitation, the Company) and that the restriction against the
disclosure of Confidential Information and the associated remedies are
reasonable in light of the consideration and other value Stockholder has
accepted pursuant to this Agreement.
(b) The Stockholder agrees, upon the request of Buyer after the
Closing Date, immediately to, at Stockholder's option, either destroy and
certify the same in writing or surrender to Buyer all Confidential
Information and all copies thereof and information containing Confidential
Information in the Stockholder's possession or control as well as all other
papers, documents, electronic media, or property of Buyer or its successors
or Affiliates (including, without limitation, the Company) coming into the
Stockholder's possession or control.
(c) If any provision of this Section 6.7 should be found by any
court of competent jurisdiction to be unreasonable by reason of its being
too broad as to the period of time, territory, or scope, then, and in that
event, such provision shall nevertheless remain valid and fully effective,
but shall be considered to be amended so that the period of time, territory,
or scope set forth shall be changed to be the maximum period of time, the
largest territory, or the broadest scope, as the case may be, which would be
found reasonable and enforceable by such court.
Section 6.8 Further Assurances. Following the Closing, each party
hereto agrees to cooperate fully with the other parties hereto and to
execute such further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any other
party at that other party's cost to give effect to the transactions
described herein and contemplated hereby. The Stockholder will use best
efforts to cooperate with Buyer and to discuss the Financial Statements, the
internal controls of the Company and the disclosure controls and procedures
of the Company in connection with Buyer's efforts to comply with the rules
and regulations affecting public companies, including without limitation,
the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and any rules and regulations relating
thereto.
Section 6.9 Tax Matters.
(a) Liability for Tax Matters. The Stockholder shall be liable
for and pay, and pursuant to Article VII shall indemnify and hold harmless
Buyer and its Affiliates (including, without limitation, the Company
following the consummation of the transactions contemplated hereby) from
and against all Taxes (whether assessed or unassessed) applicable to the
business, assets, or results of operations of the Company in each case
attributable to all periods of time up to and including the Closing Date.
The Stockholder shall be entitled to any refund or credit therefor of any
Taxes applicable to the business, assets, or results of operations of the
Company in each case attributable to all periods of time up to and including
the Closing Date. Buyer shall be liable for and pay, and pursuant to
Article VII shall indemnify and hold harmless the Stockholder from and
against all Taxes (whether assessed or unassessed) applicable to the
business, assets, or results of operations of the Company in each case
attributable to all periods of time following the Closing Date. Buyer shall
be entitled to any refund or credit therefor of any Taxes applicable to the
business, assets, or results of operations of the Company in each case
attributable to all periods of time following the Closing Date.
(b) Tax Returns. Each party shall prepare and timely file when
due all Tax Returns in respect of pre-Closing Date and post-Closing Date Tax
periods that are required under applicable Law with respect to the business,
assets, and results of operations of the Company, and shall each remit (or
cause to be remitted) any Taxes due in respect of such returns.
(c) Reimbursement; Notice. Each party shall promptly pay the
other for any Taxes for which such party is liable under this Section 6.9,
but in no event later than five days prior to the due date of the payment
of such Taxes. The parties agree to negotiate in good faith to resolve any
disputes regarding the payment of any Taxes pursuant to this Section 6.9.
Within a reasonable period of time prior to the payment of any such Tax, the
party paying such Tax shall give written notice to the other party of the
Tax payable and the portion that is the liability of such party, although
failure to do so shall not relieve the other party from its liability
hereunder.
(d) Assistance and Cooperation. After the Closing Date, each
party shall (and shall cause its respective Affiliates, representatives, and
agents to):
(i) assist the other party in preparing any Tax Returns that
such other party is responsible for preparing and filing in accordance
with this Section 6.9;
(ii) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns described
in this Section 6.9; and
(iii) making available to the other party and to any
taxing authority as reasonably requested all information, records, and
documents relating to the Taxes described in this Section 6.9.
Section 6.10 Working Capital Loan. Immediately upon the
determination of Actual Net Working Capital, Buyer shall execute a
promissory note in the form attached hereto as Exhibit A in an aggregate
principal amount equal to the Actual Net Working Capital, which amount
shall not be less than $200,000 (the "Loan"). In the event that Actual Net
Working Capital is less than $200,000, the Contingent Cash Payment shall be
reduced by an amount equal to the difference between $200,000 and the Actual
Net Working Capital. The Loan shall bear interest at the rate of eight
percent per annum and shall be payable in 12 equal monthly installments
beginning on the date that is the later to occur of (i) 30 days from the
Closing Date or (ii) the date that Actual Net Working Capital is determined
by Buyer's independent accountants pursuant to Section 2.5 above (the
"Repayment Commencement Date"). The Loan shall be due and payable in full
on the 12-month anniversary of the Repayment Commencement Date.
