STOCK PURCHASE AGREEMENT
between and among
NETSOL TECHNOLOGIES, INC.
A Nevada Corporation
▇▇▇▇▇ Systems, Inc.
A California corporation
and
The Shareholders of ▇▇▇▇▇ Systems, Inc. a California corporation
Dated May 6, 2006
TABLE OF CONTENTS
Page
----
Article 1 Terms of Acquisition..........................................1
Article 2 Closing.......................................................4
Article 3 Representations and Warranties of ▇▇▇▇▇ and Sellers...........6
Article 4 Representations and Warranties of the Sellers................19
Article 5 Representations and Warranties of NetSol.....................21
Article 6 Covenants Relating to Conduct of Business....................25
Article 7 Certain Related Matters and Additional Agreements............29
Article 8 Conditions Precedent.........................................31
Article 9 Certain Tax Matters..........................................34
Article 10 Indemnification.............................................35
Article 11 Miscellaneous...............................................38
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EXHIBITS
Exhibit A Employment Agreement by and between ▇▇▇▇ ▇▇▇▇▇ and NetSol
Technologies, Inc.
SCHEDULES
See Respective Disclosure Schedule of NetSol and ▇▇▇▇▇ delivered pursuant to
this Agreement.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of May 6,
2006, and is by and among NetSol Technologies, Inc., a Nevada corporation
("NetSol"), ▇▇▇▇▇ Systems, Inc. a California corporation ("▇▇▇▇▇"), and the
shareholders of ▇▇▇▇▇ identified in Schedule 3.2 hereto (the "Shareholders")
(each a "Seller" and collectively, "Sellers") and ▇▇▇▇ ▇▇▇▇▇, as Sellers'
Representative (the "Sellers' Representative").
RECITALS
A. Whereas, the Sellers are presently the owners of an aggregate of
1,288,436 shares of common stock (on a fully diluted basis), no par value per
share of ▇▇▇▇▇ (the "▇▇▇▇▇ Capital Stock"), which represents all of the issued
and outstanding capital stock of ▇▇▇▇▇;
B. Whereas, the Sellers desire to sell all of their respective shares
of ▇▇▇▇▇ Capital Stock to NetSol and NetSol desires to purchase all of the ▇▇▇▇▇
Capital Stock from the Sellers, all in the manner and subject to the terms and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
ARTICLE 1
TERMS OF ACQUISITION
1.1 Stock Purchase. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined in Section 2.1 below), each Seller
shall sell, transfer, convey, assign and deliver to NetSol, and NetSol shall
purchase, acquire and accept from each such Seller, all right, title and
interest of such Seller, legal and equitable, beneficially and of record, in and
to the Sale Shares set forth opposite such Seller's name in Schedule 3.1 under
the caption "Number of Shares owned by Seller". The originally issued
certificates evidencing ▇▇▇▇▇ Capital Stock shall be delivered at the Closing to
NetSol, free and clear of all liens, claims, security interests and encumbrances
of any nature whatsoever, accompanied by duly executed stock powers (endorsed in
blank).
1.2 Purchase Price; Allocation.
(a) The total Purchase Price to be the total of the Initial
Consideration and the Deferred Consideration.
(b) The Initial Consideration shall be comprised of:
i. 50% of ▇▇▇▇▇'▇ total revenue for the twelve months
ending December 31, 2005 ("FY 2005"), after an
adjustment for any revenue occurring outside the
company's ordinary scope of
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operations (revenue occurring outside the
Company's ordinary scope of operations shall be
defined consistently with the application of U.S.
GAAP as applied to the audited financial
statements for the periods ending December 31,
2004 and December 31, 2005) multiplied by 1.5, of
which:
ii. 50% shall be paid in shares of restricted common
stock of NetSol (the restricted shares are
deliverable to Sellers' Representative in the
proportions set opposite the Sellers' names in
Schedule 1) credited as fully paid delivered
within 30 Business Days of the Closing Date, at
the 30 day volume weighted average price ("VWAP)
for each of the 30 trading days prior to the
execution date of this agreement or at the VWAP
for each of the 30 trading days prior to November
30, 2005 whichever is the greater VWAP.
VWAP shall be calculated by taking the closing
price of NetSol's common stock as traded on the
NASDAQ Small Cap Market under the symbol NTWK
("NetSol Shares") for each of the 30 trading days
used in the VWAP calculation multiplied by the
daily volume for each of the 30 trading days used
in the VWAP calculation, the product of the
preceding calculation is divided by 30 and then
divided by the average of the daily volume for
each of the 30 trading days used in the VWAP
calculation; and,
iii. 50% in U.S. Dollars.
(c) The Deferred Consideration to be the Consideration After
Year 1 and the Consideration After Year 2; provided,
however, that under no circumstances may the total
number of NetSol Shares issued to Sellers (including
those shares issued as part of the Initial Consideration
and those shares issued which would be considered
aggregated with those issued pursuant to this Agreement
according to NASDAQ rules) exceed 19% of the issued and
outstanding shares of common stock of NetSol, less
treasury shares, on the date of this Agreement. In the
event NetSol is not permitted to issue as part of the
Deferred Consideration, shares of common stock equal in
value to 50% of the Deferred Consideration, NetSol may
issue such amount as is permitted and the remainder in
cash.
