Exhibit 99.5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of May 17, 2005, is entered into by
and among Xxxxx.xxx, Inc., a Washington corporation ("Purchaser"), Jadeon, Inc.,
a Nevada corporation (the "Company"), and Xxxx XxXxx, an individual ("Seller").
WHEREAS, Seller owns beneficially and of record all of the issued and
outstanding equity securities of the Company, consisting of 5,100 shares (the
"Shares") of common stock of the Company (the "Company Stock"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, all of
the outstanding equity securities of the Company at the Closing, which will
consist of the Shares owned by Seller, upon the terms and subject to the
conditions set forth herein; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Seller is entering into an employment agreement, substantially in the form of
attached Exhibit A (the "Employment Agreement"), which will become effective as
of the Closing Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I - PURCHASE AND SALE OF THE SHARES
Section 1.1 Sale and Transfer of the Shares. Subject to the terms and
conditions of this Agreement, at the Closing Seller shall sell, execute the
Assignment Separate from Certificate in the form of attached Exhibit B, convey,
assign, transfer and deliver to Purchaser all of the Shares, free and clear of
any and all Encumbrances (as defined in Section 3.1), except restrictions on
transfer imposed by the Securities Act of 1933, as amended (the "Securities
Act"), and state securities laws.
Section 1.2 Purchase Price. Subject to the terms and conditions of this
Agreement, in consideration of the sale, conveyance, assignment, transfer and
delivery of the Shares, Purchaser shall deliver to Seller: (a) 2,134,340 shares
of fully paid and nonassessable shares of Purchaser's common stock (the Stock
Consideration"), subject to the holdback described in Section 1.3 below; (b) an
unsecured promissory note for $800,377.55, in the form of attached Exhibit C
(the "Note"), with an initial payment of $201,000.00 on the Note due immediately
after Closing (the "Initial Payment"); and (c) $68,513.16 in cash (collectively,
the "Purchase Price"). The Purchase Price shall be subject to the
indemnification provisions set forth in Article VIII hereof.
Section 1.3 Holdback. Purchaser shall not deliver at Closing, but shall
instead reserve, set aside and hold in escrow 1,000,000 of the shares of
Purchaser's common stock comprising the Stock Consideration to secure the
indemnification obligations of Seller described in Article VIII hereof (the
"Escrow Shares"). Subject to Article VIII, no later than ten (10) business days
following the second anniversary of the Closing (the "Holdback Payment Date"),
Purchaser shall deliver to the Sellers the Escrow Shares, less any amounts paid
to satisfy indemnity obligations of Sellers, in pursuant to Article VIII.
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ARTICLE II - THE CLOSING
Section 2.1 The Closing. The closing (the "Closing") of sale and transfer
of the Shares by Seller to Purchaser shall take place at the offices of DLA
Xxxxx Xxxxxxx Xxxx Xxxx US LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx,
Xxxxxxxxxx, at 10:00 a.m., Seattle, Washington time, on June 15, 2005, after the
satisfaction and/or waiver of all conditions to closing set forth in Article
VII, unless another date or place is agreed in writing by Purchaser and Seller
(the "Closing Date").
Section 2.2 Deliveries by Seller. At the Closing, Seller shall deliver to
Purchaser:
(a) Certificates representing all of the Shares, each such certificate
to be duly and validly endorsed in favor of Purchaser or accompanied by a power
of attorney duly and validly executed by Seller and otherwise sufficient to vest
in Purchaser good and valid title to such Shares free and clear of all
Encumbrances, together with the Assignment Separate from Certificate;
(b) The Spousal Consent in the form of attached Exhibit 2.2(b) from
the spouse of Seller;
(c) A certification of non-foreign status for Seller in the form and
manner which complies with the requirements of section 1445 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder; and
(d) All other previously undelivered documents required to be
delivered by this Agreement at or prior to the Closing in connection with the
transactions contemplated by this Agreement (the "Transactions").
Section 2.3 Deliveries by Purchaser. At the Closing, Purchaser shall
deliver to Seller:
(a) The Stock Consideration other than the Escrow Shares;
(b) The Note;
(c) The Initial Payment plus $68,513.16 in cash, transmitted to an
account designated by Seller; and
(d) Such other documents as are required by this Agreement and the
other documents to be delivered by Purchaser to Seller at or prior to the
Closing in connection with the Transactions.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
Section 3.1 Share Ownership; Good Title Conveyed. Seller is the record and
beneficial owner of all of the Shares ("Seller's Shares"). Seller's Shares and
the certificates representing such Shares are now, and at all times through the
Closing shall be, held by Seller, or by nominees or custodians for the sole and
exclusive benefit of Seller, free and clear of all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions on
title or transfer of any nature whatsoever ("Encumbrances"), except for
Encumbrances created by this Agreement and Encumbrances arising under the
Securities Act or state securities laws. Seller does not own any securities,
equity, debt, convertible or otherwise, issued by the Company other than
Seller's Shares, and does not have any right to acquire or possess any
securities,
equity, debt, convertible or otherwise, issued by the Company other than
Seller's Shares. Seller's spouse, if Seller has a spouse, has no interest, of
record or beneficially, in Seller's Shares. Seller is the sole owner of Seller's
Shares and does not share legal or beneficial ownership with any other parties.
Seller's spouse, if Seller has a spouse, will execute the Spousal Consent
attached hereto as Exhibit 2.2(b).
Section 3.2 Legal Power. Seller is competent and has all requisite power
and authority to execute, deliver and perform this Agreement and the other
documents to which he is a party and to consummate the Transactions.
Section 3.3 Enforceability. Each of this Agreement and the other documents
to which Seller is a party has been duly executed and delivered by Seller and
constitutes a legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
Section 3.4 No Approvals or Notices Required; No Conflicts. The execution,
delivery and performance of this Agreement and the other documents by Seller,
and the consummation of the Transactions, will not (a) constitute a violation
(with or without the giving of notice or lapse of time, or both) of any
provision of any law or any judgment, decree, order, regulation or rule of any
court, agency or other governmental authority applicable to Seller, (b) require
any consent, approval or authorization of, or declaration, filing or
registration with, any natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental entity or other entity or organization
("Person"), (c) result in a default (with or without the giving of notice or
lapse of time, or both) under, acceleration or termination of, or the creation
in any party of the right to accelerate, terminate, modify or cancel, any
agreement, lease, note or other restriction, Encumbrance, obligation or
liability to which Seller is a party or by which he is bound or to which any
assets of Seller are subject, or (d) result in the creation of any Encumbrance
upon the assets of Seller, or upon any of Seller's Shares or other securities of
the Company.
Section 3.5 Claims Against the Company. Seller does not have any past,
present or contemplated claims against the Company or its officers or directors,
and the Company owes no amount to Seller, including distributions on allocations
of income.
Section 3.6 Securities Law Representations and Warranties. Seller
acknowledges that none of the shares of the Stock Consideration (collectively
the "Securities") are being registered under the Securities Act, or applicable
state securities laws, but is being offered and sold pursuant to exemptions from
such laws, and that Purchaser's reliance upon such exemptions is predicated in
part on Seller's representations contained herein. Seller acknowledges that
Purchaser is relying in part upon Seller's representations and warranties
contained herein for the purpose of qualifying the offer and sale of the
Securities for applicable exemptions from registration or qualification pursuant
to federal or state securities laws, rules and regulations.
Section 3.7 Purchase Entirely for Own Account. The Securities will be
acquired for investment for Seller's own account, not as a nominee or agent, and
not with a view to distributing all or any part thereof; Seller has no present
intention of selling, granting any participation in or otherwise distributing
any of the Securities in a manner contrary to the Securities Act or any
applicable state securities law, and Seller does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or grant
participations to such Person or to any third person with respect to any of the
Securities.
Section 3.8 Access to Information. Seller is not relying on any
representations made by or on behalf of Purchaser except those contained in
Article V. Seller believes he has been given sufficient information regarding
Purchaser to enable Seller to make an informed decision regarding the
Transactions.
Section 3.9 Sophistication. Seller, either alone or with the assistance of
his professional advisor, is a sophisticated investor, is able to fend for
himself in the Transactions, and has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the prospective investment in the Securities.
Section 3.10 Accreditation. Seller is familiar with the term "accredited
investor" and its use in connection with private placements of securities under
applicable federal and state laws. Accordingly, Seller represents and warrants
that he is an accredited investor as such term is defined in Rule 501(a) under
the Securities Act and as defined pursuant to the provisions of state securities
laws applicable to the undersigned providing for an exemption from registration
or qualification of the offer and sale of the Securities.
Section 3.11 Suitability. An investment in the Securities is suitable for
Seller based upon his investment objectives and financial needs, and Seller has
adequate net worth and means for providing for his current financial needs and
contingencies and has no need for liquidity of an investment with respect to the
Securities. Seller's overall commitment to investments that are illiquid or not
readily marketable is not disproportionate to his net worth, and investment in
the Securities will not cause such overall commitment to become excessive.
Section 3.12 Professional Advice. Seller has obtained, to the extent he
deems necessary, his own professional advice with respect to the risks inherent
in the investment in the Securities, the condition of Purchaser and the
suitability of the investment in the Securities in light of Seller's financial
condition and investment needs.
Section 3.13 Ability to Bear Risk; Risks. Seller is in a financial position
to acquire and hold the Securities and is able to bear the economic risk and
withstand a complete loss of his investment in the Securities. SELLER RECOGNIZES
THAT AN INVESTMENT IN THE SECURITIES IS AN INVESTMENT INVOLVING A HIGH DEGREE OF
RISK.
ARTICLE IV - ADDITIONAL SELLER REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY
Seller represents and warrants to Purchaser regarding the Company that all
of the statements contained in this Article IV are true and complete as of the
date of this Agreement (or, if made as of a specified date, as of such date),
and will be true and complete as of the Closing Date as though made on the
Closing Date, except as provided on the Disclosure Schedule to be provided to
Purchaser no later than May 25, 2005 and to be attached hereto as Exhibit E (the
"Disclosure Schedule"). Each exception and each response set forth in the
Disclosure Schedule is identified by reference to, or has been grouped under a
heading referring to, a specific individual section of this Agreement. Seller
understands and agrees that if the Disclosure Schedule is not provided to
Purchaser on or before May 25, 2005, then there shall be no exceptions to
Seller's representations and warranties contained in this Article IV.
Section 4.1 Organization; Qualification of the Company. The Company (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada; (b) has full corporate power and authority to carry
on its business as it is being and as it is proposed to be conducted
and to own and use the properties and assets it now owns; (c) is duly qualified
or licensed to do business as a foreign corporation in good standing in every
jurisdiction in which the ownership and use of its property or the conduct of
its business requires such qualification, except where the failure to so qualify
could not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, properties, prospects, assets,
liabilities, condition (financial or otherwise) or results of operation of the
Company ("Material Adverse Effect"); and (d) has all requisite power and
authority to execute and deliver this Agreement and the other documents to which
the Company is a party and perform its obligations hereunder and thereunder, and
has taken all necessary action to authorize the execution, delivery and
performance of this Agreement and the other documents to which the Company is a
party. The Company has previously delivered to Purchaser complete and correct
copies of the Company's articles of incorporation and bylaws as presently in
effect. Section 4.1 of the Disclosure Schedule sets forth each jurisdiction in
which the Company is qualified to do business as a foreign corporation. The
Company is not obligated to purchase, and does not own, directly or indirectly,
any equity securities or securities convertible into or exchangeable or
exercisable for equity securities of any Person or have any direct or indirect
equity or ownership interest in any Person, is not a partner in any partnership,
or a member in any limited liability company, or a joint venturer in any joint
venture. The Company does not have any subsidiaries.