Section 6.11 Employment and Non-Compete Agreements. Concurrently
with the execution of this Agreement, Buyer shall enter into an employment
and non-compete agreement with each of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ in substantially the form attached hereto as Exhibit B, and which
agreements shall have substantially the same material terms and conditions
(exclusive of terms relating to the amount of executive compensation,
benefits and other perquisites, which may vary from one executive to
another) as Buyer's employment agreements with its key executive officers.
Section 6.12 Board Representation. Effective as of the Closing Date,
by appropriate action of the board of directors or the stockholders of
Buyer, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be elected or appointed to the Buyer's
board of directors.
Section 6.13 Maintain as Subsidiary. Unless otherwise mutually
agreed to by Buyer and the Stockholder, Buyer shall maintain the existence
of the Company as a wholly-owned subsidiary of the Buyer until such time as
the Contingent Stock Payment has been paid to the Stockholder in accordance
with the terms of Section 2.4(d) above.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification of Buyer. The Stockholder shall
indemnify and hold Buyer, its subsidiaries, and their respective directors,
officers, employees, and agents (collectively, the "Buyer Parties") harmless
from any and all Claims that any Buyer Party may suffer or incur as a result
of or relating to the breach or inaccuracy (except that in determining the
dollar amount of Claims resulting from the breach or inaccuracy of any
representation or warranty that is qualified by the concept of materiality,
such qualification shall not be taken into account) of any of the
representations, warranties, covenants, or agreements made by the
Stockholder in this Agreement.
Section 7.2 Indemnification of Stockholder.
(a) General. Buyer shall indemnify and hold the Stockholder,
its subsidiaries, and their respective directors, officers, employees, and
agents (collectively, the "Stockholder Parties") harmless from any and all
Claims that any Stockholder Party may suffer or incur as a result of or
relating to the breach or inaccuracy (except that in determining the dollar
amount of Claims resulting from the breach or material inaccuracy of any
representation or warranty that is qualified by the concept of materiality,
such qualification shall not be taken into account), of any of the
representations, warranties, covenants, or agreements made by Buyer in this
Agreement or pursuant to the Ancillary Agreements.
(b) Cygnus-Related Matters. In addition to the indemnification
obligations set forth in Section 7.2(a), Buyer shall also indemnify and hold
the Stockholder, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (collectively,
the "Apex Parties") harmless from any and all Claims that any Apex Party
may suffer or incur as a result of any Claim asserted by Cygnus
Telecommunications Technology, LLC ("Cygnus") or its Affiliates arising
from any infringement of Cygnus' patent rights, including the patent rights
related to Cygnus' "Call-back Services" by Buyer or any of its Affiliates
(exclusive of any Apex Party) prior to or following the Closing Date, other
than Claims arising as a result of the willful misconduct or gross
negligence of any Apex Party.
Section 7.3 Notice. Any party entitled to receive indemnification
under this Article VII (the "Indemnified Party") agrees to give prompt
written notice to the party or parties required to provide such
indemnification (the "Indemnifying Parties") upon the occurrence of any
indemnifiable claim or the assertion of any claim or the commencement of
any action or proceeding in respect of which such a claim may reasonably be
expected to occur (a "Loss Claim"), but the Indemnified Party's failure to
give such notice shall not affect the obligations of the Indemnifying Party
under this Article VII except to the extent that the Indemnifying Party is
materially prejudiced thereby and shall not affect the Indemnifying Party's
obligations or liabilities otherwise than under this Article VII. Such
written notice shall set forth a reference to the event or events forming
the basis of such loss or Loss Claim and the estimated amount involved,
unless such amount is uncertain or contingent, in which event the
Indemnified Party shall give a later written notice when the amount becomes
fixed or determinable.
