STOCK PURCHASE AGREEMENT AMONG REMOTEMDX, INC., AND MIDWEST MONITORING AND SURVEILLANCE, INC., GARY SHELTON, GARY BENGTSON, LARRY GARDNER AND SUE GARDNER EFFECTIVE DECEMBER 1, 2007
AMONG
REMOTEMDX,
INC.,
AND
MIDWEST
MONITORING AND SURVEILLANCE, INC.,
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ AND ▇▇▇ ▇▇▇▇▇▇▇
EFFECTIVE
DECEMBER 1, 2007
Agreement
entered into effective as of December 1, 2007, by and among RemoteMDx, Inc.,
a
Utah corporation (the "Buyer"),
Midwest Monitoring & Surveillance, Inc. (“MM&S”),
a Minnesota corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇ (“▇▇▇▇▇▇▇▇”),
▇▇▇▇ ▇▇▇▇▇▇▇ (“▇▇▇▇▇▇▇”),
▇▇▇▇▇ ▇▇▇▇▇▇▇ (“▇.
▇▇▇▇▇▇▇”), and ▇▇▇ ▇▇▇▇▇▇▇ (“▇.
▇▇▇▇▇▇▇”) (Bengtson, Shelton, ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ are referred to
individually herein as a “Seller,”
and collectively, as the "Sellers"). The
Buyer, MM&S and the Sellers are referred to collectively herein as the
"Parties."
RECITALS:
Sellers
in the aggregate own all of the outstanding capital stock of
MM&S.
Buyer
proposes to purchase from the Sellers, and the Sellers will sell to the Buyer,
a
minimum of fifty-one percent (51%) and up to one hundred percent (100%) of
the
outstanding capital stock of MM&S in return for cash and shares of Buyer’s
authorized but previously unissued common stock.
Now,
therefore, in consideration of the premises and the mutual promises herein
made,
and in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.
ARTICLE
1
DEFINITIONS
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1.1
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Defined
Terms.
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In
this
Agreement, the following terms will have the following meanings:
"Adverse
Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate"
has the meaning set forth in Rule 12b-2 of the regulations promulgated under
the
Securities Exchange Act.
"Affiliated
Group" means any affiliated group within the meaning of Code §1504(a) or
any similar group defined under a similar provision of state, local or foreign
law.
“Audited
Net Revenues” shall mean the actual Net Revenues of MM&S for the year
ending December 31, 2007 as determined by the Post-Closing Audit.
"Basis"
means any past or present fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction that forms or could form the basis for any specified
consequence.
"Buyer"
has the meaning set forth in the preface above.
"Closing"
has the meaning set forth in Section 2.2 below.
"Closing
Date" has the meaning set forth in Section 2.2 below.
"COBRA"
means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code
§4980B and of any similar state law.
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"Code"
means the Internal Revenue Code of 1986, as amended.
"Confidential
Information" means any information concerning the businesses and affairs
of MM&S that is not already generally available to the public.
"Controlled
Group" has the meaning set forth in Code §1563.
"Deferred
Intercompany Transaction" has the meaning set forth in Reg.
§1.1502-13.
"Disclosure
Schedule" has the meaning set forth in Section 5 below.
"Employee
Benefit Plan" means any "employee benefit plan" (as such term is defined
in ERISA §3(3)) and any other employee benefit plan, program or arrangement of
any kind.
"Employee
Pension Benefit Plan" has the meaning set forth in ERISA
§3(2).
"Employee
Welfare Benefit Plan" has the meaning set forth in ERISA
§3(1).
"Environmental,
Health, and Safety Requirements" shall mean all federal, state, local and
foreign statutes, regulations, ordinances and other provisions having the force
or effect of law, all judicial and administrative orders and determinations,
all
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA"
means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA
Affiliate" means each entity which is treated as a single employer with
MM&S for purposes of Code §414.
“Escrow
Agent” shall mean the escrow agent selected by Buyer to hold the Buyer
Shares as provided in Section 2.1.
"Excess
Loss Account" has the meaning set forth in Reg. §1.1502-19.
"Fiduciary"
has the meaning set forth in ERISA §3(21).
"Financial
Statement" has the meaning set forth in Section 5.6 below.
"GAAP"
means United States generally accepted accounting principles as in effect from
time to time.
"Indemnified
Party" has the meaning set forth in Section 9.4 below.
"Indemnifying
Party" has the meaning set forth in Section 9.4 below.
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"Intellectual
Property" means (a) all inventions (whether patentable or unpatentable
and whether or not reduced to practice), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and
all
applications, registrations, and renewals in connection therewith, (e) all
trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies
and
tangible embodiments thereof (in whatever form or medium).
"Knowledge"
means actual knowledge after reasonable investigation.
"Liability"
means any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability
for
Taxes.
"Most
Recent Balance Sheet" means the balance sheet contained within the Most
Recent Financial Statements.
"Most
Recent Financial Statements" has the meaning set forth in Section 5.6
below.
"Most
Recent Fiscal Year End" has the meaning set forth in Section 5.6
below.
"Multiemployer
Plan" has the meaning set forth in ERISA §3(37).
“Net
Revenues” means gross revenues less returns and allowances determined in
accordance with GAAP.
"Ordinary
Course of Business" means the ordinary course of business consistent with
past custom and practice (including with respect to quantity and
frequency).
"Party"
has the meaning set forth in the preface above.
"PBGC"
means the Pension Benefit Guaranty Corporation.
"Person"
means an individual, a partnership, a corporation, an association, a joint
stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
“Post-Closing
Adjustment Amount” shall mean the difference, if any, between the amount
of $1,702,825.33 in revenues reported by MM&S for the six months ended June
30, 2007 in the Most Recent Financial Statements less the Audited Net Revenues;
if Audited Net Revenues are greater than $1,702,825.33, the Post-Closing
Adjustment Amount shall be zero.
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“Post-Closing
Audit” shall mean the audit of MM&S’s financial statements for the
year ending December 31, 2007, to be conducted following the Closing by the
independent registered public accounting firm selected by Buyer (the “Auditor”).
"Prohibited
Transaction" has the meaning set forth in ERISA §406 and Code
§4975.
"Purchase
Price" has the meaning set forth in Section 2.1 below.
"Reportable
Event" has the meaning set forth in ERISA §4043.
"Securities
Act" means the Securities Act of 1933, as amended.
"Securities
Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security
Interest" means any mortgage, pledge, lien, encumbrance, charge, or other
security interest, other than (a) mechanic's, materialmen's, and similar liens,
(b) liens for Taxes not yet due and payable or for Taxes that the taxpayer
is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements,
and
(d) other liens arising in the Ordinary Course of Business and not incurred
in
connection with the borrowing of money.
"Seller"
has the meaning set forth in the preface above.
"Subsidiary"
means any corporation with respect to which a specified Person (or a Subsidiary
thereof) owns a majority of the common stock or has the power to vote or direct
the voting of sufficient securities to elect a majority of the
directors.
"Tax"
means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code §59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax
Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third
Party Claim" has the meaning set forth in Section 9.4 below.
ARTICLE
2
PURCHASE
AND
CLOSING
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2.1
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Purchase
and Sale of
MM&S Shares.
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(A) Buyer
shall purchase from Sellers, and each Seller shall sell, convey, assign,
transfer and deliver to Buyer, that number of shares of the common stock of
MM&S (the “MM&S
Shares”) free and clear of any lien and restriction on transfer set forth
on Schedule 2.1(A)
under the heading “Common Stock to be Sold” next to such Seller's name
for the consideration specified below in Section
2.1(B).