Section 4.2 Binding Agreement; Consents and Approvals; No Conflict, Default
or Violation. This Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law). Except as
set forth in Section 4.2 of the Disclosure Schedule, neither the execution,
delivery or performance of this Agreement or any other document by Seller or the
Company nor the consummation by Seller or the Company of any of the Transactions
will, directly or indirectly (with or without notice of lapse of time or both):
(a) contravene, conflict with, or result in a violation of (i) any provision of
the articles of incorporation or bylaws of the Company, or (ii) any resolution
adopted by the board of directors or the equity holders of the Company; (b)
contravene, conflict with, or result in a violation of, or give any governmental
entity or other Person the right to challenge any of the Transactions or to
exercise any remedy or obtain any relief under, any law to which Seller or the
Company, or any of the assets owned or used by the Company, may be subject; (c)
contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any governmental entity the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any license, permit or approvals
(collectively, the "Permits") that is held by the Company or that otherwise
relates to the business of, or any of the assets owned or used by, the Company;
(d) contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any contract to which the Company or Seller is a party,
which would individually or in the aggregate have a material adverse effect on
the Company; or (e) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by the Company.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 25,000 shares of Company Stock. 5,100 shares of Company Stock are
issued and outstanding. Except as set forth immediately above, (a) there are no
equity securities of the Company authorized, issued or outstanding, (b) there
are no existing options, warrants, calls, preemptive rights, subscriptions or
other rights, agreements, arrangements or commitments of any character, relating
to the issued or unissued equity securities of the Company, obligating the
Company to issue, transfer or sell or cause to be issued, transferred or sold
any equity securities of the Company or securities convertible into or
exchangeable or exercisable for such equity securities, or obligating the
Company to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment, and (c) there
are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any Shares or other equity securities of the Company or any
Person or to provide funds to make any investment (in the form of a loan,
capital contribution or otherwise) in any other Person. All outstanding shares
of Company Stock have been duly authorized, validly issued and are fully paid
and nonassessable. All outstanding securities of the Company have been issued in
compliance with state and federal securities laws. There are no voting trusts or
other agreements or understandings to which any Seller or the Company is a party
with respect to the voting of the equity securities of the Company. The Shares
being purchased by Purchaser pursuant to this Agreement will, as of the Closing,
constitute all of the outstanding securities, equity, debt, convertible or
otherwise, of the Company.
Section 4.4 Financial Statements.
(a) Section 4.4(a) of the Disclosure Schedule sets forth complete and
accurate copies of (i) the unaudited balance sheet of the Company as of June 30,
2004, and the unaudited statements of income, shareholders' equity and cash
flows for the period ended June 30, 2004, (ii) the unaudited balance sheet of
the Company as of March 31, 2005 (the "Balance Sheet Date"), and (iii) the
unaudited statement of income, shareholders' equity and cash flows for the nine
months ended March 31, 2005. All of the financial statements referred to in this
Section 4.4(a) are collectively referred to herein as the "Financial
Statements."
(b) The Financial Statements, including the notes thereto, have been
prepared from, are in accordance with, and accurately reflect, the books and
records of the Company. The Financial Statements present fairly in all material
respects the financial position and results of operations and cash flows of the
Company as of the dates and for the periods indicated in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis,
except as otherwise noted therein (subject, in the case of unaudited statements
to normally recurring year-end accruals and audit adjustments that are not
material either individually or in the aggregate and the absence of notes). All
revenue reported in the Financial Statements is properly recorded in the
accounting period to which it relates in accordance with GAAP. Except for the
Retention Bonuses described on Exhibit D, all employee bonuses of any kind or
nature whatsoever, including those payable in the event of a change of control
of the Company, are reflected as accrued liabilities on the Financial
Statements. All prepaid expenses of the Company, reflected in the Financial
Statements or existing on the Closing Date, represent prepaid expenses actually
made by the Company in the ordinary course of business and are recorded in the
Company's books and have future value consistent with the presentation in the
Financial Statements or on Section 4.4 of the Disclosure Schedule. The Company
has properly accrued for all vacation and sick time in the Financial Statements.
Section 4.5 No Undisclosed Liabilities. The Company has no liabilities or
obligations, secured or unsecured, whether absolute, accrued, contingent, fixed
or otherwise, whether known or unknown and whether or not due, including
liabilities for taxes and all off-balance sheet liabilities and obligations (the
"Liabilities"), except (a) as and to the extent set forth on the Financial
Statements, (b) as otherwise specifically disclosed in the Disclosure Schedule,
(c) that were incurred after the Balance Sheet Date in the ordinary course of
business and consistent with past practice, or (d) that are less than $25,000
individually or $50,000 in the aggregate. The consummation of the Transactions
will not give rise to any Liabilities or cause any Liabilities to accrue.
Section 4.6 Books and Records. The books and records of the Company are
complete and correct in all material respects and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. True and complete copies of all minute
books and all stock record books of the Company have heretofore been delivered
to Purchaser. Section 4.6 of the Disclosure Schedule lists all bank and
investment accounts of the Company, the
institution at which each account is held, the account number of each account,
and the primary account representative, if any.
Section 4.7 Absence of Certain Changes. Except as set forth in Section 4.7
of the Disclosure Schedule, since the Balance Sheet Date and except as required
by this Agreement, the Company has conducted its business only in the normal and
ordinary course in a manner consistent with past practice and there has not been
any:
(a) grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company of any equity securities; or
declaration or payment of any dividend or other distribution or payment in
respect of equity securities;
(b) amendment to the articles of incorporation or bylaws of the
Company;
(c) entry into any employment, severance, or similar contract with any
director, officer, consultant or executive employee;
(d) adoption of, or increase in the payments to or benefits under, any
Plan;
(e) entry into, termination of, or receipt of notice (oral or written)
of termination of any contract or transaction involving a total remaining
commitment by or to the Company of greater than $25,000 individually or $50,000
in the aggregate (counting obligations or liabilities arising from one
transaction or a series of 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), except for
inventory purchases for which the Company has received a binding order from a
customer, or increase, or change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) cancellation or waiver of any claims or rights with a value to the
Company greater than $25,000 individually or $50,000 in the aggregate;
(g) change in the accounting methods or practices used by the Company;
(h) any new election or change in any existing election relating to
Taxes (as defined in Section 4.16), settlement of any claim or assessment
relating to Taxes, consent to any claim or assessment relating to Taxes, or
waiver of the statute of limitations for any such claim or assessment;
(i) write-down or write-off as uncollectible any notes or accounts
receivable, except for write-downs and write-offs in the ordinary course of
business and consistent with past practice;
(j) disposal or lapse of any rights to the use of any Company
Intellectual Property (as defined in Section 4.17(a)), or disposal of or
disclosure to any Person other than employees of the Company and representatives
of Purchaser any trade secret, formula, process, know-how or other Company
Intellectual Property not theretofore a matter of public knowledge;
(k) payment, loan or advance of any amount to, or sale, transfer or
lease of any properties or assets (real, personal or mixed, tangible or
intangible) to, or agreement or arrangement with, any of its officers or
directors or any affiliate of any of its officers or directors except as
permitted by this Agreement; or
(l) agreement, whether oral or written, by the Company to do any of
the foregoing.
Section 4.8 Title to Properties; Encumbrances; Condition of Properties.
Except as set forth in Section 4.8 of the Disclosure Schedule, the Company has
good, valid and marketable title to all the properties and assets reflected in
the Financial Statements (except for property sold since the Balance Sheet Date
in the ordinary course of business) and all of the properties and assets
purchased or otherwise acquired by the Company since the Balance Sheet Date. The
rights, properties and other assets presently owned, leased or licensed by the
Company are adequate to permit the Company to conduct its business in all
material respects in the same manner as such business has been conducted prior
to the date hereof. The equipment owned or used by the Company, taken as a
whole, is in good operating condition and repair (normal wear and tear
experienced in the Company's ordinary course of business excepted) and are
adequate for the uses to which they are being put.
Section 4.9 Real Property; Leases. The Company has never owned, and does
not currently own, any real property. The Company has valid and existing
leasehold interests in all of the real property that it possesses or occupies
(or has similar rights to possess, operate or occupy) pursuant to its leases
(the "Leased Real Property"). Section 4.9 of the Disclosure Schedule contains a
list of all leases for Leased Real Property, the rental payments due thereunder,
and the expiration date of such leases. A true and complete copy of each lease
has heretofore been delivered to Purchaser. Each lease is valid, binding and
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and is in full force and effect. The leasehold
estate created by each lease is free and clear of all Encumbrances.
Section 4.10 Environmental Matters. To its knowledge, the Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, except for violations which would
not, individually or in the aggregate, be reasonably likely to cause a Material
Adverse Effect, and, to its knowledge, no material expenditures are, or to the
Company's knowledge will be, required in order to comply with any such existing
statute, law or regulation.
Section 4.11 Contracts and Commitments.
(a) Section 4.11(a) of the Disclosure Schedule sets forth a complete
and accurate list and type (e.g., customer contract, vendor contract, etc.) of
any contract, other than purchase orders, under which the Company has or may
become subject to any obligation or Liability in excess of $10,000 (the
"Applicable Contract"). The Company has not received any notice (oral or
written) from any party to any such Applicable Contract of the termination or
threatened termination thereof and to the knowledge of Seller, none of the
parties thereto has given notice that it intends to reduce the amount of
business conducted with the Company or intends not to renew such contract on
terms at least as favorable to the Company as those currently in effect. There
are no material disputes with respect to any Applicable Contract. Each such
Applicable Contract is in full force and effect and constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms and constitutes a legal, valid and binding obligation
of each other Person that is a party thereto, enforceable against each such
other Person in accordance with its terms, in each case except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). With respect to each such Applicable Contract,
there is not any default or event that, with notice or lapse of time or both,
would constitute a default. The Company is not in breach of any Applicable
Contract, and there does not exist any condition under any Applicable Contract
that constitutes a default or an event of default or will, with the giving of
notice or the passage of time, constitute a default or an event of default under
any Applicable Contract.
(b) The Company has provided to Purchaser a complete and accurate copy
of each written Applicable Contract set forth in the Disclosure Schedule.
(c) Except as set forth in Section 4.11(c) of the Disclosure Schedule,
to the knowledge of Seller, there are no outstanding Applicable Contracts or
proposals which will result in any loss to the Company upon completion or
performance thereof.
(d) Except as set forth in Section 4.11(d) of the Disclosure Schedule,
the Company does not have any outstanding contracts with or any outstanding
obligations to shareholders, directors, officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors or dealers.
(e) Except as set forth in Section 4.11(e) of the Disclosure Schedule,
the Company is not party to any employment agreement, or any other agreement,
that contains any severance or termination pay or Liabilities.
(f) Except as set forth in Section 4.11(f) of the Disclosure Schedule,
the Company does not have outstanding any loan to any Person.
(g) Except as set forth in Section 4.11(g) of the Disclosure Schedule,
the Company is not restricted by agreement from carrying on its business
anywhere in the world.
(h) Except as set forth in Section 4.11(h) of the Disclosure Schedule,
the Company is not subject to any noncompetition agreement or any similar
restrictions in any agreement.