Section 7.4 Defense of Claims. The Indemnifying Party may elect to
assume and control the defense of any Loss Claim, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment
of expenses related thereto, if (a) the Indemnifying Party provides
reasonable evidence to the Indemnified Party of its financial ability to
satisfy such indemnification obligation; (b) the Loss Claim does not seek to
impose any liability or obligation on the Indemnified Party other than for
money damages; and (c) the Loss Claim does not relate to the Indemnified
Party's relationship with its customers or employees. If such conditions
are satisfied and the Indemnifying Party elects to assume and control the
defense of a Loss Claim, then (i) the Indemnifying Party shall not be liable
for any settlement of such Loss Claim effected without its prior written
consent; (ii) the Indemnifying Party may settle such Loss Claim without the
consent of the Indemnified Party; and (iii) the Indemnified Party may employ
separate counsel and participate in the defense thereof, but the Indemnified
Party shall be responsible for the fees and expenses of such counsel unless
the Indemnifying Party has failed to adequately assume the defense of such
Loss Claim or to employ counsel with respect thereto. If such conditions
are not satisfied, the Indemnified Party may assume and control the defense
of the Loss Claim; provided, however, that the Indemnified Party may not
settle any such Loss Claim without the consent of the Indemnifying Party,
which consent shall not be unreasonably withheld (and the Indemnifying Party
shall not be liable for any Claims resulting from a settlement effected in
violation of this clause).
Section 7.5 Calculation of Loss Claim. The indemnification
obligation of an Indemnifying Party shall be reduced so as to give effect to
any net reduction in federal, state, local, or foreign income or franchise
Tax liability realized at any time by it in connection with the satisfaction
of a Loss Claim with respect to which indemnification is sought hereunder
(which for purposes of this Section 7.5, the parties agree shall be based
upon a marginal Tax rate of 35%). The indemnification obligation of an
Indemnifying Party shall also be reduced to the extent of any insurance
proceeds available; provided, however, that the appropriate claimant shall
use its commercially reasonable efforts to obtain insurance proceeds from
its applicable insurance coverage. Additionally, the Indemnified Party
shall refund to the Indemnifying Party any amount of its losses that are
subsequently recovered by it pursuant to a settlement or otherwise.
Section 7.6 Survival of Representations and Warranties; Remedies.
All representations and warranties made in or pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and continue for a
period of 24 months from the Closing Date; provided, however, that (a) the
representations and warranties contained in Sections 3.1(b), 3.1(c), 3.3,
3.4, and 4.2 shall survive indefinitely, (b) the representations and
warranties contained in Sections 3.11 and 3.17 shall survive for a period
equal to all applicable statute of limitations regarding Loss Claims made
with respect to such subject matter, and (c) any claim for indemnity under
this Article VII shall survive the time at which it would otherwise
terminate if a claim for indemnification shall have been commenced prior to
such time and such claim or proceeding is pending and is being maintained in
good faith, then such claim shall continue until the final disposition of
such claim. Each party agrees that no other party to this Agreement shall
be under any duty, express or implied, to make any investigation of any
representation or warranty made by any other party to this Agreement, and
that no failure to so investigate shall be considered negligent or
unreasonable. All remedies under this Agreement shall be cumulative
and not exclusive.
ARTICLE VIII
CLOSING; CONDITIONS TO CLOSING
Section 8.1 Closing; Closing Date. The transfer of the Company
Shares and the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place within five Business Days following the
satisfaction or waiver of the conditions precedent set forth in Sections
8.2 and 8.3 at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; provided, however,
that such date shall be no later than July 7, 2006, unless otherwise
mutually agreed to by the parties hereto. The date of the Closing is
referred to from time to time herein as the "Closing Date."
Section 8.2 Conditions to Obligations of Buyer to Close. The
obligations of Buyer to consummate the Closing shall be subject to the
satisfaction, on or before the Closing Date, of each and every one of the
following conditions, all or any of which may be waived, in whole or in
part, by Buyer, provided, however, that in the event that any or all of such
conditions are waived, such waiver shall be for all purposes and not only
for purposes of closing the transactions contemplated hereby, and the
conditions so waived shall not serve as a basis for indemnification under
Section 7.2 hereof.
(a) Representations and Warranties; Covenants. The
representations and warranties of the Stockholder contained in this
Agreement shall be true and correct in all material respects as of the
Closing, with the same force and effect as if made as of the Closing, and
the covenants and agreements contained in this Agreement to be complied with
by the Stockholder at or prior to the Closing shall have been complied with
in all material respects.
(b) No Order. No action or proceeding shall have been instituted
against the Buyer or any of its Affiliates or any officer or director of the
Buyer or any of its Affiliates which seeks to, or would render it unlawful
as of the Closing to effect the transactions contemplated hereby in
accordance with the terms hereof or creates or poses a risk of creating a
limitation on the Buyer to own the Company Shares, and no such action shall
seek damages in a material amount by reason of the consummation of the
transactions contemplated hereby.