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(B) In
consideration for the MM&S Shares to be sold pursuant to Section 2.1(A),
Buyer shall pay to Sellers, in accordance with Schedule 2.1(B), an
aggregate amount of $3,400,000 (the “Purchase
Price”), minus the
Post-Closing Adjustment Amount, if any. The Purchase Price will be
paid by delivery of $1,800,000 cash and up to 438,000 Buyer Shares valued for
purposes of this Agreement at a price of $3.81 per share. The
Purchase Price shall be allocated among the Sellers in proportion to their
respective holdings of MM&S Shares as set forth on Schedule
2.1(B). The Buyer Shares shall be held in escrow from the
Closing Date until the completion of the Post-Closing Audit and verification
of
the Post-Closing Adjustment Amount. The number of Buyer Shares
delivered to Sellers out of escrow shall be reduced by the Post-Closing
Adjustment Amount and the balance of the Buyer Shares in escrow following
delivery of the adjusted number of Buyer Shares to Sellers will be returned
to
Buyer.
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2.2
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Closing.
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(A) Closing
Date. The Closing of the Transaction (the “Closing”)
will occur at a location to be agreed upon by Buyer and Sellers at 10:00 a.m.
on
or before December 31, 2007, or such later date as the Parties may agree;
provided, however, that the Closing shall occur no later than January 20,
2008. The date upon which the Closing actually occurs is referred to
herein as the “Closing
Date”.
(B) Deliveries
at the Closing. At the Closing, (i) the Sellers will deliver
to the Buyer the various certificates, instruments, and documents referred
to in
Section 8.1 below, (ii) the Buyer will deliver to the Sellers the various
certificates, instruments, and documents referred to in Section 8.2 below,
(iii)
each of the Sellers will deliver to the Buyer stock certificates representing
all of his MM&S Shares purchased hereunder, endorsed in blank or accompanied
by duly executed assignment documents, (iv) the Buyer will deliver to each
of
the Sellers the cash consideration specified in Section 2.1(B) above; and (v)
Buyer will deliver to the Escrow Agent the Buyer Shares forming part of the
Purchase Price specified in Section 2.1(B) above.
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2.3
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Buyer’s
Option.
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(A) Option
Price. In consideration of the payment of the Purchase Price
as provided above, Sellers hereby grant to Buyer the right, at its sole election
and option, to purchase all remaining MM&S Shares on or before March 1,
2009. The price for such remaining MM&S Shares shall be an amount
equal to two times the Net Revenues of MM&S for the 12 months ending
December 31, 2008, as determined by the Auditor, multiplied by 49% (the “Buyer’s
Option Price”).
(B) Exercise
of Option. Buyer may exercise its option at any time on or
after January 1, 2009, by giving Sellers a minimum of fifteen (15) days written
notice. The closing of the purchase of the remaining MM&S Shares
under this Section 2.3 shall occur on or before March 1, 2009 or such later
date
as the Parties may then agree. The Buyer’s Option Price may be paid,
at the sole option of Buyer, 50% in cash and 50% in shares of Buyer’s common
stock valued at the market price for such shares averaged over the five trading
days immediately preceding the closing date for such purchase.
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2.4
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Sellers’
Option.
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(A) Option. In
the event Buyer fails or elects not to exercise its Buyer’s Option granted under
Section 2.3, above, Sellers shall have the right, at their sole election and
option (“Sellers’
Option”), to require Buyer to purchase all but not less than all of the
remaining MM&S Shares on or before March 1, 2009.
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(B) Exercise. The
purchase price for the MM&S Shares under this Section 2.4 shall be the
Buyer’s Option Price. Exercise of this Seller’s Option shall be made
by giving Buyer written notice of such exercise no less than fifteen (15) days
prior to the date set for closing of such sale. The Seller’s Option
purchase price may be paid, at the sole option of Buyer, 50% in cash and 50%
in
shares of Buyer’s common stock valued at the market price for such shares
averaged over the five trading days immediately preceding the closing date
for
such purchase.
(C) Performance. In
the event Seller exercises the Sellers’ Option and Buyer fails to perform and
complete its purchase of the remaining MM&S Shares as provided in this
Section 2.4, and fails further to cure such breach within sixty (60) days
thereafter, Buyer shall forfeit its ownership of the MM&S Shares acquired
under Section 2.1, above, and shall return, convey, assign, and transfer and
deliver such MM&S Shares to Sellers, free and clear of any lien or
restriction on transfer to Sellers in the same amounts set forth opposite
Sellers’ names on Schedule 2.1(B).
2.5 Resolution
of Personal Liabilities. Upon the exercise and closing of
either the Buyer’s Option or the Sellers’ Option granted above, MM&S shall
undertake to obtain the release of the pledges and guarantees made by Sellers
or
any of them on behalf of MM&S, including, without limitation, all personal
guarantees, pledges of real or personal property, liens and other arrangements
in which Sellers or any of them has guaranteed or secured the performance of
MM&S. In addition, MM&S shall repay in full loans made by the
Sellers or any of them to MM&S.
ARTICLE
3
REPRESENTATIONS
AND
WARRANTIES
REGARDING
SELLERS
Each
Seller represents and warrants to the Buyer that the statements contained in
this Article 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as
though the Closing Date were substituted for the date of this Agreement
throughout this Article 3) with respect to himself or herself, except as set
forth in Schedule
3 attached hereto.
3.1 Authorization
of Transaction. Seller has full power and authority to execute
and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions. Seller need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this
Agreement.
3.2 Noncontravention. Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Seller
or MM&S is subject or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Seller or MM&S is a party or by which he or it is bound or to which any
of his or its assets is subject.
3.3 Brokers'
Fees. Seller has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
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3.4 Investment. Seller
(A) understands that the Buyer Shares have not been registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Buyer Shares solely for
his
own account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information concerning
the Buyer and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Buyer Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the Buyer Shares, and (F) is an Accredited
Investor.
3.5 MM&S
Shares. Seller holds of record and owns beneficially the
number of MM&S Shares set forth next to his name in Schedule 2.1(A), free
and clear of any restrictions on transfer (other than any restrictions under
the
Securities Act and state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. Seller is not a party to any option, warrant, purchase
right, or other contract or commitment that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of MM&S (other than this
Agreement). Seller is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any capital
stock
of MM&S that will survive the Closing.
ARTICLE
4
REPRESENTATIONS
AND
WARRANTIES
REGARDING
BUYER
Buyer
represents and warrants to the Sellers that the statements contained in this
Article 4 are correct and complete as of the date of this Agreement and will
be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this
Article 4), except as set forth in Schedule 4 attached
hereto.
4.1 Organization
of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its
incorporation.
4.2 Authorization
of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions. The Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent,
or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
4.3 Noncontravention. Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Buyer
is subject or any provision of its charter or bylaws.
4.4 Brokers'
Fees. The Buyer has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any Seller could become liable or
obligated.
4.5 Investment. The
Buyer is not acquiring MM&S Shares with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities
Act.
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ARTICLE
5
REPRESENTATIONS
AND
WARRANTIES REGARDING MM&S
The
Sellers represent and warrant to the Buyer that the statements contained in
this
Article 5 are correct and complete as of the date of this Agreement and will
be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this
Article 5), except as set forth in the disclosure schedule delivered by the
Sellers to the Buyer at the Closing and initialed by the Parties (the "Disclosure
Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of
a
copy) of a document or other item shall not be deemed adequate to disclose
an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item
itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article
5.