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i. Consideration After Year 1 shall be comprised of:
1. 25% of ▇▇▇▇▇'▇ total revenue for the twelve months
ending December 31, 2006 (FY 2006) after an
adjustment for Extraordinary Revenue multiplied by
1.5, of which:
a. 50% shall be payable in restricted common stock of
NetSol at the 30 day VWAP as calculated in section
1.2(b)(ii) and;
b. 50% in U.S. Dollars.
ii. Consideration After Year 2 shall be comprised of:
1. 25% of ▇▇▇▇▇'▇ total revenue for the twelve months
ending December 31, 2007 (FY 2007) after an
adjustment for Extraordinary Revenue multiplied by
1.5 (the "multiple") provided that ▇▇▇▇▇'▇ total
Net Income divided by ▇▇▇▇▇'▇ Revenue, as
adjusted, (the "Net Income Margin") for FY 2007 is
greater than or equal to 5%. If the Net Margin is
less than 5%, the multiple shall change to 1.25 of
which:
a. 50% shall be payable in restricted common stock of
NetSol at the 30 day VWAP as calculated in Section
1.2(b)(ii), and;
b. 50% in U.S. Dollars.
1.3 Delivery of Deferred Consideration. The Deferred Consideration
shall be calculated by reference to a FY Revenue Statement
prepared and determined or agreed on the same basis as set out
in clause 2.3 in respect to Initial Consideration, save that
references to FY 2005 shall instead be FY 2006 as to
Consideration After Year 1 and FY 2007 as to Consideration
After Year 2. The Deferred Consideration, subject to any
adjustments as a result of clause 1.4 shall be paid or
satisfied by NetSol within 15 Business Days of the
determination or agreement of the Deferred Consideration but
no later than July 1, 2007 with respect to the Consideration
after Year 2 and no later than July 1, 2008 with respect to
the Consideration after Year 3.
1.4 Offset for Breach of Warranty. Subject to Article 10, the
Purchase Price shall be deemed to be reduced by the amount of
any payment made by NetSol or due by Sellers' to NetSol
because of a Material breach of any Warranty or Covenant by
Sellers or ▇▇▇▇▇.
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1.5 Retention of Portion of Purchase Price. In the event that
▇▇▇▇▇ shareholders totaling 100% of the issued and outstanding
▇▇▇▇▇ Capital Stock can not be located or are otherwise
unavailable to receive the consideration set forth herein,
NetSol shall hold, for the benefit of such lost or unavailable
shareholders a portion of the Purchase Price equal to such
shareholders proportionate interest in ▇▇▇▇▇ at the execution
date of this Agreement.
ARTICLE 2
CLOSING
2.1 Closing.
(a) Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of NetSol located
at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ on a date which is
the first business day following the satisfaction of the conditions set forth in
section 8 and in any event no later than 6:00 p.m. on June 30, 2006 or at such
other time and date as may be agreed in writing by the Sellers and NetSol (the
"Closing Date") :
i. on the fifteenth business day following the approval of
this transaction and Agreement by NetSol's shareholders at a meeting called for
that purpose ("Shareholder Approval Date");
ii. should Shareholder Approval not be required, on a date
which is forty-five days from the execution date of this Agreement; or,
▇▇▇.▇▇ such later time and date as may be agreed in writing by
the Sellers and NetSol. (the "Closing Date").
(b) NetSol's Ancillary Agreements. Subject to the terms and conditions
set forth in this Agreement, and in addition to those actions set forth in
Article 1, above, at the Closing, NetSol shall take, or cause to be taken, the
execution and delivery of: an Employment Agreement by and between NetSol and
Sellers' Representative in the form attached hereto as Exhibit A (the "▇▇▇▇▇
Employment Agreement").
c) Sellers' Representative. Upon execution of this Agreement by each
Seller, such Seller shall be deemed to have irrevocably constituted and
appointed ▇▇▇▇ ▇▇▇▇▇ as such Seller's agent and attorney ("Sellers'
Representative") in fact with full power of substitution to do any and all
things and to act for such Seller at and after the Closing in connection with
all matters relating to this Agreement and execute any and all documents which
may be necessary, convenient or appropriate in his sole discretion to facilitate
the consummation of the transactions contemplated by this Agreement, including,
without limitation: (i) execution of documents and certificates pursuant to this
Agreement; (ii) receipt of payments under or pursuant to this Agreement and
disbursement thereof to the Sellers; (iii) receipt and forwarding of notices and
communications pursuant to this Agreement; (iv) prosecution, negotiation and
settlement of any disputes, as contemplated and in the manner set forth herein;
(v) engagement of attorneys, accountants and agents at the expense of the
Sellers, (vi) execution and delivery of amendments to this Agreement, and (vii)
waiver or modification of any provision of this Agreement. Each Sellers'
appointment is coupled with an interest and all authority conferred hereby shall
be irrevocable, and shall not be terminated by any act of such Seller or by
operation of law, whether by the death or
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incapacity of such Seller or by the occurrence of any other event or events,
including, without limiting the foregoing, the termination of any trust or
estate for which such Seller is acting as a fiduciary or the dissolution or
liquidation of any corporation or partnership. NetSol shall be fully protected
in dealing with the Sellers' Representative under this Agreement and may rely
upon the authority of the Sellers' Representative to act as the Sellers' agent
under this Agreement. Any payments or deliveries (including without limitation
notices required or permitted hereunder) by NetSol to the Sellers'
Representative under this Agreement for the benefit of the Sellers, or any of
them, shall be considered payments or deliveries made by NetSol to the Sellers.