(i) The Company does not have any Liabilities, as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise, in respect of the
obligation of any Person.
(j) Except as set forth in Section 4.11(j) of the Disclosure Schedule,
the Company is not party to any contract pursuant to which it has agreed to
indemnify another Person for consequential damages.
(k) Section 4.11(k) of the Disclosure Schedule sets forth all
contracts that contain exclusivity provisions of any kind, including exclusive
agreements to buy or sell.
(l) Section 4.11(l) of the Disclosure Schedule sets forth all
Applicable Contracts that have a term greater than one year or that can only be
terminated by the Company upon more than sixty (60) days notice.
(m) Section 4.11(m) of the Disclosure Schedule lists all of the
Company's capital lease obligations, the term thereof, and the periodic payments
due thereunder;
(n) Section 4.11(n) of the Disclosure Schedule sets forth all
Applicable Contracts that include commitments to buy or sell products or
services with an aggregate value in excess of $10,000; and
(o) The Company is not a party to any contract or agreement, pursuant
to which the cost of the Company's remaining obligations thereunder is
reasonably likely to exceed the additional consideration to be received by the
Company under such contract or agreement.
Section 4.12 Insurance. Section 4.12 of the Disclosure Schedule sets forth
a true and complete list of all insurance policies in force on the date hereof
with respect to the business or assets of the
Company. All such policies are in full force and effect, the Company has paid
all premium installments due thereon, and the Company is otherwise in compliance
in all material respects with the terms and provisions of such policies.
Furthermore, (a) the Company has not received any notice of cancellation or
non-renewal of any such policy or arrangement nor is the termination of any such
policy or arrangements threatened, (b) there is no claim pending under any of
such policies or arrangements as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or arrangements, (c) the
Company has not received any notice from any of its insurance carriers that any
insurance coverage presently provided for will not be available to the Company
in the future, and (d) none of such policies or arrangements provides for any
retrospective premium adjustment, experienced-based liability or loss sharing
arrangement affecting the Company.
Section 4.13 Litigation. There is no action, suit, inquiry, charge,
proceeding or investigation (a "Proceeding") by or before any governmental
entity pending or, to the knowledge of Seller, threatened against or involving
the Company, or which questions or challenges or may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions and there is no valid basis for any such action, proceeding or
investigation. The Company is not subject to any judgment, order or decree.
Section 4.14 Compliance with Laws. Except as set forth in Section 4.14 of
the Disclosure Schedule, the Company has complied in all material respects and
in a timely manner with all laws that affect the Company or its properties or
assets, including all applicable privacy laws, and no notice, charge, claim,
action or assertion has been received by the Company or has been filed,
commenced or, to the knowledge of Seller, threatened against the Company
alleging any material violation of any law. The Company has not made or
delivered any improper or unlawful payments or benefits to its vendors,
customers, or any other Person to solicit or obtain business or to influence the
terms on which business is done with the Company. All material Permits required
under all laws to be held or secured by the Company are in full force and effect
and will continue to be so upon consummation of the Transactions. The Permits
listed in Section 4.14 of the Disclosure Schedule collectively constitute all of
the material governmental authorizations necessary to permit the Company to
lawfully conduct and operate its business in the manner the Company currently
conducts and operates such businesses and to permit the Company to own and use
its assets in the manner in which the Company currently owns and uses such
assets.
Section 4.15 Employee Benefit Plans. Seller maintains for the benefit of
current or former employees of Seller only those employee benefit plans listed
in Section 4.15 of the Disclosure Schedule. Seller is not now and has not been
in the past a contributing employer to any "multi-employer plan" as described in
Section 4001(a)(3) of ERISA with respect to its employees.
Section 4.16 Tax Matters. All Tax Returns required to be filed by the
Company have been filed and all such returns are true, complete, and correct in
all material respects, including all sales and use tax returns. All Taxes that
are due or claimed to be due by a Tax Authority from the Company have been paid,
including all sales and/or use taxes. There are no Encumbrances for Taxes (other
than Taxes not yet due and payable) upon any assets or properties of the
Company. No audits are presently pending with regard to any Taxes or Tax Returns
of the Company, and the Company has not received written notification that any
such Audit is threatened, contemplated, or may be initiated. Section 4.16 of the
Disclosure Schedule contains a list of audits that were concluded with respect
to any Taxes or Tax Returns of the Company. To the knowledge of Seller, no
deficiency or adjustment for any Taxes has been proposed, asserted, threatened,
or assessed against the Company. To the knowledge of Seller, no issue has been
raised by any Tax Authority that could reasonably be expected to result in a
material proposed deficiency or adjustment for any period ending on or prior to
Closing. The Company has not waived any statutory period of limitations
applicable to the assessment of any Taxes. The Company has not received
written notice of, and to the knowledge of Seller no factual basis exists that
would support, any claim made by an authority in a jurisdiction where it does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. The Company is not a party to, is not bound by and does not have
any obligation under any Tax sharing agreement, Tax indemnification agreement or
similar contract or arrangement. Except as set forth in Section 4.16 of the
Disclosure Schedule, the Company has not (i) received a ruling from any Tax
Authority or signed an agreement with respect thereto or (ii) signed any closing
agreement with respect to any Tax year. The Company has delivered or made
available to Purchaser complete and accurate copies of each of (i) all audit
reports, letter rulings, technical advice memoranda and similar documents issued
to the Company by a governmental entity relating to the United States federal,
state, local or foreign Taxes due from or with respect to the Company and (ii)
all closing agreements entered into by the Company with any Tax Authority in
each case existing on the date hereof. The Company has complied with all laws
relating to the payment and withholding of Taxes and is not liable for any Taxes
for failure to comply with such laws. The Company has not filed (and was not
required to file) with respect to any item a disclosure statement pursuant to
Section 6662 of the Code. The Company has not filed any agreement or consent
under Section 341(f) of the Code. The Company has never been a member of an
affiliated group filing a consolidated federal Tax Return (or similar state or
local filing group). Section 4.16 of the Disclosure Schedule sets forth all
jurisdictions in which the Company is licensed to do business, all the
jurisdictions in which the Company collects and remits sales or use taxes. The
consummation of the Transactions will not give rise to an excise tax under
Section 280G or 4999 of the Code. The amount of the Company's liability for
unpaid Taxes (other than state or federal income taxes that are the
responsibility of Seller) for all periods ending on or before the date of this
Agreement do not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) solely with respect
to the Company as of the date of this Agreement, and the amount of the Company's
liability for such unpaid Taxes for all periods ending on or before the Closing
Date shall not, in the aggregate, exceed the amount of the current liability
accruals for such Taxes (excluding reserves for deferred Taxes) as such accruals
are reflected on the Financial Statements. For purposes of this Agreement, "Tax"
or "Taxes" shall mean all federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding, e.g., employment taxes), including any interest, additions to tax,
or penalties applicable thereto. For purposes of this Agreement, "Tax Authority"
shall mean the Internal Revenue Service and any other national, regional, state,
municipal, foreign or other governmental or regulatory authority or
administrative body responsible for the administration of any Taxes. For
purposes of this Agreement, "Tax Return" shall mean all federal, state, local
and foreign tax returns, declarations, statements, reports, schedules, forms and
information returns or other documents and any amendments thereto or required to
be filed with a Tax Authority.
Section 4.17 Intellectual Property Rights.
(a) Except as set forth in Section 4.17 of the Disclosure Schedule and
for rights licensed from third parties ("Third Party IP"), the Company owns all
right, title and interest in and has legally enforceable rights to exclusively
use and exploit without limitation all of the Company's intellectual property of
any kind whatsoever, including, without limitation, the trademarks (including
the names, registrations and applications for such trademarks), copyrights,
patents (including patent applications), domain names and registrations for such
domain names ("Company Intellectual Property") free and clear of all
Encumbrances. Except for Third Party IP, no person other than the Company has
any right, claim or interest in or with respect to any such Company Intellectual
Property. With respect to all Third Party IP that is included in the Company
Intellectual Property, the Company has obtained legally enforceable rights to
use such Third Party IP in the manner in which they are currently used, or are
reasonably contemplated to be used, with respect to the Company's Business.
There is no unauthorized use, disclosure or misappropriation of the Company
Intellectual Property by any employee or former employee of the Company or by
any other third party. Section 4.17(a) of the Disclosure Schedule is an
accurate and complete list of all patents, trademarks, and registered copyrights
currently used in the Company's business, all of which are included in the
Company Intellectual Property. The Company Intellectual Property comprises all
of the intellectual property necessary for Purchaser to conduct and operate the
Business as now being conducted by the Company.
(b) Immediately after the Closing, Purchaser will own all of the
Company Intellectual Property (except for Third Party IP).
(c) The Company is not in breach of any license, sublicense or other
agreement relating to the Company Intellectual Property. Neither the execution,
delivery or performance of this Agreement or any of the other documents, nor the
consummation of the Transactions contemplated hereunder will contravene,
conflict with or result in an infringement on Purchaser's right to own or use
any Company Intellectual Property.
(d) The Company has taken commercially reasonable and customary
measures and precautions as necessary to protect and maintain the value of all
Company Intellectual Property.
(e) Except as set forth in Section 4.18(e) of the Disclosure Schedule,
the execution, delivery and performance by the Company of this Agreement, and
the consummation of the Transactions will not give rise to any right of any
third party to terminate, impair or alter any of the Company's rights in and to
any Company Intellectual Property.
(f) The Company does not employ any person in a manner that violates
any noncompetition or nondisclosure agreement that such person entered into in
connection with his or her employment or activities at any time prior to
employment by the Company.
Section 4.18 Labor Matters. The Company is not a party to or bound by any
collective bargaining or similar agreement with any labor organization or work
rules or practices agreed to with any labor organization or employee association
applicable to employees of the Company. None of the employees of the Company is
represented by any labor organization and, to the knowledge of the Company,
there have been no union organizing activities among the employees of the
Company within the past five years, nor does any question concerning
representation exist concerning such employees, and there are no negotiations or
discussions currently pending or occurring with any union or employee
association regarding any collective bargaining agreement or which might
otherwise effect the Company. There is no labor strike, dispute, corporate
campaign, slowdown, stoppage or lockout actually pending, or to the knowledge of
the Company, threatened against or affecting the Company and during the past
five years there has not been any such action. There is no unfair labor practice
charge or complaint against the Company pending or, to the knowledge of the
Company, threatened before the National Labor Relations Board or any
governmental entity. There is presently no pending grievance or arbitration
proceeding arising out of any collective bargaining agreement or other grievance
procedure relating to the Company.
Section 4.19 Employee Matters. Section 4.19 of the Disclosure Schedule
contains a complete and accurate list of the following information for each
employee and consultant of the Company, including each employee on leave of
absence: name; job title and date of hire; current compensation paid or payable
(including bonus, if any) and any change in compensation since the Balance Sheet
Date. Except as set forth in Section 4.19 of the Disclosure Schedule, there are
no employment or consulting contracts or severance agreements with any employees
or consultants of the Company and all employees are employed "at will." No
employees are entitled to any share of the income of the business. To the
knowledge of Seller, no governmental entity responsible for the enforcement of
labor or employment laws intends to conduct an investigation with respect to or
relating to the Company, and no such investigation is in progress. The Company
has at all times been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, immigration, and occupational
safety and health, and is not engaged in any unfair labor practices as defined
in the National Labor Relations Act or other applicable law. Seller has no
knowledge that the consummation of the Transactions is reasonably likely to
result in the departure of any of Company's employees. To the knowledge of
Seller, no employee of the Company has breached any agreement to keep in
confidence information acquired by that employee in confidence or in trust prior
to that employee's employment with the Company, nor has any such employee,
through his or her employment by the Company, breached any noncompetition,
nonsolicitation or noninterference agreement.