5.1 Organization,
Qualification, and Corporate Power. MM&S is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. MM&S is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. MM&S has full corporate
power and authority and all licenses, permits, and authorizations necessary
to
carry on the businesses in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned and used by
it. Section 5.1 of the Disclosure Schedule lists the directors and
officers of MM&S. The Sellers have delivered to the Buyer correct
and complete copies of the charter and bylaws of MM&S (as amended to
date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of MM&S
are correct and complete. MM&S is not in default under or in
violation of any provision of its charter or bylaws.
5.2 Capitalization. The
entire authorized capital stock of MM&S consists of 600 shares of common
stock, of which 300 shares are issued and outstanding and 300 shares are held
in
treasury. All of the issued and outstanding MM&S Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are
held
of record by the respective Sellers as set forth in Section 5.2 of the
Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require MM&S to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to MM&S. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of MM&S. A “Shareholders’
Agreement” dated February 11, 2000, to which each of the Sellers is a
party, shall be terminated and shall not survive the Closing.
5.3 Noncontravention. Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which MM&S
is subject or any provision of the charter or bylaws of MM&S or (ii)
conflict with, result in a breach of, constitute a default under, result in
the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which MM&S is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition
of
any Security Interest upon any of its assets). MM&S needs not
give notice to, make any filing with, or obtain any authorization, consent,
or
approval of any government or governmental agency in order for the Parties
to
consummate the transactions contemplated by this Agreement.
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5.4 Brokers'
Fees. MM&S has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
5.5 Title
to
Assets. MM&S has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, located on its
premises, or shown on the Most Recent Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the
Most
Recent Balance Sheet.
5.5 Subsidiaries. MM&S
has no Subsidiaries.
5.6 Financial
Statements. Attached hereto as Exhibit B are the following
financial statements (collectively the "Financial
Statements") of MM&S: (i) unaudited consolidating balance sheets and
statements of income, changes in stockholders' equity, and cash flow as of
and
for the fiscal years ended December 31, 2005 and 2006 (the "Most
Recent Fiscal Year End") for MM&S; and (ii) unaudited consolidated
and consolidating balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most
Recent Financial Statements") as of and for the 6 months ended June 30,
2007 for MM&S. The Financial Statements (including the notes
thereto) present fairly the financial condition of MM&S as of such dates and
the results of operations of MM&S for such periods, are correct and
complete, and are consistent with the books and records of MM&S (which books
and records are correct and complete) ; provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will
not
be material individually or in the aggregate) and lack footnotes and other
presentation items.
5.7 Events
Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of MM&S. Without limiting the generality of the
foregoing, since that date:
(A) MM&S
has not sold, leased, transferred, or assigned any of its assets, tangible
or
intangible, other than for a fair consideration in the Ordinary Course of
Business;
(B) MM&S
has not entered into any agreement, contract, lease, or license (or series
of
related agreements, contracts, leases, and licenses) either involving more
than
$10,000 or outside the Ordinary Course of Business;
(C) No
party (including MM&S) has accelerated, terminated, modified, or cancelled
any agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $10,000 to which MM&S
is a party or by which it is bound;
(D) MM&S
has not imposed any Security Interest upon any of its assets, tangible or
intangible;
(E) MM&S
has not made any capital expenditure (or series of related capital expenditures)
either involving more than $10,000 or outside the Ordinary Course of
Business;
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(F) MM&S
has not made any capital investment in, any loan to, or any acquisition of
the
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(G) MM&S
has not issued any note, bond, or other debt security or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or capitalized lease
obligation either involving more than $10,000 singly or $10,000 in the
aggregate;
(H) MM&S
has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(I) MM&S
has not cancelled, compromised, waived, or released any right or claim (or
series of related rights and claims) either involving more than $10,000 or
outside the Ordinary Course of Business;
(J) MM&S
has not granted any license or sublicense of any rights under or with respect
to
any Intellectual Property;
(K) There
has been no change made or authorized in the charter or bylaws of
MM&S;
(L) MM&S
has not issued, sold, or otherwise disposed of any of its capital stock, or
granted any options, warrants, or other rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock;
(M) MM&S
has not declared, set aside, or paid any dividend or made any distribution
with
respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(N) MM&S
has not experienced any damage, destruction, or loss (whether or not covered
by
insurance) to its property;
(O) MM&S
has not made any loan to, or entered into any other transaction with, any of
its
directors, officers, and employees outside the Ordinary Course of
Business;
(P)
MM&S has not entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such contract
or agreement;
(Q) MM&S
has not granted any increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(R) MM&S
has not adopted, amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the benefit
of
any of its directors, officers, and employees (or taken any such action with
respect to any other Employee Benefit Plan);
(S)
MM&S has not made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of
Business;
(T) MM&S
has not made or pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business;
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(U) There
has not been any other material occurrence, event, incident, action, failure
to
act, or transaction outside the Ordinary Course of Business involving MM&S;
and
(V) MM&S
has not committed to any of the foregoing.
5.8 Undisclosed
Liabilities. MM&S has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which
have
arisen after the Most Recent Fiscal Year End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of,
or
was caused by any breach of contract, breach of warranty, tort, infringement,
or
violation of law).
5.9 Legal
Compliance. MM&S and its predecessors and Affiliates has
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof),
and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging
any
failure so to comply.
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5.10
|
Tax
Matters.
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(A) MM&S
has filed all Tax Returns that it was required to file. All such Tax
Returns were correct and complete in all respects. All Taxes owed by
MM&S (whether or not shown on any Tax Return) have been
paid. MM&S currently is not the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made
by an authority in a jurisdiction where MM&S does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on any of the assets of MM&S that arose in connection
with any failure (or alleged failure) to pay any Tax.
(B) MM&S
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(C) No
Seller or director or officer (or employee responsible for Tax matters) of
MM&S expects any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of MM&S either (i) claimed or raised by any
authority in writing or (ii) as to which any of the Sellers and the directors
and officers (and employees responsible for Tax matters) of MM&S has
Knowledge based upon personal contact with any agent of such
authority. Section 5.10(C) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to
MM&S for taxable periods ended on or after December 31, 2000, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Sellers have delivered to the
Buyer correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by
MM&S since December 31, 2000.
(D) MM&S
has not waived any statute of limitations in respect of Taxes or agreed to
any
extension of time with respect to a Tax assessment or deficiency.
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(E) MM&S
has not filed a consent under Code §341(f) concerning collapsible
corporations. MM&S has not made any payments, is not obligated to
make any payments, or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code §280G. MM&S has not been a United States real property
holding corporation within the meaning of Code §897(c) (2) during the applicable
period specified in Code §897(c) (1) (A) (ii). MM&S is not a
party to any Tax allocation or sharing agreement. MM&S (1) has
not been a member of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was MM&S) or (2)
has no Liability for the Taxes of any Person (other than MM&S) under Reg.
§1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(F) Section
5.10(F) of the Disclosure Schedule sets forth the following information with
respect to MM&S as of the most recent practicable date: (i) the basis of
MM&S in its assets; (ii) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to MM&S; and (iii) the amount of any
deferred gain or loss allocable to MM&S arising out of any Deferred
Intercompany Transaction.