(c) No Material Adverse Effect. No event or events shall have
occurred since the Execution Date, or be reasonably likely to occur, which
have, or could reasonably be expected to result in, a Material Adverse
Effect.
(d) Due Diligence Review. Buyer and its representatives shall
have completed a due diligence review of the Company and its business and
shall be satisfied, in Buyer's sole discretion, with the results of such
review and investigation.
(e) Financing. Buyer shall have obtained financing in an amount
sufficient to pay the Initial Cash Payment and all fees and expenses of
Buyer arising in connection with the transactions contemplated by this
Agreement and the Ancillary Agreements, plus an additional $500,000 to fund
the working capital needs of Buyer following the Closing, and all conditions
precedent to funding under such financing arrangements (other than the
purchase and sale contemplated hereby) shall have been satisfied or waived.
(f) Deliveries. The Stockholder shall have made or stand willing
and able to make all the deliveries to the Buyer set forth in Section 8.5.
Section 8.3 Conditions to Obligations of Stockholder. The
obligations of the Stockholder to consummate the Closing shall be subject
to the satisfaction, on or before the Closing Date, of each and every one of
the following conditions, all or any of which may be waived, in whole or in
part, by the Stockholder, provided, however, that in the event that any or
all of such conditions are waived, such waiver shall be for all purposes and
not only for purposes of closing the transactions contemplated hereby, and
the conditions so waived shall not serve as a basis for indemnification
under Section 7.1 hereof.
(a) Representations and Warranties; Covenants. The
representations and warranties of Buyer contained in this Agreement shall
be true and correct in all material respects as of the Closing, with the
same force and effect as if made as of the Closing and the covenants and
agreements contained in this Agreement to be complied with by Buyer at or
prior to the Closing shall have been complied with in all material respects.
(b) No Order. No action or proceeding shall have been instituted
against the Stockholder, the Company or any of their respective Affiliates
or any officer or director of the Stockholder, the Company or any of their
respective Affiliates which seeks to, or would, render it unlawful as of the
Closing to effect the transactions contemplated hereby in accordance with
the terms hereof or would restrain, prohibit or otherwise interfere with the
effective operation of all or any material portion of the business of the
Company, and no such action shall seek damages in a material amount by
reason of the consummation of the transactions contemplated hereby.
(c) Consents. Each of the consents set forth on Schedule 3.5(a)
of the Disclosure Schedule shall have been duly obtained and delivered to
the Stockholder.
(d) Deliveries. Buyer shall have made or stand willing and able
to make all the deliveries to Stockholder set forth in Section 8.4.
Section 8.4 Deliveries by Buyer at Closing. Concurrently herewith,
Buyer has delivered or shall cause to be delivered such documents and
instruments as may be necessary or appropriate to carry out the transactions
contemplated by this Agreement.
Section 8.5 Deliveries by the Stockholder at Closing. Concurrently
herewith, the Stockholder has delivered or shall cause to be delivered the
following:
(a) Certificates, with fully executed stock powers evidencing
the Company Shares and any other documentation necessary or appropriate to
effect the transfer of ownership thereof to Buyer;
(b) Certificate of the corporate secretary of the Company,
substantially in the form attached hereto as Exhibit C;
(c) Officer's certificate of the Company, substantially in the
form attached hereto as Exhibit D;
(d) Legal opinion of ▇▇▇▇▇▇▇▇▇▇ - Mix LLP, counsel to the
Stockholder, substantially in the form attached hereto as Exhibit E; and
(e) Such other endorsements, documents, or instruments as may be
necessary to carry out the transactions contemplated by this Agreement.
ARTICLE IX
TERMINATION
Section 9.1 Termination of Agreement. Buyer and the Stockholder may
terminate this Agreement as provided below:
(a) Buyer and the Stockholder may terminate this Agreement by
mutual written consent at any time prior to the Closing Date;
(b) The Stockholder may terminate this Agreement by giving
written notice to Buyer at any time prior to the Closing Date in the event
Buyer has breached any material representation, warranty or covenants
contained in this Agreement in any material respect, the Stockholder has
notified Buyer of the breach, and the breach has continued without cure for
a period of ten days after the notice of breach; and
(c) Buyer may terminate this Agreement by giving written notice
to the Stockholder at any time prior to the Closing Date in the event (i)
the Stockholder has breached any material representation, warranty or
covenant contained in this Agreement in any material respect, Buyer has
notified the Stockholder of the breach, and the breach has continued without
cure for a period of ten days after the notice of breach, or (ii) Buyer is
dissatisfied with its due diligence review of the Company.