Section 4.20 Warranties. Except as set forth in Section 4.20 of the
Disclosure Schedule, the Company's Liability for any type of warranty or
warranties does not exceed $25,000. The Company is in compliance with all
applicable laws and registration or licensing requirements with respect to all
of its warranties.
Section 4.21 Disputed Accounts Payable. Except as set forth in Section 4.21
of the Disclosure Schedule, the Company has no disputes with payees of its
accounts payable, or unpaid invoices or bills representing amounts alleged to be
owed by the Company, or other alleged obligations of the Company, which the
Company has disputed or determined to dispute or refuse to pay, which exceeds
$10,000 individually or $25,000 in the aggregate.
Section 4.22 Customers and Vendors/Suppliers. There has not been any
material adverse change in the business relationship of the Company with any
customer who accounted for more than five percent (5%) of the Company's annual
sales during the period from the Balance Sheet Date to the date hereof or any
supplier or vendor from whom the Company purchased more than ten percent (10%)
of its goods or services during the same period. The Company has sufficient
systems in place to account for and track vendor or supplier rebates, and the
Company has not improperly billed any supplier or vendor for any rebate, and
there are no current disputes or indications from vendors or suppliers of
disputes regarding such rebates. There are no unrecorded Liabilities to
customers and/or vendors where rights of audit exist on invoice pricing which
would violate pricing agreements, including any most-favored nation clauses,
outlined in any vendor authorizations, statements of work, or other customer
contracts. No customer or supplier or vendor has given the Company notice that
it is entitled to or intends to exercise any right of set off or discount
against amounts owed to or becoming owning to the Company. The Company does not
owe any supplier or vendor or customer any amounts that are not reflected on the
Financial Statements or incurred in the ordinary course of business, consistent
in amount with past practice, and not prohibit by this Agreement, since the
Balance Sheet Date. Except as set forth in Section 4.22 of the Disclosure
Schedule, there are no current disputes or controversies with any of the
Company's customers or vendors that would in the aggregate be adverse to the
Company in an amount in excess of $25,000.
Section 4.23 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee from the Company, any
Seller or any of their Affiliates in connection with any of the Transactions.
Section 4.24 Affiliate and Related Party. The Company has not entered into
and is not subject to any transaction with any Person related to Seller by blood
or marriage or otherwise (an "Affiliate Transaction"). Prior to the Closing, the
Company will terminate all such transactions without any Liability to the
Company therefor. As of the Closing, the Company will not be subject to any
Affiliate Transaction or related party and will not have any Liabilities or
obligations to any Seller or Person related
to any Seller or any affiliate of the Company, other than pursuant to this
Agreement or the other documents.
Section 4.25 No Material Adverse Change. Since the Balance Sheet Date,
there has not been any material adverse change in the business, properties,
prospects, assets, liabilities, condition (financial or otherwise) or results of
operation of the Company (a "Material Adverse Change"), and no event has
occurred or circumstance exists except for those that could not, individually or
in the aggregate, reasonably be expected to result in such a Material Adverse
Change.
Section 4.26 Government Sales. Section 4.26 of the Disclosure Schedule
contains a complete and accurate list of all contracts, grants, cooperative
agreements, or other agreements or supply relationships between the Company and
any agency of the United States government or any state, local or foreign
government or municipality.
Section 4.27 Full Disclosure. No representation or warranty by Seller or
the Company contained in this Agreement or the other documents and no statement
contained in any document, certificate, or other writing furnished or to be
furnished by or on behalf of Seller or the Company to Purchaser or any of its
representatives pursuant to the provisions hereof or in connection with the
Transactions contains or will contain any untrue statement of material fact or
omit or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading.
Section 4.28 Distributions. Except as set forth in Section 4.28 of the
Disclosure Schedule, since the Balance Sheet Date, the Company has made no
distributions to Seller that would have the effect of reducing the Shareholders'
Equity of the Business (as defined in Section 7.1(d)).
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that all of the statements
contained in this Article V are true and complete as of the date of this
Agreement (or, if made as of a specified date, as of such date), and will be
true and complete as of the Closing Date as though made on the Closing Date.
Each exception set forth in the disclosure schedule to be provided to Seller no
later than May 25, 2005 (the "Purchaser Disclosure Schedule") and each other
response to this Agreement set forth in Purchaser Disclosure Schedule is
identified by reference to, or has been grouped under a heading referring to, a
specific individual section of this Agreement and relates only to such section.
Section 5.1 Organization; Legal Power; Qualification of Purchaser.
Purchaser (a) is a corporation duly organized and validly existing under the
laws of the State of Washington; (b) has all requisite corporate power and
authority to execute and deliver this Agreement and the other documents to which
Purchaser is a party and perform its obligations hereunder and thereunder; and
(c) has taken all necessary action to authorize the execution, delivery and
performance of this Agreement and the other documents to which Purchaser is a
party.
Section 5.2 Binding Agreement; Consents and Approvals; No Conflict, Default
or Violation. This Agreement has been duly executed and delivered by Purchaser
and constitutes a legal, valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). Except as set forth in Section 5.2 of the
Purchaser Disclosure Schedule, neither the execution, delivery or performance of
this Agreement or any other document by Purchaser nor the consummation by
Purchaser of any of the
Transactions will, directly or indirectly (with or without notice of lapse of
time or both): (a) contravene, conflict with, or result in a violation of (i)
any provision of the articles of incorporation or bylaws of Purchaser, or (ii)
any resolution adopted by the board of directors or the equity holders of
Purchaser; (b) contravene, conflict with, or result in a violation of, or give
any governmental entity or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any law to
which Purchaser, or any of the assets owned or used by Purchaser, may be
subject; (c) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any governmental entity the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any license, permit or
approvals (collectively, the "Permits") that is held by Purchaser or that
otherwise relates to the business of, or any of the assets owned or used by,
Purchaser; (d) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any contract to which Purchaser is a party, which would
individually or in the aggregate have a material adverse effect on Purchaser; or
(e) result in the imposition or creation of any Encumbrance upon or with respect
to any of the assets owned or used by Purchaser.
Section 5.3 Capitalization. The authorized capital stock of Purchaser
consists of 35,000,000 shares of Common Stock and 15,000,000 shares of Preferred
Stock, of which 5,500,000 shares are designated Series A Preferred Stock. The
issued and outstanding shares of Common Stock and Series A Preferred Stock are
set forth in Section 5.3 of the Purchaser Disclosure Schedule. Except as set
forth in Section 5.3 of the Purchaser Disclosure Schedule, (a) there are no
equity securities of Purchaser authorized, issued or outstanding, (b) there are
no existing options, warrants, calls, preemptive rights, subscriptions or other
rights, agreements, arrangements or commitments of any character, relating to
the issued or unissued equity securities of Purchaser, obligating Purchaser to
issue, transfer or sell or cause to be issued, transferred or sold any equity
securities of Purchaser or securities convertible into or exchangeable or
exercisable for such equity securities, or obligating Purchaser to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment, and (c) there are no outstanding
contractual obligations of Purchaser to repurchase, redeem or otherwise acquire
any Shares or other equity securities of Purchaser or any Person or to provide
funds to make any investment (in the form of a loan, capital contribution or
otherwise) in any other Person. All outstanding shares of Purchaser's capital
stock have been duly authorized, validly issued and are fully paid and
nonassessable. All outstanding securities of Purchaser have been issued in
compliance with state and federal securities laws. There are no voting trusts or
other agreements or understandings to which Purchaser is a party with respect to
the voting of the equity securities of Purchaser.
Section 5.4 Financial Statements.
(a) Purchaser has delivered to Seller complete and accurate copies of
(i) the audited balance sheet of Purchaser as of December 31, 2004, and the
audited statements of income, shareholders' equity and cash flows for the period
ended December 31, 2004, (ii) the unaudited balance sheet of Purchaser as of
March 31, 2005 (the "Purchaser Balance Sheet Date"), and (iii) the unaudited
statement of income, shareholders' equity and cash flows for the three months
ended March 31, 2005. All of the financial statements referred to in this
Section 5.4(a) are collectively referred to herein as the "Purchaser Financial
Statements."
(b) The Purchaser Financial Statements, including the notes thereto,
have been prepared from, are in accordance with, and accurately reflect, the
books and records of Purchaser. The Purchaser Financial Statements present
fairly in all material respects the financial position and results of operations
and cash flows of Purchaser as of the dates and for the periods indicated in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis, except as otherwise noted therein (subject, in the case of
unaudited statements to normally recurring year-end accruals and
audit adjustments that are not material either individually or in the aggregate
and the absence of notes). All revenue reported in the Purchaser Financial
Statements is properly recorded in the accounting period to which it relates in
accordance with GAAP. All employee bonuses of any kind or nature whatsoever,
including those payable in the event of a change of control of Purchaser, are
reflected as accrued liabilities on the Purchaser Financial Statements. All
prepaid expenses of Purchaser, reflected in the Purchaser Financial Statements
or existing on the Closing Date, represent prepaid expenses actually made by
Purchaser in the ordinary course of business and are recorded in Purchaser's
books and have future value consistent with the presentation in the Purchaser
Financial Statements or on Section 5.4 of the Purchaser Disclosure Schedule.
Purchaser has properly accrued for all vacation and sick time in the Purchaser
Financial Statements.
Section 5.5 No Undisclosed Liabilities. Purchaser has no liabilities or
obligations, secured or unsecured, whether absolute, accrued, contingent, fixed
or otherwise, whether known or unknown and whether or not due, including
liabilities for taxes and all off-balance sheet liabilities and obligations (the
"Purchaser Liabilities"), except (a) as and to the extent set forth on the
Purchaser Financial Statements, (b) as otherwise specifically disclosed in the
Purchaser Disclosure Schedule, (c) that were incurred after the Purchaser
Balance Sheet Date in the ordinary course of business and consistent with past
practice, or (d) that are less than $25,000 individually or $50,000 in the
aggregate. The consummation of the Transactions will not give rise to any
Purchaser Liabilities or cause any Purchaser Liabilities to accrue.
Section 5.6 Access to Information. Purchaser is not relying on any
representations made by or on behalf of the Company or Seller except those
contained in Article III and Article IV. Purchaser believes it has been given
sufficient information regarding the Company to enable Purchaser to make an
informed decision regarding the Transactions.
Section 5.7 Litigation. There is no Proceeding by or before any
governmental entity pending or, to the knowledge of Purchaser, threatened
against or involving Purchaser, or which questions or challenges or may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Transactions and there is no valid basis for any such action,
proceeding or investigation. The Purchaser is not subject to any judgment, order
or decree.
Section 5.8 Compliance with Laws. Purchaser has complied in all material
respects and in a timely manner with all laws that affect Purchaser or its
properties or assets, including all applicable privacy laws, and no notice,
charge, claim, action or assertion has been received by Purchaser or has been
filed, commenced or, to the knowledge of Purchaser, threatened against Purchaser
alleging any material violation of any law. Purchaser has not made or delivered
any improper or unlawful payments or benefits to its vendors, customers, or any
other Person to solicit or obtain business or to influence the terms on which
business is done with Purchaser. All material Permits required under all laws to
be held or secured by Purchaser are in full force and effect and will continue
to be so upon consummation of the Transactions.