(G) The
unpaid Taxes of MM&S (i) did not, as of November 30, 2007, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of MM&S in
filing its Tax Returns.
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5.11
|
Real
Property.
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(A)
Section 5.11(A) of the Disclosure Schedule lists and describes briefly all
real
property that MM&S owns. With respect to each such parcel of
owned real property:
(i) The
identified owner has good and marketable title to the parcel of real property,
free and clear of any Security Interest, easement, covenant, or other
restriction, except for installments of special assessments not yet delinquent
and recorded easements, covenants, and other restrictions which do not impair
the current use, occupancy, or value, or the marketability of title, of the
property subject thereto;
(ii) There
are no pending or, to the Knowledge of any of the Sellers and the directors
and
officers (and employees with responsibility for real estate matters) of
MM&S, threatened condemnation proceedings, lawsuits, or administrative
actions relating to the property or other matters affecting materially and
adversely the current use, occupancy, or value thereof;
(iii) The
legal description for the parcel contained in the deed thereof describes such
parcel fully and adequately, the buildings and improvements are located within
the boundary lines of the described parcels of land, are not in violation of
applicable setback requirements, zoning laws, and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted
non-conforming use" or "permitted non-conforming structure" classifications),
and do not encroach on any easement which may burden the land, and the land
does
not serve any adjoining property for any purpose inconsistent with the use
of
the land, and the property is not located within any flood plain or subject
to
any similar type restriction for which any permits or licenses necessary to
the
use thereof have not been obtained;
(iv) All
facilities have received all approvals of governmental authorities (including
licenses and permits) required in connection with the ownership or operation
thereof and have been operated and maintained in accordance with applicable
laws, rules, and regulations;
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(v) There
are no leases, subleases, licenses, concessions, or other agreements, written
or
oral, granting to any party or parties the right of use or occupancy of any
portion of the parcel of real property;
(vi) There
are no outstanding options or rights of first refusal to purchase the parcel
of
real property, or any portion thereof or interest therein;
(vii) There
are no parties (other than MM&S) in possession of the parcel of real
property, other than tenants under any leases disclosed in Section 5.11 of
the
Disclosure Schedule who are in possession of space to which they are
entitled;
(viii)
All facilities located on the parcel of real property are supplied with
utilities and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer, and storm sewer,
all of which services are adequate in accordance with all applicable laws,
ordinances, rules, and regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefitting the parcel of real
property; and
(ix) Each
parcel of real property abuts on and has direct vehicular access to a public
road, or has access to a public road via a permanent, irrevocable, appurtenant
easement benefitting the parcel of real property, and access to the property
is
provided by paved public right-of-way with adequate curb cuts
available.
(B) Section
5.11(B) of the Disclosure Schedule lists and describes briefly all real property
leased or subleased to MM&S. Section 5.11(B) of the Disclosure
Schedule also identifies the leased or subleased properties for which title
insurance policies are to be procured in accordance with this
Agreement. The Sellers have delivered to the Buyer correct and
complete copies of the leases and subleases listed in Section 5.11(B) of the
Disclosure Schedule (as amended to date). With respect to each lease
and sublease listed in the Disclosure Schedule:
(i)
The lease or sublease is legal, valid, binding, enforceable, and in full force
and effect;
(ii) The
lease or sublease will continue to be legal, valid, binding, enforceable, and
in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) No
party to the lease or sublease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(iv) No
party to the lease or sublease has repudiated any provision
thereof;
(v) There
are no disputes, oral agreements, or forbearance programs in effect as to the
lease or sublease;
(vi)
With respect to each sublease, the representations and warranties set forth
in
subsections (i) through (v) above are true and correct with respect to the
underlying lease;
(vii)
MM&S has not assigned, transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or subleasehold;
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(viii) All
facilities leased or subleased thereunder have received all approvals of
governmental authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in accordance
with applicable laws, rules, and regulations;
(ix) All
facilities leased or subleased thereunder are supplied with utilities and other
services necessary for the operation of said facilities; and
(x) The
owner of the facility leased or subleased has good and marketable title to
the
parcel of real property, free and clear of any Security Interest, easement,
covenant, or other restriction, except for installments of special easements
not
yet delinquent and recorded easements, covenants, and other restrictions which
do not impair the current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
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5.12
|
Intellectual
Property.
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(A) MM&S
owns or has the right to use pursuant to license, sublicense, agreement, or
permission all Intellectual Property necessary or desirable for the operation
of
the business of MM&S as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by
MM&S immediately prior to the Closing will be owned or available for use by
MM&S on identical terms and conditions immediately subsequent to the
Closing. MM&S has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(B) MM&S
has not interfered with, infringed upon, misappropriated, or otherwise come
into
conflict with any Intellectual Property rights of third parties, and none of
the
Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of MM&S has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that MM&S
must license or refrain from using any Intellectual Property rights of any
third
party). To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of MM&S, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of MM&S.
(C) Section
5.12(C) of the Disclosure Schedule identifies each patent or registration which
has been issued to MM&S with respect to any of its Intellectual Property,
identifies each pending patent application or application for registration
which
MM&S has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which MM&S has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Sellers have delivered to the
Buyer correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date) and
have made available to the Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable)
of
each such item. Section 5.12(C) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by MM&S in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 5.12(C) of the Disclosure
Schedule:
(i) MM&S
possesses all right, title, and interest in and to the item, free and clear
of
any Security Interest, license, or other restriction;
(ii) The
item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
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(iii) No
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand is pending or, to the Knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of MM&S, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) MM&S
has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the
item.
(D) Section
5.12(D) of the Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and that MM&S uses pursuant to license,
sublicense, agreement, or permission. The Sellers have delivered to
the Buyer correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Section 5.12(D)
of the Disclosure Schedule:
(i) The
license, sublicense, agreement, or permission covering the item is legal, valid,
binding, enforceable, and in full force and effect;
(ii) The
license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby;
(iii)
No party to the license, sublicense, agreement, or permission is in breach
or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) No
party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
(v) With
respect to each sublicense, the representations and warranties set forth in
subsections (i) through (iv) above are true and correct with respect to the
underlying license;
(vi) The
underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(vii)
No action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand is pending or, to the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of MM&S, is threatened which challenges the legality,
validity, or enforceability of the underlying item of Intellectual Property;
and
(viii) MM&S
has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
(E) To
the Knowledge of any of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of MM&S,
MM&S will not interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of third parties
as a
result of the continued operation of its businesses as presently conducted
and
as presently proposed to be conducted.
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5.13 Tangible
Assets. MM&S owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted and as presently proposed to be
conducted. Each such tangible asset is free from defects (patent and
latent), has been maintained in accordance with normal industry practice, is
in
good operating condition and repair (subject to normal wear and tear), and
is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
5.14 Inventory. The
inventory of MM&S consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and none of which is slow-moving, obsolete, damaged, or defective, subject
only
to the reserve for inventory writedown set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted for the passage
of
time through the Closing Date in accordance with the past custom and practice
of
MM&S.