Section 9.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.1, all rights and obligations of the parties hereto
shall terminate without any liability of any party to the other party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. All notices that are required or may be given
pursuant to this Agreement must be in writing and delivered personally, by a
recognized courier service, by a recognized overnight delivery service, by
telecopy or by registered or certified mail, postage prepaid, to the parties
at the following addresses (or to the attention of such other person or such
other address as any party may provide to the other parties by notice in
accordance with this Section 10.1):
If to Buyer: Rapid Link, Incorporated
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to Stockholder: Apex Acquisitions, Inc.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any such notice or other communication shall be deemed to have been given
and received on the day it is personally delivered and signed for by
addressee or, if delivered by courier or overnight delivery service or sent
by telecopy, on the date received, or if mailed, three days after sending.
Section 10.2 Further Assurances. Each party agrees to execute any
and all documents and to perform such other acts as may be necessary or
expedient to further the purposes of this Agreement and the transactions
contemplated by this Agreement.
Section 10.3 Counterparts. This Agreement may be executed in one or
more counterparts for the convenience of the parties to this Agreement, all
of which together shall constitute one and the same instrument.
Section 10.4 Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned or
delegated by any party, without the prior written consent of the other
parties; except that Buyer may assign its rights (but not its obligations)
under this Agreement to any direct or indirect subsidiary of Buyer. This
Agreement is not intended to confer any rights or benefits to any Person
(including, without limitation, any employees of the Company) other than the
parties to this Agreement and the indemnification rights pursuant to Section
7.1 to the Buyer Parties and pursuant to Section 7.2 to the Stockholder
Parties.
Section 10.5 Entire Agreement. This Agreement and the related
documents contained as Exhibits and Schedules to this Agreement or expressly
contemplated by this Agreement contain the entire understanding of the
parties relating to the subject matter hereof and supersede all prior
written or oral and all contemporaneous oral agreements and understandings
relating to the subject matter hereof. This Agreement cannot be modified
or amended except in writing signed by the party against whom enforcement
is sought. The Exhibits and Schedules to this Agreement are hereby
incorporated by reference into and made a part of this Agreement for all
purposes.
Section 10.6 Specific Performance. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and
covenants under this Agreement, including, without limitation, failure to
take all actions as are necessary on its part to the consummation of the
transactions contemplated by this Agreement or any violation of the
covenants set forth in Sections 6.6 and 6.7, may cause irreparable injury
to the other parties for which damages, even if available, may not be an
adequate remedy. Accordingly, each party hereby agrees that any other party
may seek injunctive relief by any court of competent jurisdiction to compel
performance of such party's obligations and to the granting by any court of
the remedy of specific performance of its obligations under this Agreement
or any Ancillary Agreement.
Section 10.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the substantive laws of the State of Delaware,
without giving effect to any conflicts-of-law, rule, or principle that might
require the application of the laws of another jurisdiction.
Section 10.8 Jurisdiction; Venue; Service of Process. Each party
hereby consents and agrees that the federal or state courts of the State of
California (located in Los Angeles, California) shall have jurisdiction to
hear, determine, and enforce any claims or disputes arising out of or
related to the provisions of this Agreement. Each party hereby irrevocably
waives any objection to the laying of venue in such courts, including,
without limitation, any claim based on improper venue or forum non
conveniens. Nothing in this Agreement shall be deemed or operate to
preclude the enforcement of any judgment or order obtained in such forum or
the taking of any action under this Agreement to enforce such judgment or
order in any other forum. Each party hereby agrees that service of all
writs, process, and summons in any suit, claim, action, or proceeding
arising out of or related to the provisions of this Agreement may be made by
certified mail, return receipt requested, in accordance with Section 10.1.
10.9 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid
or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired or affected,
and all such remaining provisions hereof shall be enforceable in accordance
with their terms.
10.10 Attorneys' Fees. Should any litigation be commenced between
the parties concerning the rights or obligations of the parties under this
Agreement, the party prevailing in such litigation shall be entitled, in
addition to such other relief as may be granted, to a reasonable sum as and
for its attorneys' fees and costs in such litigation. This amount shall be
determined by the court in such litigation or in a separate action brought
for that purpose.
IN WITNESS WHEREOF, each of the parties to this Agreement has caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
"Buyer"
Rapid Link, Incorporated,
a Delaware corporation
By:
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▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
"Stockholder"
Apex Acquisitions, Inc.,
a Delaware corporation
By:
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▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Executive Officer
As to Section 6.6 only:
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