Section 5.9 Customers and Vendors/Suppliers. There has not been any
material adverse change in the business relationship of Purchaser with any
customer who accounted for more than five percent (5%) of Purchaser's annual
sales during the period from the Purchaser Balance Sheet Date to the date hereof
or any supplier or vendor from whom Purchaser purchased more than ten percent
(10%) of its goods or services during the same period. Purchaser has sufficient
systems in place to account for and track vendor or supplier rebates, and
Purchaser has not improperly billed any supplier or vendor for any rebate, and
there are no current disputes or indications from vendors or suppliers of
disputes regarding such rebates. There are no unrecorded Purchaser Liabilities
to customers and/or vendors where rights of audit exist on invoice pricing which
would violate pricing agreements, including any most-favored nation clauses,
outlined in any vendor authorizations, statements of work, or other customer
contracts. No
customer or supplier or vendor has given Purchaser notice that it is entitled to
or intends to exercise any right of set off or discount against amounts owed to
or becoming owning to Purchaser. Purchaser does not owe any supplier or vendor
or customer any amounts that are not reflected on the Purchaser Financial
Statements or incurred in the ordinary course of business, consistent in amount
with past practice, and not prohibited by this Agreement, since the Purchaser
Balance Sheet Date. There are no current disputes or controversies with any of
Purchaser's customers or vendors that would in the aggregate be adverse to
Purchaser in an amount in excess of $25,000.
Section 5.10 Title to Properties; Encumbrances; Condition of Properties.
Purchaser has good, valid and marketable title to all the properties and assets
reflected in the Purchaser Financial Statements (except for property sold since
the Purchaser Balance Sheet Date in the ordinary course of business) and all of
the properties and assets purchased or otherwise acquired by Purchaser since the
Purchaser Balance Sheet Date. The rights, properties and other assets presently
owned, leased or licensed by Purchaser include all such rights, properties and
other assets necessary to permit Purchaser to conduct its business in all
material respects in the same manner as such business has been conducted prior
to the date hereof. The equipment owned or used by Purchaser is in good
operating condition and repair (normal wear and tear experienced in the
Purchaser's ordinary course of business excepted) and are adequate for the uses
to which they are being put.
Section 5.11 No Material Adverse Change. Since the Purchaser Balance Sheet
Date, there has not been any material adverse change in the business,
properties, prospects, assets, liabilities, condition (financial or otherwise)
or results of operation of Purchaser, and no event has occurred or circumstance
exists except for those that could not, individually or in the aggregate,
reasonably be expected to result in such a material adverse change.
Section 5.12 Full Disclosure. No representation or warranty by Purchaser
contained in this Agreement or the other documents and no statement contained in
any document, certificate, or other writing furnished or to be furnished by or
on behalf of Purchaser to Seller or the Company pursuant to the provisions
hereof or in connection with the Transactions contains or will contain any
untrue statement of material fact or omit or will omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
ARTICLE VI - COVENANTS
Section 6.1 Pre-Closing Operations of the Company. The Seller and the
Company covenant and agrees that, from the date hereof and prior to the Closing
Date, except as expressly provided in this Agreement or as may be agreed in
writing by Purchaser:
(a) the business of the Company shall be conducted in the same manner
as heretofore conducted and only in the ordinary course consistent with past
practice, and the Seller and the Company shall use their best efforts to
preserve the business organization of the Company, keep available the services
of the current officers and employees and maintain the existing relations with
customers, suppliers, creditors, business partners and others having business
dealings with the Company; and
(b) the Company shall not take, or agree to or commit to take, any
action that would or is reasonably likely to result in any of the conditions to
the Closing set forth in Article VII not being satisfied, or would make any
representation or warranty of the Company or the Seller contained herein
inaccurate in any respect at, or as of any time prior to, the Closing Date, or
that would materially impair the ability of the Company, Purchaser, or the
Seller to consummate the Closing in accordance with the terms hereof or
materially delay such consummation.
Section 6.2 Access; Confidentiality.
(a) Between the date of this Agreement and the Closing, the Seller
shall cause the Company to, and the Company shall, (i) with the prior consent of
the Seller, afford Purchaser and its authorized representatives reasonable
access to the officers, employees, agents, properties, offices, plants and other
facilities, books, and records, auditor's work papers, (ii) with the prior
consent of the Seller, permit Purchaser to contact customers and vendors of the
Company, (iii) permit Purchaser to make such inspections and to make copies of
such books and records as it may reasonably require and (iii) furnish Purchaser
with such financial and operating data and other information as Purchaser may
from time to time reasonably request. From the date hereof until the time of
Closing, the Company shall provide Purchaser with monthly and other financial
statements of the Company as they become available internally at the Company.
Purchaser and its authorized representatives shall conduct all such inspections
in a manner that is reasonably designed to limit disruptions to the business and
operations of the Company.
(b) Except as required by applicable law or governmental entity, the
Company and the Seller shall not, and shall not permit any of their respective
affiliates or representatives to, (i) make any public announcement in respect of
this Agreement or the Transactions, (ii) discuss or disclose the contents and/or
existence of this Agreement or the Transactions, or (iii) discuss the nature of
the Transactions or any other matter, directly or indirectly, relating to this
Agreement, other than with their respective attorneys, accountants or other
consultants in connection with negotiations, discussions, and consultations
regarding the Transactions, without the prior written consent of Purchaser.
Company and the Seller agree to cooperate with Purchaser, as necessary, at or
following the Closing in making a public announcement in respect of this
Agreement and the Transactions as required by law, as determined by Purchaser in
its sole discretion.
Section 6.3 Efforts and Actions to Cause Closing to Occur. Prior to the
Closing, upon the terms and subject to the conditions of this Agreement,
Purchaser, the Seller, and the Company shall use their respective reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done and cooperate with each other in order to do, all things necessary,
proper or advisable (subject to any applicable laws) to consummate the Closing.
Section 6.4 Notification of Certain Matters.
(a) From time to time prior to the Closing, the Seller, and the
Company shall promptly supplement or amend the Disclosure Schedule with respect
to any matter arising after the delivery thereof pursuant hereto that, if
existing at, or occurring on, the date of this Agreement, would have been
required to be set forth or described in the Disclosure Schedule.
(b) The Company and the Seller shall give notice to Purchaser promptly
after becoming aware of: (i) the occurrence or non-occurrence of any event whose
occurrence or non-occurrence would be likely to cause either (A) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date or (B) any condition set forth in Article VII to be unsatisfied in
any respect at any time from the date hereof to the Closing Date and (ii) any
material failure of the Seller or the Company or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
Section 6.5 Further Assurances. In case at any time after the Closing Date
any further action is necessary, proper or advisable to carry out the purposes
of this Agreement and to satisfy the conditions
set forth in Article VII, as soon as reasonably practicable, each party hereto
shall take, or cause its proper officers or directors to take, all such
necessary, proper or advisable actions.
Section 6.6 Exclusivity. From the date hereof until the earliest to occur
of (i) the Closing Date, or (ii) June 15, 2005, the Company and the Seller will
not (and will use their respective best efforts to assure that the Company's
officers, directors, employees, agents and affiliates do not on the Company's
behalf) take any action to solicit, initiate, seek, encourage, respond to, or
support any inquiry, proposal or offer from, furnish any information to, or
participate in any negotiations with, any Person (other than Purchaser)
regarding any acquisition of the Company, any merger or consolidation with or
involving the Company, or any acquisition of a material portion of the equity or
assets of the Company. The Company and the Seller represent and warrant that any
such negotiations in progress as of April 22, 2005, were terminated or suspended
on or before such date. The Company and the Seller will immediately notify
Purchaser regarding any contact by any Person (other than Purchaser) regarding
any offer, proposal or inquiry regarding any such acquisition or financing of
the Company. In no event will the Company or the Seller accept or enter into an
agreement concerning any such third party transaction.
Section 6.7 Tax Matters.
(a) Purchaser and the Company shall be responsible for, and shall have
ultimate discretion with respect to all Tax Returns required to be filed by the
Company after the Closing Date.
(b) After the Closing Date, Seller shall (i) provide, or cause to be
provided, to Purchaser such assistance as may reasonably be requested by any of
them in connection with the preparation of any Tax Return or any Audit of the
Company, and (ii) retain, or cause to be retained, for so long as any such
Taxable years or audits. shall remain open for adjustments, any records or
information which may be relevant to any such Tax Returns or audits. The
assistance provided for in this Section 6.7(c) shall include, without
limitation, providing, or causing to be provided, such information as might
reasonably be expected to be of use in connection with any such Tax Returns or
Audits, including without limitation records, returns, schedules, documents,
work papers, opinions, letters or memoranda, or other relevant materials
relating thereto.
Section 6.8 Seller Release.
(a) Effective upon the Closing, Seller hereby irrevocably releases and
forever discharges the Company and the Company's past, present and future
officers, directors, employees, agents, shareholders, partners, managers,
successors, representatives, assigns and affiliates (other than Purchaser) (the
"Releasees"), as the case may be, from (i) any and all claims, liabilities,
costs, expenses, rights, causes of action, suits, litigation, proceedings,
arbitrations, demands, however arising, whether at law or equity, actual or
contingent, known or unknown arising solely out of, or relating solely to, the
Seller's ownership (direct or indirect) of any debt or equity interests in the
Company (including, the shares of Company Stock) and (ii) any and all
obligations, whether previously or now existing, up to and through the Closing
Date, which the Company may have to, or have incurred for the benefit or on
behalf of, Seller, whether pursuant to law, contract, provision of the Company's
charter documents or otherwise, arising solely out of, or relating solely to,
the Seller's ownership (direct or indirect) of any debt or equity interests in
the Company (including, without limitation, the shares of Company Stock);
provided, that this release shall not extend to claims or obligations arising
out of, or relating to this Agreement or consummation of the Transactions.
(b) Seller acknowledges and agrees that the consideration received by
Seller for the execution and delivery of this Agreement, including the
consideration received by Seller for the shares of
Company Stock, was fully negotiated and bargained for and constitutes full and
fair consideration for the agreements and releases by Seller set forth in this
Agreement.
(c) Seller confirms that he has carefully read the provisions of this
Section 6.8 and that he has reviewed such provisions with his attorney and has
consulted therewith regarding his rights and obligations hereunder, that he has
had ample and sufficient opportunity to consider the terms of this Section 6.8
without duress or coercion. Accordingly, Seller forever waives all rights to
assert that the release contained in this Section 6.8 was the result of a
mistake in law or in fact or to assert that any or all of the legal theories or
factual assumptions used for negotiating purposes are for any reason inaccurate
or inappropriate.
(d) Seller acknowledges that, in executing the release contained in
this Section 6.8, he is not relying on any representations, warranties,
assurances, statements, or other information of any kind provided or made by any
of the Releasees. Seller is aware that he is releasing claims as to which he may
be currently unaware and only later may come to learn, but are nevertheless
willing to enter into this release. It is the intention of Seller that,
notwithstanding the possibility he discovers or gains a more complete
understanding of the facts, events or law which, if presently known or fully
understood, would have affected this release, this release shall be deemed to
have fully, finally, and forever settled all claims released hereby. The release
in this Section 6.8 extends to claims and obligations that Seller does not know
or suspect to exist in his favor, which, if known by Seller, would have
materially affected his decision to enter into this release. The release herein
given shall be, and remain in effect as, full and complete releases
notwithstanding the discovery or existence of any additional or different claim
or fact.