5.15 Contracts. Section
5.15 of the Disclosure Schedule lists the following contracts and other
agreements to which MM&S is a party:
(A) Any
agreement (or group of related agreements) for the lease of personal property
to
or from any Person providing for lease payments in excess of $10,000 per
annum;
(B) Any
agreement (or group of related agreements) for the purchase or sale of raw
materials, commodities, supplies, products, or other personal property, or
for
the furnishing or receipt of services, the performance of which will extend
over
a period of more than one year, result in a material loss to MM&S, or
involve consideration in excess of $10,000;
(C) Any
agreement concerning a partnership or joint venture;
(D) Any
agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $10,000 or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
(E) Any
agreement concerning confidentiality or noncompetition;
(F) Any
agreement with any of the Sellers and their Affiliates (other than
MM&S);
(G) Any
profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other material plan or arrangement for the benefit
of its current or former directors, officers, and employees;
(H) Any
collective bargaining agreement;
(I) Any
agreement for the employment of any individual on a full-time, part-time,
consulting, or other basis providing annual compensation in excess of $10,000
or
providing severance benefits;
(J) Any
agreement under which it has advanced or loaned any amount to any of its
directors, officers, and employees outside the Ordinary Course of
Business;
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(K) Any
agreement under which the consequences of a default or termination could have
a
material adverse effect on the business, financial condition, operations,
results of operations, or future prospects of MM&S; or
(L) Any
other agreement (or group of related agreements) the performance of which
involves consideration in excess of $10,000.
The
Sellers have delivered to the Buyer a correct and complete copy of each written
agreement listed in Section 5.15 of the Disclosure Schedule (as amended to
date)
and a written summary setting forth the terms and conditions of each oral
agreement referred to in the Disclosure Schedule. With respect to
each such agreement: (i) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (ii) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (iii) no
party is in breach or default, and no event has occurred which with notice
or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (iv) no party has
repudiated any provision of the agreement.
5.16 Notes
and
Accounts Receivable. All notes and accounts receivable of
MM&S are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom
and
practice of MM&S.
5.17 Powers
of
Attorney. There are no
outstanding powers of attorney executed on behalf of MM&S.
5.18 Insurance. Section
5.18 of the Disclosure Schedule sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which MM&S has been a party, a named insured, or otherwise
the beneficiary of coverage at any time within the past ten (10)
years:
(A) the
name, address, and telephone number of the agent;
(B) the
name of the insurer, the name of the policyholder, and the name of each covered
insured;
(C) the
policy number and the period of coverage;
(D) the
scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage;
and
(E) a
description of any retroactive premium adjustments or other loss-sharing
arrangements.
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With
respect to each such insurance policy: (i) the policy is legal, valid, binding,
enforceable, and in full force and effect; (ii) the policy will continue to
be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (iii)
neither MM&S nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (iv) no party to the policy has repudiated
any provision thereof. MM&S has been covered during the past ten
(10) years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned
period. Section 5.18 of the Disclosure Schedule describes any
self-insurance arrangements affecting MM&S.
5.19 Litigation. Section
5.19 of the Disclosure Schedule sets forth each instance in which MM&S (A)
is subject to any outstanding injunction, judgment, order, decree, ruling,
or
charge or (B) is a party or, to the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for litigation
matters) of MM&S, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 5.19 of the
Disclosure Schedule could result in any material adverse change in the business,
financial condition, operations, results of operations, or future prospects
of
MM&S. None of the Sellers and the directors and officers (and employees with
responsibility for litigation matters) of MM&S has any reason to believe
that any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against MM&S.
5.20 Product
Warranty. Each product
manufactured, sold, leased, or delivered by MM&S has been in conformity with
all applicable contractual commitments and all express and implied warranties,
and MM&S has no Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand against it giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for product warranty claims set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
MM&S. No product manufactured, sold, leased, or delivered by
MM&S is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. Section
5.20 of the Disclosure Schedule includes copies of the standard terms and
conditions of sale or lease for MM&S (containing applicable guaranty,
warranty, and indemnity provisions).
5.21 Product
Liability. MM&S has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability) arising out of any injury to individuals or property as a result
of
the ownership, possession, or use of any product manufactured, sold, leased,
or
delivered by MM&S.
5.22 Employees. To
the Knowledge of any of the Sellers and the directors and officers (and
employees with responsibility for employment matters) of MM&S, no executive,
key employee, or group of employees has any plans to terminate employment with
MM&S. MM&S is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strikes, grievances, claims
of
unfair labor practices, or other collective bargaining
disputes. MM&S has not committed any unfair labor
practice. None of the Sellers and the directors and officers (and
employees with responsibility for employment matters) of MM&S has any
Knowledge of any organizational effort presently being made or threatened by
or
on behalf of any labor union with respect to employees of MM&S.
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5.23
|
Employee
Benefits.
|
(A)
Section 5.23(A) of the Disclosure Schedule lists each Employee Benefit Plan
that
MM&S maintains, to which MM&S contributes or has any obligation to
contribute, or with respect to which MM&S has any material Liability or
potential Liability.
(i)
Each such Employee Benefit Plan (and each related trust, insurance contract,
or
fund) has been maintained, funded and administered in accordance with the terms
of such Employee Benefit Plan and complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, and
other
applicable laws.
(ii) All
required reports and descriptions (including annual reports (IRS Form 5500),
summary annual reports, and summary plan descriptions) have been timely filed
and/or distributed in accordance with the applicable requirements of ERISA
and
the Code with respect to each such Employee Benefit Plan. The requirements
of
COBRA have been met with respect to each such Employee Benefit Plan which is
an
Employee Welfare Benefit Plan subject to COBRA.
(iii) All
contributions (including all employer contributions and employee salary
reduction contributions) which are due have been made within the time period
prescribed by ERISA to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been made to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of MM&S and its Subsidiaries. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect
to
each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(iv) Each
such Employee Benefit Plan which is intended to meet the requirements of a
"qualified plan" under Code §401(a) has received a determination from the
Internal Revenue Service that such Employee Benefit Plan is so qualified, and
nothing has occurred since the date of such determination that could adversely
affect the qualified status of any such Employee Benefit Plan.
(v) The
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of all vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for
determination.
(vi) The
Sellers have delivered to the Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the Internal Revenue Service, the most recent annual report (IRS
Form 5500, with all applicable attachments), and all related trust agreements,
insurance contracts, and other funding arrangements which implement each such
Employee Benefit Plan.
(B) With
respect to each Employee Benefit Plan that MM&S, and any ERISA Affiliate
maintains, to which any of them contributes or has any obligation to contribute,
or with respect to which any of them has any material Liability or potential
Liability:
(i)
No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been completely or partially terminated or
been
the subject of a Reportable Event. No proceeding by the PBGC to terminate any
such Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been
instituted or, to the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for employee benefits matters)
of
MM&S, threatened.
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(ii) There
have been no Prohibited Transactions with respect to any such Employee Benefit
Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment
of
the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the investment
of the assets of any such Employee Benefit Plan (other than routine claims
for
benefits) is pending or, to the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for employee benefits
matters) of MM&S, threatened. None of the Sellers and the
directors and officers (and employees with responsibility for employee benefits
matters) of MM&S has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(iii) MM&S
has not incurred, and none of the Sellers and the directors and officers (and
employees with responsibility for employee benefits matters) of MM&S has any
reason to expect that MM&S will incur, any Liability to the PBGC (other than
with respect to PBGC premium payments not yet due) or otherwise under Title
IV
of ERISA (including any withdrawal liability as defined in ERISA §4201) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan, or under COBRA with respect to any such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(iv) None
of MM&S and any ERISA Affiliate has incurred any Liability on account of a
"partial withdrawal" or a "complete with drawl" (within the meaning of ERISA
§§4205 and 4203, respectively) from any Multiemployer Plan, no such Liability
has been asserted, and there are no events or circumstances which could result
in any such partial or complete withdrawal; and none of MM&S and any ERISA
Affiliate is bound by any contract or agreement or has any obligation or
Liability described in ERISA §4204. Each Multiemployer Plan complies
in form and has been administered in accordance with the requirements of ERISA
and, where applicable, the Code, and each Multiemployer Plan is qualified under
Code §401(a).