2.2 Preparation of Completion Accounts.
(a) As soon as practicable after the Closing Date, the
Sellers' Representative shall cause ▇▇▇▇▇ to prepare as of the close of business
on the Closing Date a balance sheet and profit and loss statement for the period
from the day immediately following December 31, 2005, through the Closing Date
(the "Completion Accounts") and shall cause NetSol to receive a copy as soon as
practicable after such date.
(b) Unless within 10 Business Days after receipt of the
Completion Accounts NetSol notifies the Sellers' Representative in writing of
any disagreement or difference of opinion relating to the Completion Accounts,
the parties shall be deemed to have accepted such accounts as final and binding.
(c) If within the period of 10 Business Days, NetSol notifies
the Sellers' Representative of any disagreement or difference of opinion
relating to the Completion Accounts (the "Notice of Disagreement") NetSol and
the Sellers' Representative will negotiate in good faith to agree to the
Completion Accounts and if they are able to resolve such disagreement or
difference of opinion within 20 Business Days of the date of service of the
Notice of Disagreement, the parties shall be deemed to have accepted such
Completion Accounts as final and binding.
(d) If the Sellers' Representative and NetSol are unable to
reach agreement within 20 Business Days of the date of service of the Notice of
Disagreement, the matter in dispute shall be referred to the decision of an
independent certified public accountant ("Independent Accountant") to be
appointed by joint nomination by agreement of Sellers' Representative and
NetSol, but in default of such joint nomination by agreement between NetSol's
auditor and ▇▇▇▇▇'▇ accountant within 30 Business Days following the date of
service of the Notice of Disagreement to such accountants.
(e) The Independent Accountant shall act as an expert and not
as an arbitrator and his decision shall (in the absence of manifest error) be
final and binding on Sellers and NetSol for all the purposes of this Agreement.
The cost of the Independent Accountant shall be borne by Sellers, except if the
finding of the Independent Accountant results in an adjustment to the amount
proposed by NetSol in an amount greater than 10%, the costs of the Independent
Accountant shall be apportioned between the Sellers and NetSol as the
Independent Accountant shall decide but each party shall be responsible for its
own costs of presenting its case to the Independent Accountant.
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2.3 Preparation of FY Statements. As soon as practicable after
December 31, 2005, the Sellers' Representative shall, for the purpose of
calculating the Initial Consideration, cause ▇▇▇▇▇ to prepare a statement of the
FY 2005 Revenue and cause such statement to be delivered to NetSol as soon as
practicable after such date (the "FY 2005 Statement").
(a) Unless within 10 Business Days after receipt of the FY
2005 Statement, NetSol notifies Sellers' Representative in writing of any
disagreement or difference of opinion relating to the FY 2005 Statement, the
parties shall be deemed to have accepted such accounts as final and binding.
Should there be a disagreement or difference of opinion relating to the FY 2005
Statement, Sellers and NetSol shall follow the same dispute resolution procedure
set forth in section 2.2(c)-(e).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇ AND SELLERS
Except as set forth in the ▇▇▇▇▇ Disclosure Schedule delivered by ▇▇▇▇▇
to NetSol prior to the execution of this Agreement (the "▇▇▇▇▇ Disclosure
Schedule"), ▇▇▇▇▇ and the Sellers, jointly and severally, represent and warrant
to NetSol as follows:
3.1 Organization, Good Standing and Power. ▇▇▇▇▇ is a company duly
organized, validly existing and in good standing and authorized to exercise its
corporate powers, rights and privileges under the laws of California with full
corporate power and authority to own, lease and operate its properties and to
carry on the business as presently conducted by it. Section 3.1 of the ▇▇▇▇▇
Disclosure Schedule sets forth all states and other jurisdictions in which ▇▇▇▇▇
is registered as duly qualified and in good standing to do business as a foreign
company. There are no other states or jurisdictions in which the character and
location of the properties owned or leased by it, or the conduct of the business
makes any such registration necessary. Copies of ▇▇▇▇▇'▇ Articles of
Incorporation and all amendments thereto, and of ▇▇▇▇▇'▇ By-Laws, as amended to
date, have been provided to NetSol and are complete and correct. A true and
complete copy of ▇▇▇▇▇'▇ stock ledger has been made available to NetSol and
contains complete entries of all stock issuances, transfers and redemptions and
all original stock certificates, other than the stock certificates representing
▇▇▇▇▇. Other than as listed in Section 3.1 of the ▇▇▇▇▇ Disclosure Schedule,
▇▇▇▇▇ has no subsidiaries.
3.2 Capital Structure. As of the date hereof, the authorized
capital stock of ▇▇▇▇▇ consists of: 5,000,000 shares of no par value Common
Stock of which 661,539 are issued and outstanding and of which 1,288,436 shares
are issued and outstanding on a fully diluted basis and 500,000 shares of no par
value Series A Preferred Stock of which no shares are issued and outstanding and
830,000 shares of no par value Series B Preferred Stock of which no shares are
issued and outstanding (collectively the "▇▇▇▇▇ Capital Stock"). All issued and
outstanding shares of the ▇▇▇▇▇ Capital Stock are duly authorized, validly
issued, fully paid and nonassessable and free of any preemptive rights. The
number of shares of ▇▇▇▇▇ owned beneficially or of record by each of the Sellers
is set forth in Section 3.2 of the ▇▇▇▇▇ Disclosure Schedule. There are no
subscriptions, options, warrants or other rights (including "phantom" stock
rights), agreements, arrangements or commitments obligating ▇▇▇▇▇ to issue
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or sell shares of capital stock or other equity interests in ▇▇▇▇▇. Except as
disclosed in Sections 3.2 of the ▇▇▇▇▇ Disclosure Schedule, there are no
outstanding obligations of ▇▇▇▇▇ or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of ▇▇▇▇▇ capital stock or other equity or
ownership interests of any Subsidiary of ▇▇▇▇▇ or to provide funds to, or make
any investments (in form of a loan, capital contribution or otherwise) in, any
Subsidiary of ▇▇▇▇▇ or any other Person. The sale of such shares of capital
stock by the Sellers as provided herein shall upon consummation of the
transactions contemplated hereby vest NetSol with good and marketable title to
the Sale Shares, free and clear of all liens, charges, claims and encumbrances.