ARTICLE VII - CONDITIONS
Section 7.1 Conditions to Obligations of Purchaser to Effect the Closing.
The obligations of Purchaser to consummate the Closing shall be subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. All of the representations and
warranties of Seller set forth in this Agreement that are qualified as to
materiality shall be true and complete in all respects and each representation
or warranty that is not so qualified shall be true and complete in all material
respects as of the date of this Agreement and as of the Closing Date, except for
those representations and warranties made as of a specified date earlier than
the Closing Date, which shall remain true and correct on and as of such date;
(b) Seller's and the Company's Performance. All of the covenants and
obligations that Seller and the Company are required to perform or comply with
pursuant to this Agreement at or prior to the Closing shall have been duly
performed and complied with in all material respects;
(c) No Claim Regarding Equity Ownership or Sale Proceeds. There shall
not have been made or threatened by any Person any claim asserting that such
Person (a) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any Company Stock, or any other voting,
equity, or ownership interest in, the Company, or (b) is entitled to all or any
portion of the purchase price payable for the Shares;
(d) Shareholders' Equity of the Business. The Shareholders' Equity of
the Business will not be less than what is shown on the Financial Statements as
of the Balance Sheet Date. For purposes of this Agreement, "Shareholders' Equity
of the Business" means the sum of common stock, paid in capital, retained
earnings, and year-to-date earnings as of the Balance Sheet Date, all as set
forth in the Financial Statements;
(e) Employment Agreement. Seller shall have executed and delivered the
Employment Agreement to Purchaser;
(f) Key Employee Offer Letters. Each of Xxxx Xxxxx, Xxxxx Xxxxxx,
Xxxxx Xxxxxxx, Xxxxx Xxxxxxxx, Xxxxx Xxxxxxx and Xxxx Xxxxxx (the "Key
Employees") shall have executed and delivered a form of employment offer letter,
in form reasonably acceptable to Purchaser, which offer letters shall include
stock option grants and retention bonus payments for each of the Key Employees
as described on Exhibit D;
(g) Material Adverse Change. Since the Balance Sheet Date, there shall
not have been any Material Adverse Change and no event shall have occurred or
circumstance exist except for those that could not individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change;
(h) Termination of 401(k) Plan. The Company will adopt a resolution
prior to Closing which will terminate its 401(k) Plan at least one day prior to
the Closing;
(i) Resignations; Powers. Seller and any other officers or directors
of the Company shall have executed resignations as directors and officers of the
Company in the form acceptable to Purchaser's counsel;
(j) Bank Accounts. Seller shall have caused the Company to have
removed Seller and any other Persons as Persons with power over the Company's
bank accounts and as Persons with signature authority with respect thereto. The
Company's Board shall have adopted resolutions authorizing and directing the
officers of the Company to (i) remove Seller and any other Persons as Persons
with power over the Company's bank accounts and as Persons with signature
authority with respect thereto, and (ii) appoint Messrs. Xxxxxx Bench, Xxxxxx
Mall and Xxxxx Xxxx as Persons with power over the Company's bank accounts and
as Persons with signature authority with respect thereto;
(k) Spousal Consents. The Spousal Consent of the spouse of Seller in
the form or substantially the form of attached Exhibit 2.2(b) shall be
delivered;
(l) Third Party Consents. Seller shall have obtained all third party
consents or waivers necessary to ensure that none of the material contracts of
Seller are breached, modified or terminated due to the execution, delivery or
performance of this Agreement.
(m) Compliance Certificate. Seller shall have delivered to Purchaser
at the Closing a certificate signed by Seller, dated the Closing Date,
confirming the matters set forth in Sections 7.1(a) - (d) and (g) -- (l); and
(n) Due Diligence; No Materially Adverse Disclosures. Purchaser shall
have completed its financial and legal due diligence to its satisfaction, and
the Disclosure Schedule shall not contain any exceptions or disclosures that
Purchaser in its sole judgment considers materially adverse to the Company or to
the Purchaser.
Section 7.2 Conditions to Obligations of Seller to Effect the Closing. The
obligations of Seller to consummate the Closing shall be subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. All of the representations and
warranties of Purchaser set forth in this Agreement that are qualified as to
materiality shall be true and complete in all
respects and each representation or warranty that is not so qualified shall be
true and complete in all material respects as of the date of this Agreement and
as of the Closing Date, except for those representations and warranties made as
of a specified date earlier than the Closing Date, which shall remain true and
correct on and as of such date;
(b) Purchaser's Performance. All of the covenants and obligations that
Purchaser is required to perform or comply with pursuant to this Agreement at or
prior to the Closing must have been duly performed and complied with in all
material respects;
(c) Employment Agreement. Purchaser shall have executed and delivered
the Employment Agreement to Seller;
(d) Key Employee Offer Letters. Each of the Key Employees shall have
executed and delivered a form of employment offer letter, in form reasonably
acceptable to Purchaser, which offer letters shall include stock option grants
and retention bonus payments for each of the Key Employees as described on
Exhibit D;
(e) Material Adverse Change. Since the Purchaser Balance Sheet Date,
there shall not have been any material adverse change in the business,
properties, prospects, assets, liabilities, condition (financial or otherwise)
or results of operation of Purchaser, and no event shall have occurred or
circumstance exist except for those that could not, individually or in the
aggregate, reasonably be expected to result in such a material adverse change;
(f) Compliance Certificate. Purchaser shall have delivered to Seller
at the Closing a certificate signed by an authorized officer of Purchaser, dated
the Closing Date, confirming the matters set forth in Sections 7.2(a) and (b).
ARTICLE VIII - INDEMNIFICATION
Section 8.1 Survival of Representations and Warranties. All of the
representations, warranties, covenants and obligations of Seller contained in
Articles III and IV and, of Purchaser in Articles V, shall survive the Closing
until the date that is eighteen (18) months after the Closing Date, provided,
that notwithstanding the foregoing, the representations and warranties contained
in Sections 3.1, 3.2, 3.3, 4.1, 4.3 and 4.16 shall survive the Closing and
continue in full force and effect until the expiration of any applicable statute
of limitation. Any claim relating to fraud shall survive the Closing
indefinitely. The right to indemnification, payment of Damages (as defined in
Section 8.2 hereof) or other remedy based on any representations, warranties,
covenants, and obligations contained in this Agreement will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation.
Section 8.2 Indemnification and Payment of Damages by Seller.
(a) Seller will indemnify and hold harmless Purchaser and its
officers, directors, employees, agents and Affiliates (collectively, the
"Purchaser Indemnified Parties") for, and will pay to such indemnified persons
the amount of, any loss, liability, claim, Taxes, damage or expense (including
costs of investigation and defense and reasonable attorneys' and professionals'
fees), whether or not involving a Third Party Claim, and not considering the
benefit of any such item to Purchaser for Tax purposes (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(1) any breach of any representation or warranty made by Seller
in Article III or Article IV by Seller or the Company pursuant to this Agreement
or the other documents that confirms or otherwise relates to such
representations or warranties;
(2) any breach by Seller of any covenant or obligation of Seller
or the Company in Article VI; or
(3) fraud by the Company or Seller in connection with this
Agreement and the Transactions.
(b) Purchaser will indemnify and hold harmless Seller and his
respective Affiliates (together with the Purchaser Indemnified Parties, the
"Indemnified Parties," and each such party individually, an "Indemnified Party")
for, and will pay to such indemnified persons the amount of, any Damages
arising, directly or indirectly, from or in connection with:
(1) any breach of any representation or warranty made by
Purchaser in Article V or the other documents that confirms or otherwise relates
to such representations or warranties;
(2) any breach by Purchaser of any covenant or obligation of
Purchaser in Article VI; or
(3) fraud by Purchaser in connection with this Agreement and the
Transactions.
Section 8.3 Thresholds and Limitations.
(a) No Indemnified Party shall be entitled to receive any
indemnification payment with respect to any claims for indemnification under
this Article VIII until and only to the extent that the aggregate Damages for
such Indemnified Party would be otherwise entitled to receive indemnification
exceed $75,000 and then only as to the amount in excess of $75,000.
(b) An Indemnifying Party (defined below) shall not be obligated to
defend and hold harmless an Indemnified Party, or otherwise be liable to such
party, with respect to any claims for indemnification under this Article VIII
made by the Indemnified Party after the expiration of the applicable time
limitation described in Section 8.1, except that indemnity may be sought after
the expiration of such time limitation if a Notice of Claim shall have been
delivered to the Indemnifying Party prior to the expiration of such time
limitation.
(c) The total liability of Purchaser for any claim for Damages
asserted by Seller pursuant to this Agreement shall be limited to principal
amount of the Note and the aggregate amount of retention bonuses payable to Key
Employees as described on Exhibit D (the "Retention Bonuses"). This provision
does not limit Seller's rights to injunctive relief to compel Purchaser's
compliance with this Agreement
(d) The total liability of Seller for any claim for Damages asserted
by Purchaser pursuant to this Agreement shall be limited to the Purchase Price.
The parties intend and agree that the Purchaser's sole recourse against Seller
for indemnification after the Closing for Damages is limited to, and may be
effected only by means of, (i) first, a reduction in the outstanding principal
amount of the Note and the unpaid amount of the Retention Bonuses, on a pro rata
basis; (ii) second, forfeiture to Purchaser and cancellation of the Escrow
Shares; and (iii) forfeiture to Purchaser and cancellation of the shares of
Purchaser's common stock delivered to Seller at Closing as the Stock
Consideration, or a
payment to Purchaser in cash of up to the amount of any cash proceeds received
by Seller from the prior sale of any of the Stock Consideration. For purposes of
this paragraph, the value of any shares of Purchaser common stock to be
forfeited for indemnification purposes shall be equal to the fair market value
of such shares on the date of the Notice of Claim given in connection with such
indemnification obligation, as determined in good faith by the Board of
Directors of Purchaser. This provision does not limit Purchaser's rights to
injunctive relief to compel Seller's compliance with this Agreement.
(e) In order to secure the indemnification obligations owing to
Purchaser, in accordance with the terms and conditions of this Agreement,
Purchaser shall holdback the Escrow Shares and shall have the right to reclaim
and cancel such Escrow Shares pursuant to the indemnification provisions set
forth in this Article VIII.
Section 8.4 Defense and Settlement of Third-Party Claims.
(a) If any third party shall notify any Indemnified Party with respect
to any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other party (the "Indemnifying Party") under this
Article VIII, then the Indemnified Party shall promptly notify the Indemnifying
Party thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b) The Indemnifying Party will have the right to assume the defense
of the Third Party Claim with counsel of its choice reasonably satisfactory to
the Indemnified Party at any time within fifteen (15) days after the Indemnified
Party has given notice of the Third Party Claim; provided, however, that the
Indemnifying Party must conduct the defense of the Third Party Claim actively
and diligently thereafter in order to preserve its rights in this regard; and
provided, further, that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party
Claim.
(c) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with Section 8.4(b) above,
the Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably),
unless the judgment or proposed settlement involves only the payment of money
damages by the Indemnifying Party and does not impose an injunction or other
equitable relief or any other Damages upon the Indemnified Party and will not
give rise to any increase in any Tax liability of Purchaser, the Company, or any
of their Affiliates.