(v) MM&S
does not maintain, contribute to or have an obligation to contribute to, or
have
any material Liability or potential Liability with respect to, any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with
COBRA).
5.24 Guaranties. MM&S
is not a guarantor of or otherwise liable for any Liability or obligation
(including indebtedness) of any other Person. Section 5.24 of the
Disclosure Schedule lists the obligations of MM&S that have been guaranteed
personally by any Seller or officer or director of MM&S.
5.25 Environmental,
Health, and
Safety Matters.
(A) MM&S
and its predecessors and Affiliates has complied and is in compliance with
all
Environmental, Health, and Safety Requirements.
(B) Without
limiting the generality of the foregoing, MM&S and its Affiliates have
obtained and complied with, and is in compliance with, all permits, licenses
and
other authorizations that are required pursuant to Environmental, Health,
and Safety Requirements for the occupation of its facilities and the operation
of its business; a list of all such permits, licenses and other authorizations
is set forth on the attached "Environmental and
Safety
Permits Schedule."
(C) Neither
MM&S nor its predecessors or Affiliates has received any written or oral
notice, report or other information regarding any actual or alleged violation
of
Environmental, Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to
any
of them or its facilities arising under Environmental, Health, and Safety
Requirements.
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(D) None
of the following exists at any property or facility owned or operated by
MM&S: (1) underground storage tanks, (2) asbestos-containing material in any
form or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal
areas.
(E) None
of MM&S or its predecessors or Affiliates has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released
any
substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, including any Liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"),
the Solid Waste Disposal Act, as amended ("SWDA") or any other Environmental,
Health, and Safety Requirements.
(F) Neither
this Agreement nor the consummation of the transaction that is the subject
of
this Agreement will result in any obligations for site investigation or cleanup,
or notification to or consent of government agencies or third parties, pursuant
to any of the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(G) Neither
MM&S nor any of its predecessors or Affiliates has, either expressly or by
operation of law, assumed or undertaken any Liability, including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(H) No
facts, events or conditions relating to the past or present facilities,
properties or operations of MM&S or any of its predecessors or Affiliates
will prevent, hinder or limit continued compliance with Environmental, Health,
and Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental, Health, and Safety Requirements, or
give
rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
5.26 Certain
Business Relationships with MM&S. Except as disclosed in
Schedule 5.26 of the Disclosure Schedule, none of the Sellers and their
Affiliates has been involved in any business arrangement or relationship with
MM&S within the past 12 months, and none of the Sellers
and their Affiliates owns any asset, tangible or intangible, which is used
in
the business of MM&S.
5.27 Disclosure. The
representations and warranties contained in this Article 5 do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained in this Article 5
not
misleading.
ARTICLE
6
PRE-CLOSING
COVENANTS
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The
Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.
6.1 General. Each
of the Parties will use his or its reasonable best efforts to take all action
and to do all things necessary, proper, or advisable in order to consummate
and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth
below).
6.2 Notices
and Consents. The Sellers will cause MM&S to give any
notices to third parties, and will cause MM&S to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in Section 5.3
above. Each of the Parties will (and the Sellers will cause MM&S
to) give any notices to, make any filings with, and use its reasonable best
efforts to obtain any authorizations, consents, and approvals of governments
and
governmental agencies in connection with the matters referred to in Section
3.3,
Section 4.3, and Section 5.3 above.
6.3 Preservation
of Business. The Sellers will cause MM&S to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
6.4 Operation
of Business. The Sellers will not cause or permit MM&S to
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of
the foregoing, the Sellers will not cause or permit MM&S to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock, (ii)
offer or sell any equity or debt securities of MM&S for cash or other
consideration, or (iii) otherwise engage in any practice, take any action,
or
enter into any transaction of the sort described in Section 5.7 above without
the prior written consent of Buyer.
6.5 Full
Access. Each of the Sellers will permit, and the Sellers will
cause MM&S to permit, representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of MM&S, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining
to
MM&S.
6.6 Notice
of
Developments. The Sellers will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Article 5 above. Each Party will
give prompt written notice to the others of any material adverse development
causing a breach of any of his or its own representations and warranties in
Article 3 or Article 4 above. No disclosure by any Party pursuant to
this Section 6.6, however, shall be deemed to amend or supplement Schedules
3 or
4, or the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
6.7 Exclusivity. None
of the Sellers will (and the Sellers will not cause or permit MM&S to) (A)
solicit, initiate, or encourage the submission of any proposal or offer from
any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of MM&S (including any
acquisition structured as a merger, consolidation, or share exchange) or (B)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. None of the Sellers will vote their MM&S Shares in
favor of any such acquisition structured as a merger, consolidation, or share
exchange. The Sellers will notify the Buyer immediately if any Person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
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6.8 Shareholders’
Agreement. The Sellers shall cause the Shareholders’ Agreement
to terminate effective with the Closing.
ARTICLE
7
POST-CLOSING
COVENANTS
The
Parties agree as follows with respect to the period following the
Closing.
7.1 General. In
case at any time after the Closing any further action is necessary or desirable
to carry out the purposes of this Agreement, each of the Parties will take
such
further action (including the execution and delivery of such further instruments
and documents) as any other Party reasonably may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled
to
indemnification under Article 8 below). The Sellers acknowledge and
agree that from and after the Closing the Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and
financial data of any sort relating to MM&S.
7.2 Litigation
Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing
Date
involving MM&S, each of the other Parties will cooperate with him or it and
his or its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article 8
below).
7.3 Operation
of Business. The Sellers will not cause or permit MM&S to
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of
the foregoing, the Sellers will not cause or permit MM&S to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock, (ii)
offer or sell any equity or debt securities of MM&S for cash or other
consideration, or (iii) otherwise engage in any practice, take any action,
or
enter into any transaction of the sort described in Section 5.7 above without
the prior written consent of Buyer. Following the Closing, the number
of members of the MM&S board of directors will be adjusted to five, of which
Buyer shall appoint three and Sellers shall appoint two directors.
7.4 Transition. None
of the Sellers will take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of MM&S from maintaining the same business relationships
with MM&S after the Closing as it maintained with MM&S prior to the
Closing. Each of the Sellers will refer all customer inquiries
relating to the business of MM&S to the Buyer from and after the
Closing.
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7.5 Confidentiality. Each
of the Sellers will treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection
with
this Agreement, and deliver promptly to the Buyer or destroy, at the request
and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in his or its possession. In the
event that any of the Sellers is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, that Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this Section
7.5. If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled
to
disclose any Confidential Information to any tribunal or else stand liable
for
contempt, that Seller may disclose the Confidential Information to the tribunal;
provided,
however, that the disclosing Seller shall use his or its reasonable best
efforts to obtain, at the reasonable request of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public immediately
prior to the time of disclosure.