3.3 Authority; No Conflicts.
(a) ▇▇▇▇▇ has all requisite corporate power and authority to
enter into this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement, the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action
on the part of ▇▇▇▇▇ and no other corporate proceedings on the part of
▇▇▇▇▇ are necessary to authorize the execution and delivery of this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by ▇▇▇▇▇ and
constitutes a valid, legal and binding agreement of ▇▇▇▇▇, enforceable
against ▇▇▇▇▇ in accordance with its terms.
(b) The execution and delivery of this Agreement by ▇▇▇▇▇ does
not, and the performance of its obligations hereunder and the
consummation by ▇▇▇▇▇ of the transactions contemplated hereby will not,
conflict with, or result in any violation or breach of, or constitute a
default (with or without notice or lapse of time, or both) under, or
give rise to a right of, or result by its terms in the, termination,
amendment, cancellation or acceleration of any obligation or the loss
of a material benefit under, or the creation of a Lien, charge, "put"
or "call" right or other encumbrance on, or the loss of, any assets,
including Intellectual Property (as defined in Section 3.6), or cause
or create any right of payment or reimbursement (any such conflict,
violation, breach, default, right of termination, amendment,
cancellation or acceleration, loss, creation, payment or reimbursement,
a "Violation").
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity") or any other
Person is required by or with respect to ▇▇▇▇▇ in connection with the
execution and delivery of this Agreement by ▇▇▇▇▇ or the performance of
its obligations hereunder or the consummation of the other transactions
contemplated hereby.
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3.4 Financial Statements. Except as disclosed in the ▇▇▇▇▇
financial statements for the period ending December 31, 2005, or as disclosed in
Section 3.4 of the ▇▇▇▇▇ Disclosure Schedule, ▇▇▇▇▇ has no obligations,
liabilities or debts (whether accrued or fixed, or absolute or contingent, or
unmatured, or determined or determinable), including without limitation those
arising under law or any contract, arrangement or commitment or undertaking,
that are of a nature that would be required to be disclosed on the balance sheet
of ▇▇▇▇▇ or the footnotes thereto prepared in conformity with GAAP, other than
(A) liabilities incurred in the ordinary course of business, consistent with
past practices, or (B) liabilities for Taxes.
3.5 Litigation; Compliance with Laws.
(a) Except as set forth in Section 3.5 of the ▇▇▇▇▇ Disclosure
Schedule, there are no actions pending or, to the knowledge of ▇▇▇▇▇,
threatened, before any court, arbitrator or Government Entity (domestic
or foreign) against or affecting ▇▇▇▇▇ or any property or asset of
▇▇▇▇▇, before any court, arbitrator or Governmental Entity (domestic or
foreign), nor are there any judgments, decrees, determinations, awards,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against ▇▇▇▇▇.
(b) ▇▇▇▇▇ holds all permits, licenses, franchises, variances,
exemptions, orders and approvals of all Governmental Entities which the
absence of shall not have a Material Adverse Effect on the operation of
the businesses as now being conducted of ▇▇▇▇▇ and its Subsidiaries
(the " ▇▇▇▇▇ Permits"), and no suspension or cancellation of any of the
▇▇▇▇▇ Permits is pending or, to the knowledge of ▇▇▇▇▇, threatened.
▇▇▇▇▇ is in compliance with the terms of the ▇▇▇▇▇ Permits. ▇▇▇▇▇ is
not in violation of, and ▇▇▇▇▇ and its Subsidiaries have not received
any notices of violations with respect to, any laws, statutes,
ordinances, rules or regulations of any Governmental Entity.