(d) In the event any of the conditions in Section 8.4(b) is or becomes
unsatisfied, however, (i) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys fees and expenses),
(iii) the Indemnifying Party will remain responsible for any adverse
consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Article VIII including payment of any judgment or
settlement.
Section 8.5 Establishment and Contesting of Indemnification Liability. To
be effective, any claim for indemnification by an Indemnified Party must be made
by a written notice (a "Notice of Claim") to the Indemnifying Party, given in
accordance with the provisions of Section 11.4 hereof and
given as promptly as practicable, but in any event: (a) if such claim relates to
a third-party claim under Section 8.4, within the time period set forth in
Section 8.4(a) (which Notice of Claim shall state the estimated maximum amount
of such claim), or (ii) if such claim does not relate to a third-party claim,
within sixty (60) days after the discovery of facts upon which the Indemnified
Party intends to base a claim for indemnification pursuant to this Article VIII.
Upon receipt of a Notice of Claim, the Indemnifying Party shall have twenty (20)
days thereafter to contest the indemnification obligation with respect to such
claim, or the amount thereof, by written notice to the Indemnified Party (a
"Contest Notice"). Such Contest Notice shall specify the reasons or bases for
the objection of the Indemnifying Party to the claim. If no such Contest Notice
is given within such (20) day period, the obligation of the Indemnifying Party
to pay the amount of the Damages incurred or asserted by the Indemnified Party
in connection with the claim shall be deemed established and accepted by the
Indemnifying Party. If a Contest Notice relating to a non-Third Party Claim is
given in such time period, and the Indemnified Party and the Indemnifying Party
are unable to reach agreement with respect to any contested Damages within
twenty (20) days of the delivery of the Contest Notice, the matter shall be
settled by binding arbitration in Seattle, Washington as set forth in Section
11.8 below. The Indemnified Party and the Indemnifying Party shall cause the
arbitrator to decide the matter to be arbitrated pursuant hereto within thirty
(30) days after the appointment of the arbitrator. The arbitrator's decision
with respect to such a Contest Notice shall relate solely to whether the
Indemnified Party is entitled to be indemnified for the contested Damages, or
the contested portion thereof, pursuant to the applicable terms of this
Agreement. The final decision of the arbitrator shall be furnished to the
Indemnified Party and the Indemnifying Party in writing and shall constitute the
conclusive determination of the issue in question binding upon the Indemnified
Party and the Indemnifying Party, and shall not be contested by any of them.
Such decision may be used in a court of law only for the purpose of seeking
enforcement of the arbitrator's decision. If a Contest Notice relating to a
Third Party Claim is given in such 20-day time period, such Third Party Claim
shall be deemed an Open Claim under Section 8.6(b). Upon final determination of
the amount of the Damages that is the subject of an indemnification claim,
whether such determination is the result of an Indemnifying Party's acceptance
of, or failure to contest, a Notice of Claim, or a resolution of any dispute
with respect thereto by agreement of the parties, or a final, non-appealable
court order of a court of competent jurisdiction, or pursuant to Section 8.4(d)
or otherwise (each, "Finally Determined Damages"), the Indemnifying Party or
parties shall be obligated to pay the amount of such Finally Determined Damages
within five (5) days of such final determination.
Section 8.6 Right of Reserve.
(a) During the pendency of any Third Party Claim that is the subject
of a Contest Notice, unless Seller has assumed all Liabilities for such Third
Party Claim, then such claim for Damages shall be deemed to be an "Open Claim,"
and Purchaser may, at its sole discretion, reserve from any unpaid portion of
the Note and the Retention Bonuses, on a pro rata basis, an amount equal in
value (on a dollar-by-dollar basis) to the amount of such Open Claim. Until such
Open Claim is a claim with Finally Determined Damages, such reserved amount
shall not be due or payable, and in lieu of payment pursuant to the Note and the
Retention Bonuses, Purchaser shall reserve and set aside an amount equal to such
payments, pending the final determination of such Open Claim. At the time that
an Open Claim becomes a claim with Finally Determined Damages, (x) if the
Indemnifying Party has failed to pay such Finally Determined Damages, Purchaser
may set-off the amount of the Finally Determined Damages and pay such amounts to
itself in satisfaction of such set-off, or to Seller and the Key Employees
entitled to receive Retention Bonuses after such set-off, and (y) if the
Indemnifying Party has paid such Finally Determined Damages, Purchaser shall
release the reserved amounts and pay such amounts to Seller and the Key
Employees entitled to receive Retention Bonuses.
(b) Neither the exercise nor failure to exercise such right of set-off
will constitute an election of remedies or limit Purchaser in any manner in the
enforcement of any other remedies that may be available to it.
Section 8.7 Tax Effect of Indemnification Payments. All reductions in the
principal amount of the Note or forfeiture of any shares of the Stock
Consideration for purposes of indemnity payments pursuant to this Agreement
shall be treated for all tax purposes as adjustments to the Purchase Price.
ARTICLE IX - TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by the Purchaser if a material breach of any provision of this
Agreement has been committed by any Seller or the Company and such breach has
not been waived;
(b) by the Seller if a material breach of any provision of this
Agreement has been committed by the Purchaser and such breach has not been
waived;
(c) (i) by the Purchaser if any of the conditions in Section 7.1 have
not been satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of the Purchaser to
comply with its obligations under this Agreement) and the Purchaser has not
waived such condition on or before the Closing Date or (ii) by the Seller if any
of the conditions in Section 7.2 have not been satisfied as of the Closing Date
or if satisfaction of such a condition is or becomes impossible (other than
through the failure of the Seller or the Company to comply with its obligations
under this Agreement) and the Seller has not waived such condition on or before
the Closing Date;
(d) by mutual consent of the Purchaser and the Seller; or
(e) by either the Purchaser or the Seller if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before June 15, 2005, or such later date as the Purchaser and the Seller may
agree upon in writing.
Section 9.2 Effect of Termination. In the event of the termination of this
Agreement as provided under Section 9.1, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and there shall be no liability or obligation
thereafter on the part of the Purchaser, the Company, or the Seller except as
set forth in Section 9.1; provided, however, that if this Agreement is
terminated by a party because of the breach of this Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
ARTICLE X - SELLER'S RIGHT OF REPURCHASE
Section 10.1 Right of Repurchase. In the event Purchaser or any successor
of Purchaser is not, on or before December 31, 2005, subject to the reporting
obligations of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, Seller shall have the right, but not the obligation, on or
before January 31, 2006, to repurchase the Shares of Company Stock upon the
terms described in this
Article X by providing a notice in writing to Purchaser. Upon Seller's election
to repurchase the Shares, the Note and all shares of Purchaser's common stock
issued to Seller at Closing shall be forfeited and cancelled (collectively, the
"Repurchase Consideration"). Upon Purchaser's receipt of the Repurchase
Consideration, the Purchaser shall transfer to the Seller all of the Shares of
Company Stock. Seller's repurchase of the Shares shall be effected upon (i) the
delivery by Seller to Purchaser of the original Note for cancellation, (ii) the
delivery by Seller to Purchaser for cancellation of all shares of Purchaser's
common stock previously issued to Seller as Stock Consideration pursuant to this
Agreement, and (iii) the delivery by Purchaser to Seller of certificates
representing the Shares of Company Stock. Upon Seller's election to repurchase
the Shares of Company Stock pursuant to this Article X, Purchaser shall
thereafter have no further obligation to pay any amount under the Note or any of
the Retention Bonuses, and the Escrow Shares shall be forfeited and cancelled.
Section 10.2 Operations of the Company Until Expiration of the Repurchase
Period. Purchaser covenants and agrees that, from the Closing Date through the
earlier of (i) the date that Purchaser is subject to the reporting obligations
of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended, or (ii) January 31, 2006, except as expressly provided in this
Agreement or as may be agreed in writing by Seller, the business of the Company
shall be conducted in the same manner as heretofore conducted and only in the
ordinary course consistent with past practice, and the Purchaser shall use its
best efforts to preserve the business organization of the Company, keep
available the services of the employees and maintain the existing relations with
customers, suppliers, creditors, business partners and others having business
dealings with the Company.
ARTICLE XI -- MISCELLANEOUS
Section 11.1 Fees and Expenses. Purchaser shall pay all of its costs and
expenses incurred in connection with this Agreement and the consummation of the
Transactions. The Company shall pay all costs and expenses incurred by Seller
and Company in connection with this Agreement and the consummation of the
Transactions; provided that such costs and expenses shall not exceed $50,000.
Purchaser may offset any fees of the Seller or Company in excess of $50,000
against amounts payable to Seller pursuant to the Note.
Section 11.2 Transfer Taxes. If the sale of the Shares triggers a transfer
or excise tax for which Seller is primarily responsible under law, Seller will
pay any and all such taxes. If the sale of the Shares triggers a transfer or
excise tax for which Purchaser is primarily responsible under law, Purchaser
will pay any and all such taxes.
Section 11.3 Amendment and Modification. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by Purchaser and Seller expressly stating that such instrument
is intended to amend, modify or supplement this Agreement.
Section 11.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if mailed, delivered personally, faxed
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
if to Purchaser, to: Xxxxx.xxx, Inc.
0000 000xx Xxxxxx XX
Xxxxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Fax: (000) 000-0000
with a copy to: DLA Xxxxx Xxxxxxx Xxxx Xxxx US LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxx X. Steel, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
if to Seller, at: Xxxx XxXxx
00000 Xxxxxxxxx Xxx
Xxxxxx, XX 00000
Telephone: ___________________
Fax: ______________________
with a copy to: Higham, XxXxxxxxx & Xxxxxxx LLP
00 Xxxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
Section 11.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 11.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein and therein) and
that certain mutual nondisclosure agreement dated ____________, 2004 between the
parties hereto, which is hereby incorporated by reference: (a) constitutes the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and thereof, and (b) is not intended to confer upon any Person other than the
parties hereto and thereto any rights or remedies hereunder or thereunder.
Section 11.7 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
making such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
Section 11.8 Governing Law; Arbitration; Jurisdiction; Venue. The parties
agree that this Agreement, and any disputes arising under this Agreement, will
be governed by and construed in accordance with the laws of the State of
Washington, without giving effect to any conflict of laws principles to the
contrary. Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof that cannot be settled by mutual agreement
(except for actions by any party seeking exclusively injunctive relief) shall be
exclusively subject to arbitration. Any party who is aggrieved shall deliver a
notice to the other parties hereto setting forth the specific points in dispute.
Any points
remaining in dispute twenty (20) calendar days after the giving of such notice
shall be submitted to binding arbitration as set forth below. All claims shall
be settled in accordance with the Commercial Arbitration Rules then in effect of
the American Arbitration Association (the "AAA Rules"), before a single
arbitrator appointed in accordance with AAA Rules. Such arbitration shall be
held in Seattle, Washington. The arbitrator may enter a default decision against
any party who fails to participate in the arbitration proceedings. The decision
of the arbitrator on the points in dispute will be final, unappealable and
binding, and judgment on the award may be entered in any court having
jurisdiction. Subject to the other terms of this Subsection (b), the parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in King County, Washington in connection with any action relating
to this Agreement. Notwithstanding any other provision of this Agreement, the
arbitrator will be authorized to apportion its fees and expenses and the
reasonable attorneys' fees and expenses of the parties as the arbitrator deems
appropriate. The parties agree that this clause has been included to rapidly and
inexpensively resolve any disputes between them with respect to this Agreement,
and that this clause shall be grounds for dismissal of any court action
commenced by either party with respect to this Agreement, other than actions for
exclusively injunctive relief and post-arbitration actions seeking to enforce an
arbitration award. The parties shall keep confidential, and shall not disclose
to any person, except as may be required by law, the existence of any
controversy hereunder, the referral of any such controversy to arbitration, or
the status or resolution thereof; provided, that Purchaser may make such
disclosure to the extent it is required to disclose such matters under
applicable securities or accounting rules, as advised by its counsel.