7.6 Covenant
Not to Compete. For a period of five years from and after the
closing date of the exercise of either the Buyer’s Option or the Seller’s
Option, none of the Sellers will engage directly or indirectly in any business
that MM&S conducts as of the Closing Date in any geographic area in which
MM&S conducts that business as of the Closing Date; provided, however,
that no owner of less than 1% of the outstanding stock of any publicly-traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 7.6 is invalid
or unenforceable, the Parties agree that the court making the determination
of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid 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, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
7.7 Registration
of Buyer Shares. Subject to the
terms and conditions of this Agreement, the Buyer shall prepare and file with
the SEC, within 90 days from the release of the Buyer Shares as provided in
Section 2.1(B) of this Agreement, a registration statement on SB-2 (or, if
the
Company is then eligible, on Form S-3) under the Securities Act for the
registration for the resale by Sellers of the Buyer Shares to be issued under
this Agreement.
ARTICLE
8
CONDITIONS
TO OBLIGATIONS TO
CLOSE
8.1 Conditions
to Obligation of Buyer. The obligation
of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following
conditions:
(A) The
representations and warranties set forth in Article 3 and Article 5 above shall
be true and correct in all material respects at and as of the Closing
Date;
(B) The
Sellers shall have performed and complied with all of their covenants hereunder
in all material respects through the Closing;
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(C) MM&S
shall have procured all of the third party consents specified in Section 6.3
above;
(D) No
action, suit, or proceeding shall be pending or threatened before any court
or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of
any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of the Buyer to own MM&S
Shares and to control MM&S, or (iv) affect adversely the right of any of
MM&S to own its assets and to operate its business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(E) MM&S
shall not have granted any compensation or bonus to any employee in connection
with the transactions contemplated hereunder other than as approved by
Buyer;
(G) On
or prior to the Closing Date, Sellers or MM&S, as the case may be, will have
delivered to Buyer all of the following (dated as of the Closing Date, except
as
otherwise indicated):
(1) A
certificate, dated not earlier than the fifth (5th) Business Day prior to the
Closing Date, of the Minnesota Secretary of State stating that MM&S is in
good standing;
(2) A
certificate of each Seller and of an officer of the Company certifying that
each
of the conditions set forth in Sections 8.2(A) through (C) has been and is
satisfied as of the time of the Closing;
(3) A
certificate of the Secretary of MM&S (i) certifying that attached to such
certificate are true and complete copies of (a) MM&S's articles of
incorporation, as amended through and in effect on the Closing Date, (b)
MM&S's bylaws, as amended through and in effect on the Closing Date, and (c)
resolutions of MM&S's board of directors authorizing the execution, delivery
and performance of this Agreement and the transaction documents to which
MM&S is a party and consummation of the transactions contemplated by this
Agreement and the transaction documents to which MM&S is a party, and
(ii) certifying as to the incumbency of the officer(s) of MM&S
executing this Agreement and the transaction documents on behalf of such
entity;
(4) An
opinion of counsel to MM&S and Sellers, in substantially the form attached
as Exhibit E;
and
(5) Such
other documents or instruments as Buyer reasonably request and are reasonably
necessary to effect the transactions contemplated by this Agreement;
and
(H) All
actions to be taken by the Sellers in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby
will
be satisfactory in form and substance to the Buyer.
Buyer
may
waive any condition specified in this Section 8.1 if it executes a writing
so
stating at or prior to the Closing.
8.2
Conditions
to Obligation of the Sellers. The obligation of the Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
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(A) The
representations and warranties set forth in Article 4 above shall be true and
correct in all material respects at and as of the Closing Date;
(B) The
Buyer shall have performed and complied with all of its covenants hereunder
in
all material respects through the Closing;
(C) No
action, suit, or proceeding shall be pending or threatened before any court
or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of
any
of the transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(D) The
Buyer shall have delivered to the Sellers a certificate to the effect that
each
of the conditions specified above in Section 8.1(A) through 8.1(E) is satisfied
in all respects; and
(E) All
actions to be taken by the Buyer in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby
will
be reasonably satisfactory in form and substance to the Sellers.
Sellers
may waive any condition specified in this Section 8.2 if they execute a writing
so stating at or prior to the Closing.
ARTICLE
9
REMEDIES
FOR BREACHES OF
THIS AGREEMENT
9.1 Survival
of Representations and Warranties. All of the representations and
warranties of the Parties contained in this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing)
and
continue in full force and effect forever thereafter (subject to any applicable
statutes of limitations).
9.2 Indemnification
Provisions
for Benefit of the Buyer.
(A)
In the event any of the Sellers breaches (or in the event any third party
alleges facts that, if true, would mean any of the Sellers has breached) any
of
their representations, warranties, and covenants contained herein (other than
the covenants in Section 2.1 above and the representations and warranties in
Article 3 above), and, if there is an applicable survival period pursuant to
Section 9.1 above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to Section 12.7 below within
such survival period, then each of the Sellers agrees to indemnify the Buyer
from and against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of,
or caused by the breach (or the alleged breach).
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(B) In
the event any of the Sellers breaches (or in the event any third party alleges
facts that, if true, would mean any of the Sellers has breached) any of his
covenants in Section 2.1 above or any of his representations and warranties
in
Article 3 above, and, if there is an applicable survival period pursuant to
Section 9.1 above, provided that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section 12.7 below within such
survival period, then the Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach
(or
the alleged breach).
(C) Each
of the Sellers agrees to indemnify the Buyer from and against the entirety
of
any Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of MM&S (1) for
any Taxes of MM&S with respect to any Tax year or portion thereof ending on
or before the Closing Date (or for any Tax year beginning before and ending
after the Closing Date to the extent allocable (determined in a manner
consistent with Section 10.3) to the portion of such period beginning before
and
ending on the Closing Date), to the extent such Taxes are not reflected in
the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown
on
the face of the Most Recent Balance Sheet (rather than in any notes thereto),
as
such reserve is adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of MM&S in filing its Tax
Returns, and (2) for the unpaid Taxes of any Person (other than MM&S) under
Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
9.3 Indemnification
Provisions for Benefit of the Sellers. In the event the Buyer
breaches (or in the event any third party alleges facts that, if true, would
mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 9.1 above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to Section 12.7 below
within such survival period, then the Buyer agrees to indemnify each of the
Sellers from and against the entirety of any Adverse Consequences the Seller
may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of,
or caused by the breach (or the alleged breach).
9.4 Matters
Involving Third
Parties.
(A) If
any third party shall notify any Party (the "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 9, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying any 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) Any
Indemnifying Party will have the right to defend the Indemnified Party against
the Third Party Claim with counsel of its choice reasonably satisfactory to
the
Indemnified Party so long as (1) the Indemnifying Party notifies the Indemnified
Party in writing within 15 days after the Indemnified Party has given notice
of
the Third Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of 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, (2) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder,
(3)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (4) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith judgment of
the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (5) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
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(C) So
long as the Indemnifying Party is conducting the defense of the Third Party
Claim in accordance with Section 9.4(B) above, (1) the Indemnified Party may
retain separate co-counsel at its sole cost and expense and participate in
the
defense of the Third Party Claim, (2) the Indemnified 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 Indemnifying Party (not
to
be withheld unreasonably), and (3) 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).
(D) In
the event any of the conditions in Section 9.4(B) above is or becomes
unsatisfied, however, (1) 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, any
Indemnifying Party in connection therewith), (2) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (3) the Indemnifying Parties 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 9.
(E) Determination
of Adverse
Consequences. All indemnification payments under this Article
9 shall be deemed adjustments to the Purchase Price.