(c) Except as disclosed in Section 3.5 of the ▇▇▇▇▇ Disclosure
Schedule and for liabilities permitted to be incurred in accordance
with this Agreement or the transactions contemplated hereby, since
December 31, 2005, ▇▇▇▇▇ has conducted its business only in the
ordinary course and in a manner consistent with past practices and,
since such date and prior to the date hereof, ▇▇▇▇▇ has not:
(i) made or adopted amendments or changes to its
Certificate or Articles of Incorporation or Bylaws;
(ii) declared, set aside or paid a dividend or other
distribution with respect to its capital stock, or any direct
or indirect redemption, purchase or other acquisition by it of
any of its capital stock;
(iii) acquired or entered into any agreement,
arrangement or understanding for the acquisition (including,
without limitation, by merger, consolidation, or acquisition
of stock or assets) of any material interest in any
corporation, partnership, other business organization or any
division thereof or any material assets, other than the
acquisition of assets in the ordinary course of business
consistent with past practices;
8
(iv) incurred any indebtedness for borrowed money or
issued any debt securities or assumed, guaranteed or endorsed,
or otherwise as an accommodation become responsible for, the
obligations of any Person, or made any loans or advances
except for indebtedness incurred in the ordinary course of
business consistent with past practices;
(v) entered into any contract or agreement material
to its business, results of operations or financial condition
other than in the ordinary course of business consistent with
past practices;
(vi) made or authorized any capital expenditure;
(vii) revalued any of its assets;
(viii) sold, leased, licensed or otherwise disposed
of any of its material assets or properties, except in the
ordinary course of business as conducted on that date and
consistent with past practices;
(ix) amended or terminated any material contract,
agreement or license to which it is a party or by which it is
bound;
(x) permitted or allowed any of its material assets
or properties (whether tangible or intangible) to be subjected
to any Lien, other than in the ordinary course of business,
consistent with past practices;
(xi) taken any action, other than reasonable and
usual actions in the ordinary course of business and
consistent with past practices, with respect to accounting
policies, methods or procedures (including, without
limitation, procedures with respect to the payment of accounts
payable and collection of accounts receivable);
(xii) paid, discharged or satisfied any material
claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
and consistent with past practices, of liabilities reflected
or reserved against in the financial statements of ▇▇▇▇▇ or
subsequently incurred in the ordinary course of business and
consistent with past practices;
(xiii) suffered any casualty, loss or damage with
respect to any of its assets which in the aggregate have a
replacement cost of more than $5,000, whether or not such
casualty, loss or damage shall have been covered by insurance;
9
(xiv) increased the salary or other compensation
payable or to become payable by it to any of its directors,
executive-level officers or advisors, or declared, paid,
committed or otherwise become obligated for the payment of a
bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
(xv) waived or released any of its material rights or
claims, including any write-off or other compromise of any
amount of its account receivables;
(xvi) changed the prices or royalties set or charged
by it to its customers or licensees or in pricing or royalties
set or charged by persons who have licensed Intellectual
Property to it;
(xvii) terminated, discontinued, closed or disposed
of any facility or other business operation, or laid off any
employees or implemented any early retirement, separation or
program providing early retirement benefits or announced or
planned any such action or program for the future;
(xviii) commenced or received notice or threat of
commencement of any lawsuit or proceeding against or
investigation of it or its affairs;
(xix) received notice of any claim of ownership by a
third party of its Intellectual Property or of infringement by
it of any third party's Intellectual Property rights;
(xx) issued or sold any of its shares of capital
stock, or securities exchangeable, convertible or exercisable
therefore, or of any other of its securities;
(xxi) suffered any Material Adverse Effect;
(xxii) made any material changes in the customary
methods of its operations; or
(xxiii) agreed, whether in writing or otherwise, to
take any of the actions specified in this Section 3.5.
3.6 Intellectual Property.
(a) For the purposes of this Agreement, the following terms
have the following definitions:
(i) "Intellectual Property" shall mean any of the
following and all rights in, arising out of, or associated
therewith: (i) all United States and foreign patents and
utility models and applications therefore and all reissues,
divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries
("Patents"); (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets,
proprietary information, know how, technology,
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technical data and customer lists, and all documentation
embodying or evidencing any of the foregoing; (iii) all
copyrights, copyrights registrations and applications
therefore and all other rights corresponding thereto
throughout the world; ("Copyrights"); (iv) all mask works,
mask work registrations and applications therefore, and any
equivalent or similar rights in semiconductor masks, layouts,
architectures or topology ("Mask Works"); (v) all industrial
designs and any registrations and applications therefore
throughout the world; (vi) all trade names, brand names,
logos, common law trademarks and service marks, trademark and
service ▇▇▇▇ registrations and applications therefore and all
goodwill associated therewith throughout the world
("Trademarks"); (vii) all databases and data collections and
all rights therein throughout the world; and (viii) all
computer software including all source code, object code,
firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded; (ix) all
World Wide Web addresses, sites and domain names; and (x) any
similar, corresponding or equivalent rights to any of the
foregoing anywhere in the world.
(ii) "▇▇▇▇▇ Business" means the business of ▇▇▇▇▇
including the manufacture, use, licensing, distribution and
sale of any products or technology or the provision of any
services by ▇▇▇▇▇, as currently conducted, as conducted since
the inception of ▇▇▇▇▇, or as reasonably is contemplated to be
conducted by ▇▇▇▇▇ in the future.
(iii) "Registered Intellectual Property" shall mean
all United States, international and foreign: (i) Patents,
including applications therefore; (ii) registered Trademarks,
applications to register Trademarks, including intent-to-use
applications, or other registrations or applications related
to Trademarks; (iii) Copyrights registrations and applications
to register Copyrights; (iv) Mask Work registrations and
applications to register Mask Works; and (v) any other
Intellectual Property of ▇▇▇▇▇ that is the subject of an
application, certificate, filing, registration or other
document issued by, filed with, or recorded by any state,
government or other public legal authority at any time.
(b) Section 3.6 of the ▇▇▇▇▇ Disclosure Schedule lists all
Registered Intellectual Property in whole or in part owned by, assigned
to, or filed in the name of ▇▇▇▇▇ (the "▇▇▇▇▇ Registered Intellectual
Property").
(c) Except as set forth in Section 3.6 of the ▇▇▇▇▇ Disclosure
Schedule, each item of ▇▇▇▇▇ Intellectual Property, including all ▇▇▇▇▇
Registered Intellectual Property listed in Section 3.6 of the ▇▇▇▇▇
Disclosure Schedule, is free and clear of any Lien.