Section 11.9 Time of Essence. Each of the parties hereto hereby agrees
that, with regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
Section 11.10 Extension; Waiver. At any time prior to the Closing Date, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 11.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other parties, except that Purchaser may assign, any or all of
its rights and interests hereunder to any Affiliate of Purchaser. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
Section 11.12 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 11.13 Interpretation. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
Section 11.14 Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar electronic transmission device pursuant
to which the signature of or on behalf of such party can be seen, and such
execution and delivery shall be considered valid, binding and effective for all
purposes.
[Signature page follows.]
IN WITNESS WHEREOF, Purchaser, Seller, and the Company have executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first written above.
PURCHASER:
XXXXX.XXX, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SELLER:
----------------------------------------
Xxxx XxXxx
COMPANY:
JADEON, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-27-
EXHIBIT A
FORM OF EMPLOYMENT AGREEMENT
1.4-1
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
EXHIBIT C
PROMISSORY NOTE
EXHIBIT D
Key Employee Offer Letter Terms
AGGREGATE RETENTION AMOUNT PAID MINIMUM QUARTERLY
KEY EMPLOYEE OPTIONS(1) BONUS(2)(3) AT CLOSING A% B% PAYMENTS
------------ ---------- ------------------- ----------- ---- ----- -----------------
Xxxx Xxxxx 60,000 $510,204.08 $30,000.00 .857 8.57 $6,428.57
Xxxxx Xxxxxx 60,000 $510,204.08 $30,000.00 .857 8.57 $6,428.57
Xxxxx Xxxxxxx 60,000 $510,204.08 $30,000.00 .857 8.57 $6,428.57
Xxxxx Xxxxxxxx 60,000 $510,204.08 $30,000.00 .857 .8.57 $6,428.57
Xxxxx Xxxxxxx 31,000 272,108.84 $16,000.00 .457 4.57 $3,428.57
Xxxx Xxxxxx 24,000 217,687.07 $13,000.00 .371 3.71 $2,785.71
----------
(1) All options will be granted pursuant to the Purchaser's 1999 Stock Option
Plan and standard form of Option Agreement, and will be subject to vesting
in accordance with Purchaser's standard employee vesting schedule. All
options will be exercisable at a price equal to the fair market value of
Purchaser's common stock on the date of grant, as determined by the Board
of Directors of Purchaser.
(2) Subject to the execution and delivery to Purchaser of a general waiver and
release of claims for the benefit of the Company and the Purchaser and
their respective current and former directors, officers, agents and
employees, in a form acceptable to Purchaser, each Key Employee will have
the right to receive a cash retention bonus, paid in quarterly
installments, in an amount up to the "Aggregate Bonus" reflected in this
table (the "Retention Bonuses"). The first quarterly retention bonus
payment will be paid immediately following Closing, and will be in the
amount reflected in the column titled "Amount Paid at Closing" above.
Thereafter, until the Aggregate Bonus amounts have been paid in full,
Purchaser will make additional payments to each Key Employee on the 20th
day of the month immediately following the end of a calendar quarter equal
to the lesser of the following: (a) the percentage of Jadeon's Gross
Revenues recognized for such period reflected next to such Key Employee's
name in the above table under the column heading "A%", or (b) the
percentage of Jadeon's net income plus amortization for such period,
calculated consistently with generally accepted accounting principles, as
applied by the Company, reflected next to such Key Employee's name in the
above table under the column heading "B%" (each, a "Quarterly Payment"),
provided, however that the Quarterly Payment in each case shall in no event
be less than the amount reflected for each Key Employee in the table above
under the heading "Minimum Quarterly Payments." As used herein, "Jadeon's
Gross Revenues" means the gross revenue recognized by Jadeon, from the
sales of its products and services from the business conducted by Jadeon
for the prior calendar quarter, excluding all hardware sales of Jadeon that
are sold as part of a system installation, in all cases calculated
consistently with generally accepted accounting principles, as applied by
the Company. The parties acknowledge and agree that Jadeon's results of
operations will be included in the consolidated financial statements of the
Company, and, as a result, the parties agree that, for purposes of
calculating Jadeon's net income plus amortization, Jadeon will be assigned
its reasonable portion of the general and administrative costs of the
Company, as determined by the Company's independent auditors, which amount
shall not exceed $20,000 per month.
(3) The Retention Bonuses will be subject to offset on a pro rata basis with
Seller's Note to satisfy Seller's indemnification obligations pursuant to
Article VIII of the Agreement.
EXHIBIT E
DISCLOSURE SCHEDULE
EXHIBIT 2.2(B)
SPOUSAL CONSENT
The undersigned is the spouse of Xxxx XxXxx and hereby consents to
consummation of the transactions (the "Transactions") provided for or
contemplated in the Stock Purchase Agreement between Xxxxx.xxx, Inc. (the
"Purchaser"), Jadeon, Inc., a Nevada corporation, and Xxxx XxXxx, an individual,
and the undersigned hereby represents, warrants, and acknowledges to Purchaser
that the undersigned does not have any claim against Purchaser in any way
related to the Transactions or the proceeds from the Transactions.
______________________________________
__________________________ (print name)
Dated: May __, 2005
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement (the "First Amendment") is
entered into as of June 15, 2005, by and between Xxxxx.xxx, Inc., a Washington
corporation ("Purchaser"), and Xxxx XxXxx, an individual ("Seller"). This First
Amendment is made with reference to that certain Stock Purchase Agreement dated
May 17, 2005, by and among Purchaser, Jadeon, Inc., a Nevada corporation (the
"Company"), and Seller (the "Purchase Agreement"). Capitalized terms not
otherwise defined herein will have the meanings set forth in the Purchase
Agreement.
RECITAL
Purchaser and Seller desire to amend the Purchase Agreement to amend
certain closing conditions in Section 7.1 and to amend the provisions of Exhibit
D.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Pursuant to Section 11.3 of the Purchase Agreement, Section 7.1(h) is
hereby amended and restated in its entirety to read as follows:
"(h) Reserved."
2. Pursuant to Section 11.3 of the Purchase Agreement, Section 7.1(i) is
hereby amended and restated in its entirety to read as follows:
"(i) Resignation; Appointment. Seller shall have resigned as Chief
Financial Officer of the Company, in form acceptable to Purchaser's counsel.
Effective as of the Closing, the Company shall have (i) appointed Xxxx Xxxx and
Xxxxxx Mall to serve as directors of the Company, and (ii) appointed Xxxxxx
Bench to serve as the Company's Chief Financial Officer."
3. Pursuant to Section 11.3 of the Purchase Agreement, Exhibit D to the
Purchase Agreement is hereby amended and restated in its entirety to read as
follows:
"EXHIBIT D
Key Employee Offer Letter Terms
KEY EMPLOYEE OPTIONS 1 AGGREGATE AMOUNT PAID AT A% B% MINIMUM
RETENTION CLOSING QUARTERLY
BONUS 2 3 PAYMENTS
-------------- --------- ------------ -------------- ----- ------ ----------
Xxxx Xxxxx 65,000 $558,000.00 $32,750.00 .882 8.82 $6,615.00
Xxxxx Xxxxxx 65,000 $558,000.00 $32,750.00 .882 8.82 $6,615.00
Xxxxx Xxxxxxx 65,000 $558,000.00 $32,750.00 .882 8.82 $6,615.00
Xxxxx Xxxxxxxx 65,000 $558,000.00 $32,750.00 .882 8.82 $6,615.00
Xxxxx Xxxxxxx 35,000 $298,612.23 $18.000.00 .472 4.72 $3,540.00
If the terms and conditions set forth in this Exhibit D are in conflict with the
terms and conditions set forth in a Key Employee's Contingent Offer of
Employment letter, the terms set forth in the offer letter will control.
1 All options will be granted pursuant to the Purchaser's 1999 Stock Option Plan
and standard form of Option Agreement, and will vest in full on the first
anniversary of the Closing Date. All options will be exercisable at a price
equal to the fair market value of Purchaser's common stock on the date of grant,
as determined by the Board of Directors of Purchaser.
2 Subject to the execution and delivery to Purchaser of a general waiver and
release of claims for the benefit of the Company and the Purchaser and their
respective current and former directors, officers, agents and employees, in a
form acceptable to Purchaser, each Key Employee will have the right to receive a
cash retention bonus, paid in quarterly installments, in an amount up to the
"Aggregate Bonus" reflected in this table (the "Retention Bonuses"). The first
quarterly retention bonus payment will be paid immediately following Closing,
and will be in the amount reflected in the column titled "Amount Paid at
Closing" above. Thereafter, until the Aggregate Bonus amounts have been paid in
full, Purchaser will make additional payments to each Key Employee on the 20th
day of the month immediately following the end of a calendar quarter equal to
the lesser of the following: (a) the percentage of Jadeon's Gross Revenues
recognized for such period reflected next to such Key Employee's name in the
above table under the column heading "A%", or (b) the percentage of Jadeon's net
income plus amortization for such period, calculated consistently with generally
accepted accounting principles, as applied by the Company, reflected next to
such Key Employee's name in the above table under the column heading "B%" (each,
a "Quarterly Payment"), provided, however that the Quarterly Payment in each
case shall in no event be less than the amount reflected for each Key Employee
in the table above under the heading "Minimum Quarterly Payments." As used
herein, "Jadeon's Gross Revenues" means the gross revenue recognized by Jadeon,
from the sales of its products and services from the business conducted by
Jadeon for the prior calendar quarter, excluding costs of all hardware sales of
Jadeon that are sold as part of a system installation, in all cases calculated
consistently with generally accepted accounting principles, as applied by the
Company. The parties acknowledge and agree that Jadeon's results of operations
will be included in the
2
consolidated financial statements of the Company, and, as a result, the parties
agree that, for purposes of calculating Jadeon's net income plus amortization,
Jadeon will be assigned its reasonable portion of the general and administrative
costs of the Company, as determined by the Company's independent auditors, which
amount shall not exceed $20,000 per month.
2 The Retention Bonuses will be subject to offset on a pro rata basis with
Seller's Note to satisfy Seller's indemnification obligations pursuant to
Article VIII of the Agreement."
4. Pursuant to Section 11.3 of the Purchase Agreement, each reference to
June 15, 2005 in the Purchase Agreement shall be replaced with June 16, 2005.
5. Except as amended hereby, the Purchase Agreement shall remain in full
force and effect. This First Amendment may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and all such counterparts together will constitute one and the same
instrument.
[Signature page follows.]
3
IN WITNESS WHEREOF, this First Amendment is hereby executed as of the date
first above written.
PURCHASER:
XXXXX.XXX, INC.
By:
-------------------------------
Xxxx Xxxx
Chief Executive Officer
SELLER:
By:
-------------------------------
Xxxx XxXxx
4