(F) Other
Indemnification
Provisions. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable, or common
law
remedy (including without limitation any such remedy arising under
Environmental, Health, and Safety Requirements) any Party may have with respect
to MM&S or the transactions contemplated by this Agreement. Each
of the Sellers hereby agrees that he or she will not make any claim for
indemnification against MM&S by reason of the fact that he or she was a
director, officer, employee, or agent of any such entity or was serving at
the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
ARTICLE
10
TAX
MATTERS
The
following provisions shall govern the allocation of responsibility as between
Buyer and Sellers for certain tax matters following the Closing
Date:
10.1 Tax
Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for MM&S for all periods ending on or prior to the Closing Date which are
filed after the Closing Date other than income Tax Returns with respect to
periods for which a consolidated, unitary or combined income Tax Return of
Seller will include the operations of MM&S. Buyer shall permit
MM&S to review and comment on each such Tax Return described in the
preceding sentence prior to filing. Sellers shall reimburse Buyer for
Taxes of MM&S with respect to such periods within fifteen (15) days after
payment by Buyer or MM&S of such Taxes to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet.
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10.2 Tax
Periods Beginning Before and Ending After the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed any Tax Returns
of
MM&S for Tax periods which begin before the Closing Date and end after the
Closing Date. Sellers shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected
in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown
on
the face of the Closing Balance Sheet. For purposes of this Section,
in the case of any Taxes that are imposed on a periodic basis and are payable
for a Taxable period that includes (but does not end on) the Closing Date,
the
portion of such Tax which relates to the portion of such Taxable period ending
on the Closing Date shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator of which
is
the number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and
(y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that
begins before and ends after the Closing Date shall be taken into account as
though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall
be
made in a manner consistent with prior practice of MM&S.
10.2 Cooperation
on Tax
Matters.
(A) Buyer,
MM&S and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided
hereunder. MM&S and Sellers agree (1) to retain all books and
records with respect to Tax matters pertinent to MM&S relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer or Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (2)
to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
MM&S or Sellers, as the case may be, shall allow the other party to take
possession of such books and records.
(B) Buyer
and Sellers further agree, upon request, to use their best efforts to obtain
any
certificate or other document from any governmental authority or any other
Person as may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the transactions
contemplated hereby).
(C) Buyer
and Sellers further agree, upon request, to provide the other party with all
information that either party may be required to report pursuant to §6043 of the
Code and all Treasury Department Regulations promulgated
thereunder.
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10.3 Tax
Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving MM&S shall be terminated as of the
Closing Date and, after the Closing Date, MM&S shall not be bound thereby or
have any Liability thereunder.
10.4 Certain
Taxes. All transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement, shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect
to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
ARTICLE
11
TERMINATION
11.1 Termination
of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(A) Buyer
and Sellers may terminate this Agreement by mutual written consent at any time
prior to the Closing;
(B) Buyer
may terminate this Agreement by giving written notice to the Sellers at any
time
prior to the Closing (1) in the event any of the Sellers has breached any
material representation, warranty, or covenant contained in this Agreement
in
any material respect, the Buyer has notified the Sellers of the breach, and
the
breach has continued without cure for a period of five (5) after the notice
of
breach or (2) if the Closing shall not have occurred on or before December
31,
2007, by reason of the failure of any condition precedent under Section 8.1
hereof (unless the failure results primarily from the Buyer itself breaching
any
representation, warranty, or covenant contained in this Agreement);
and
(C) Sellers
may terminate this Agreement by giving written notice to the Buyer at any time
prior to the Closing (1) in the event the Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, any of the Sellers has notified the Buyer of the breach,
and
the breach has continued without cure for a period of five (5) days after the
notice of breach or (2) if the Closing shall not have occurred on or before
December 31, 2007, by reason of the failure of any condition precedent under
Section 8.2 hereof (unless the failure results primarily from any of the Sellers
themselves breaching any representation, warranty, or covenant contained in
this
Agreement).
11.2 Effect
of
Termination. If any Party terminates this Agreement pursuant
to Section 11.1 above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for
any
Liability of any Party then in breach).
ARTICLE
12
MISCELLANEOUS
12.1 Nature
of Certain
Obligations.
(A) The
covenants of each of the Sellers in Section 2.1 above concerning the sale of
his
MM&S Shares to the Buyer and the representations and warranties of each of
the Sellers in Article 3 above concerning the transaction are several
obligations. This means that the particular Seller making the
representation, warranty, or covenant will be solely responsible to the extent
provided in Article 9 above for any Adverse Consequences the Buyer may suffer
as
a result of any breach thereof.
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(B) The
remainder of the representations, warranties, and covenants in this Agreement
are joint and several obligations. This means that each Seller will be
responsible to the extent provided in Article 9 above for the entirety of any
Adverse Consequences the Buyer may suffer as a result of any breach
thereof.
12.2
Press
Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter
of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Sellers; provided, however,
that any Party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Parties prior to making the
disclosure).
12.3
No
Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
12.4 Entire
Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
12.5 Succession
and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors
and
permitted assigns. No Party may assign either this Agreement or any
of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and the Sellers; provided, however,
that the Buyer may (i) assign any or all of its rights and interests hereunder
to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
the Buyer nonetheless shall remain responsible for the performance of all of
its
obligations hereunder).
12.6 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original but all of which together will constitute one and the same
instrument.
12.7 Notices. All
notices, requests, demands, claims, and other communications hereunder will
be
in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth
below:
If
to the Sellers:
c/o
Midwest
Monitoring and
Surveillance
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Copy
to:
▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇, P.A.
Attn:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
If
to the Buyer:
RemoteMDx,
Inc.
▇▇▇
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
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Copy
to:
Durham
▇▇▇▇▇ & ▇▇▇▇▇▇▇, PC
Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Any
Party
may send any notice, request, demand, claim, or other communication hereunder
to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless
and
until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
12.8 Governing
Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect
to
any choice or conflict of law provision or rule (whether of the State of Utah
or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah.
12.9 Amendments
and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer
and
the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
12.10 Severability. Any
term or provision of this Agreement that is invalid 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.
12.11 Expenses. Each
of the Parties and MM&S will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. The Sellers agree that MM&S has
not borne or will not bear any of the Sellers' costs and expenses (including
any
of their legal fees and expenses) in connection with this Agreement or any
of
the transactions contemplated hereby.
12.12 Construction. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean
including without limitation. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty,
or covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
12.13 Incorporation
of Exhibits, Annexes, and Schedules. The Exhibits, Annexes,
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
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12.14 Specific
Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy
to
which they may be entitled, at law or in equity.
12.15 Captions. The
captions used in this Agreement are for convenience of reference only and do
not
constitute a part of this Agreement and will not be deemed to limit,
characterize or in any way affect any provision of this Agreement, and all
provisions of this Agreement will be enforced and construed as if no caption
had
been used in this Agreement.
*****
[Signatures
are on the following page.]
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IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement on December 20,
2007, effective December 1, 2007.
REMOTEMDX,
INC.
By: /s/ ▇▇▇▇▇▇▇
▇.
▇▇▇▇▇
Title: Chief
Financial
Officer
MIDWEST
MONITORING AND SURVEILLANCE, INC.
By: /s/ ▇▇▇▇
▇▇▇▇▇▇▇
Title: President
/s/ ▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇
/s/ ▇▇▇
▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇
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