(d) ▇▇▇▇▇ (i) is the exclusive owner of all Trademarks as such
Trademarks are currently used by the ▇▇▇▇▇ Business, including trade
names, trade dress and similar designations of origin used in
connection with the operation or conduct of the ▇▇▇▇▇ Business and (ii)
owns exclusively, and has good title to, all copyrighted works,
software products or other works of authorship that it otherwise
purports to own.
11
(e) Except as set forth in Section 3.6 of the ▇▇▇▇▇ Disclosure
Schedule, ▇▇▇▇▇ has not has transferred ownership of, or granted any
license of or right to use or authorized the retention of any rights to
use, any Intellectual Property that is, or was, ▇▇▇▇▇ Intellectual
Property, to any Person, except in the ordinary course of business
consistent with past practices.
(f) The ▇▇▇▇▇ Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the
▇▇▇▇▇ Business including (i) the making, using, selling, marketing, or
importing of any product or device, (ii) the practice of any process,
(iii) the offering or performance of any service, or (iv) the copying,
display, performance, distribution, creation of derivative works of, or
the exploitation of any device or work.
(g) The contracts, licenses and agreements listed in Section
3.6 of the ▇▇▇▇▇ Disclosure Schedule include all material contracts,
licenses and agreements pursuant to which any Person, including any
affiliate of ▇▇▇▇▇, has licensed any Intellectual Property to ▇▇▇▇▇.
▇▇▇▇▇ is not in breach of, nor has it failed to perform under any of
the foregoing contracts, licenses and agreements and, to its knowledge,
no other party to such contracts, licenses and agreements is in breach
of or has failed to perform thereunder.
(h) The contracts, licenses and agreements listed in Section
3.6 of the ▇▇▇▇▇ Disclosure Schedule include all material contracts and
agreements pursuant to which any Person, including any third party
developer or consultant, has developed any device or technology,
authored any work, or otherwise created any thing in which any
Intellectual Property rights might arise, either separately or jointly
with ▇▇▇▇▇, or any other Person, which ▇▇▇▇▇ uses or possess or which
it believes it owns.
(i) The contracts, licenses and agreements listed in Section
3.6 of the ▇▇▇▇▇ Disclosure Schedule include all material contracts,
licenses and agreements pursuant to which ▇▇▇▇▇ has licensed or
transferred to any third person or any affiliate of ▇▇▇▇▇, any ▇▇▇▇▇
Intellectual Property. ▇▇▇▇▇ is not in breach of, nor has it failed to
perform under any of the foregoing contracts, licenses and agreements
and, to its knowledge, no other party to such contracts, licenses and
agreements is in breach of or has failed to perform thereunder.
(j) Neither the consummation of the transaction contemplated
by this Agreement nor the transfer to NetSol of any contracts,
licenses, agreements or ▇▇▇▇▇ Intellectual Property will cause or
obligate ▇▇▇▇▇ (i) to grant to any third party any rights or licenses
with respect to any Intellectual Property of ▇▇▇▇▇; or (ii) pay any
royalties or other amounts in excess of those being paid by ▇▇▇▇▇ prior
to the Closing Date.
(k) Section 3.6 of the ▇▇▇▇▇ Disclosure Schedule lists all
material agreements, licenses and contracts pursuant to which ▇▇▇▇▇ has
agreed to indemnify, hold harmless, or otherwise agree to be liable for
any losses, cost or damages of, a third party with respect to any
Intellectual Property or product or service of ▇▇▇▇▇.
12
(l) Except as set forth in Section 3.6 of the ▇▇▇▇▇ Disclosure
Schedule, all ▇▇▇▇▇ Intellectual Property (other than ▇▇▇▇▇
Intellectual Property licensed from third parties) will be fully,
transferable, alienable or licensable by, or between, ▇▇▇▇▇ without
restriction and without payment of any kind to any third party.
(m) Except as set forth in Section 3.6 of the ▇▇▇▇▇ Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not result in the loss of, or otherwise adversely
affect, any ownership rights of ▇▇▇▇▇ in any ▇▇▇▇▇ Intellectual
Property or result in the breach or termination of any license,
contract or agreement to which ▇▇▇▇▇ is a party respecting any ▇▇▇▇▇
Intellectual Property.
(n) To ▇▇▇▇▇'▇ knowledge, the operation of the ▇▇▇▇▇ Business,
including (i) the making, using, selling, marketing, or importing of
any product or device, (ii) the practice of any process, (iii) the
offering or performance of any service, or (iv) the copying,
distribution, performance, display, creation of derivative works of, or
the exploitation of any device or work, does not, and will not when
conducted in substantially the same manner following the Closing, as a
subsidiary of NetSol, infringe or misappropriate the Intellectual
Property of any person, violate the rights of any person, or constitute
unfair competition or trade practices under the laws of any
jurisdiction, and ▇▇▇▇▇ has not received notice from any person
claiming that such operation or any act, product, technology or service
of the ▇▇▇▇▇ Business infringes or misappropriates the Intellectual
Property of any Person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor is ▇▇▇▇▇ aware of any
basis therefore). Without limiting the foregoing, to ▇▇▇▇▇'▇ knowledge,
▇▇▇▇▇ has not misappropriated the trade secrets of, or infringed the
Copyright or Mask Works of any third party.
(o) There are no material contracts, licenses or agreements
between ▇▇▇▇▇ and any other person with respect to ▇▇▇▇▇ Intellectual
Property under which there is any dispute known to ▇▇▇▇▇ regarding the
scope of, or performance under, such contract, license or agreement
including with respect to any payments to be made or received by ▇▇▇▇▇
thereunder.
(p) To the knowledge of ▇▇▇▇▇, no person is infringing or
misappropriating any ▇▇▇▇▇ Intellectual Property.
(q) No ▇▇▇▇▇ Intellectual Property or product, technology or
service of the ▇▇▇▇▇ Business is subject to any proceeding or
outstanding decree, order, judgment or stipulation that restricts in
any manner the use, transfer or licensing thereof by ▇▇▇▇▇ or may
affect the validity, use or enforceability of such ▇▇▇▇▇ Intellectual
Property.
(r) Section 3.6 of the ▇▇▇▇▇ Disclosure Schedule lists all
action, including the payment of any fees, that must, or should be
performed by, or on behalf of, ▇▇▇▇▇ in the ninety-day period following
the Closing Date, with respect to any application for, perfection of,
preservation of, or continuation of any rights of ▇▇▇▇▇ with respect to
any ▇▇▇▇▇ Intellectual Property, including the filing of any patent
applications, response to Patent Office actions or payment of fees,
including renewal fees.
13
(s) All software products of ▇▇▇▇▇ were written and created
solely by either (i) employees of ▇▇▇▇▇ acting within the scope of
their employment or (ii) by third parties who have validly assigned or
licensed the necessary rights, including Intellectual Property rights,
in such products to ▇▇▇▇▇.
(t) ▇▇▇▇▇ has no knowledge of any facts or circumstances that
would render any ▇▇▇▇▇ Intellectual Property invalid or unenforceable.
Without limiting the foregoing, ▇▇▇▇▇ knows of no information,
materials, facts, or circumstances, including any information or fact
that would constitute prior art, that would render any of the ▇▇▇▇▇
Registered Intellectual Property invalid or unenforceable, or would
adversely affect any pending application for any ▇▇▇▇▇ Registered
Intellectual Property, and ▇▇▇▇▇ has not misrepresented, or failed to
disclose, and is not aware of any misrepresentation or failure to
disclose, any fact or circumstances in any application for any ▇▇▇▇▇
Register Intellectual Property that would constitute fraud or a
material misrepresentation with respect to such application or that
would otherwise effect the validity or enforceability of any ▇▇▇▇▇
Registered Intellectual Property.
(u) ▇▇▇▇▇ has taken all steps reasonable under the
circumstances to protect the confidentiality and trade secret status of
their material confidential information and know of no basis on which
it could be claimed that ▇▇▇▇▇ has failed to protect the
confidentiality of any of their material confidential information.
3.7 Domain Names. Section 3.7 of the ▇▇▇▇▇ Disclosure Schedule
sets forth a complete list of all Domain Names owned or used by ▇▇▇▇▇ in the
conduct of the business of ▇▇▇▇▇ as it is presently conducted. No officer,
director or employee of ▇▇▇▇▇, the Sellers or any of their Affiliates or
Associates has any ownership or other interest in the Domain Names. To ▇▇▇▇▇ and
Sellers' knowledge, none of the Domain Names infringes on any trademarks,
trademark rights, trade names, trade name rights or service marks of others.
▇▇▇▇▇ has not obtained rights to any Domain Name in violation of any Laws,
including, without limitation, the Anticybersquatting Consumer Protection Act.
3.8 Taxes. Except as set forth in Section 3.8 of the ▇▇▇▇▇
Disclosure schedule, ▇▇▇▇▇ has filed all Tax Returns required to have been filed
(or extensions for the filing thereof have been duly obtained and have not
expired), has paid all Taxes required to have been paid by it, has provided
adequate reserves in the financial statements for any Taxes that have not been
paid (whether or not shown as being due on any returns) or are payable by ▇▇▇▇▇,
except where failure to file such Tax Returns or pay or provide reserves for
such Taxes would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on ▇▇▇▇▇ and not known. All Tax Returns filed
by ▇▇▇▇▇ are true, correct and complete in all material respects. ▇▇▇▇▇ has not
received from any governmental authority any written notice of any proposed
adjustment, deficiency or underpayment of Taxes, which notice has not been
withdrawn or satisfied by payment, and there are no material claims that have
been asserted or, to the knowledge of ▇▇▇▇▇, threatened against ▇▇▇▇▇ relating
to such Taxes. For purposes of this Agreement: (i) "Tax" (and, with correlative
meaning, "Taxes") means any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add on minimum, ad valorem, transfer or excise tax,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any
14
kind whatsoever, together with any interest or penalty, imposed by any
governmental authority or any obligation to pay Taxes imposed on any entity for
which a party to this Agreement is liable as a result of any indemnification
provision or other contractual obligation and (ii) "Tax Return" means any
return, report or similar statement required to be filed with respect to any Tax
(including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
3.9 Certain Contracts. As of the date hereof, except as disclosed
in Section 3.9 of the ▇▇▇▇▇ Disclosure Schedule, ▇▇▇▇▇ has not, is not a party
to, and is not bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(c) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or
arrangements;
(d) any employment or consulting agreement with an employee or
individual consultant or salesperson;
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(f) any fidelity or surety bond or completion bond;
(g) any lease of real or personal property that does not
terminate within six months;
(h) any agreement of indemnification or guaranty;
(i) any agreement containing any covenant limiting its freedom
to engage in any line of business or to compete with any Person or in
any geographic area or during any period of time;
(j) any agreement relating to capital expenditures and
involving future payments;
(k) any agreement relating to the disposition or acquisition
of assets or any interest in any business enterprise outside the
ordinary course of ▇▇▇▇▇'▇ business;
15
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties
referred to in clause (h) hereof;
(m) any letter of credit;
(n) any distribution, joint marketing or development
agreement;
(o) any agreement pursuant to which it has granted or may
grant in the future, to any Person a source-code license or option or
other right to use or acquire a source-code;
(p) any agreement relating to trademarks, copyrights,
licenses, software development or any other Intellectual Property; or
(q) any other agreement that is not cancelable without penalty
within 30 days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Section 3.9 of the ▇▇▇▇▇
Disclosure Schedule, ▇▇▇▇▇ has not Materially breached, violated or defaulted
under, or received notice that it has Materially breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract or commitment
required to be set forth in Section 3.9 of the ▇▇▇▇▇ Disclosure Schedule (any
such agreement, contract or commitment, a "▇▇▇▇▇ Contract"). Each ▇▇▇▇▇ Contract
is in full force and effect and, except as otherwise disclosed in Section 3.9 of
the ▇▇▇▇▇ Disclosure Schedule, is not subject to any default thereunder, of
which ▇▇▇▇▇ has knowledge, by any party obligated to ▇▇▇▇▇ or any of the
Subsidiaries pursuant thereto. Section 3.9 of the ▇▇▇▇▇ Disclosure Schedule
identifies each ▇▇▇▇▇ Contract that requires a consent, waiver or approval to
preserve all rights of, and benefits to, ▇▇▇▇▇ under such ▇▇▇▇▇ Contract as a
result of entering into this Agreement or effecting the transactions
contemplated by this Agreement.
3.10 Employee Benefits.
(a) The Benefit Plans, whether oral or written, under which
any current or former employee or director of ▇▇▇▇▇ has any present or
future right to benefits contributed to, sponsored by or maintained by
▇▇▇▇▇, or under which ▇▇▇▇▇ has any present or future liability shall
be collectively referred to as the "▇▇▇▇▇ Benefit Plans."
(b) Except as set forth in Section 3.10 of the ▇▇▇▇▇
Disclosure Schedule, with respect to each ▇▇▇▇▇ Benefit Plan, no
liability has been incurred and there exists no condition or
circumstances in connection with which ▇▇▇▇▇ could be subject to any
liability that is reasonably likely, individually or in the aggregate,
to have an effect on ▇▇▇▇▇, in each case under any applicable law, rule
or regulation.
16
(c) ▇▇▇▇▇ is in compliance with all federal, state, local and
foreign requirements regarding employment. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against
▇▇▇▇▇ pending or, to the knowledge of ▇▇▇▇▇, threatened which may
interfere with the business activities of ▇▇▇▇▇.
(d) Except as disclosed in Section 3.10 of the ▇▇▇▇▇
Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee
of the Company to severance pay, unemployment compensation or any other
payment, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or further
employee.
(e) Except as disclosed in Section 3.10 of the ▇▇▇▇▇
Disclosure Schedule, no present or former employee of ▇▇▇▇▇ has any
claim against ▇▇▇▇▇ (whether under applicable law, under any employee
agreement or otherwise) on account of or for: (i) overtime pay, other
than overtime pay for the current payroll period; (ii) wages or
salaries, other than wages or salaries for the current payroll period;
or, (iii) vacations, time off or pay in lieu of vacation or time off,
other than vacation or time off (or pay in lieu thereof) earned in the
twenty-four (24) month period immediately preceding the date hereof and
accrued as a liability on the most recent financial statements included
in ▇▇▇▇▇'▇ financial statements.
3.11 Labor Matters. Except as disclosed in Section 3.11 of the
▇▇▇▇▇ Disclosure Schedule, there are no controversies pending or, to the
knowledge of ▇▇▇▇▇, threatened between ▇▇▇▇▇ and any representatives of its
employees, and, to the knowledge of ▇▇▇▇▇, there are no material organizational
efforts presently being made involving any of the now unorganized employees of
▇▇▇▇▇. Since December 31, 2005, there has been no work stoppage, strike or other
concerted action by employees of ▇▇▇▇▇ except as is not having or could not be
reasonably expected to have a Material Adverse Effect on ▇▇▇▇▇.
3.12 Assets. The assets, properties, rights and ▇▇▇▇▇ Contracts,
including (as applicable) title or leaseholds thereto, of ▇▇▇▇▇, taken as a
whole, are sufficient to permit ▇▇▇▇▇ to conduct their business as currently
being conducted with only such exceptions as are not reasonably likely to have a
Material Adverse Effect on ▇▇▇▇▇.
3.13 Accounts Receivable; Fixed Assets; Inventory.
(a) Section 3.13 of the ▇▇▇▇▇ Disclosure Schedule contains a
true and complete list of ▇▇▇▇▇'▇ accounts receivable as of the Close
of the month thirty (30) days preceding the date of this Agreement, and
aging with respect thereto. All of the accounts receivable of ▇▇▇▇▇
reflected in Section 3.13 of the ▇▇▇▇▇ Disclosure Schedule are good and
collectible in the ordinary course of business at the aggregate
recorded amounts thereof, less the amount of the reserve for bad
accounts reflected therein, and are not subject to any right of offset
or counterclaim. The accounts receivable of ▇▇▇▇▇ added after the date
hereof to Section 3.14 of the ▇▇▇▇▇ Disclosure Schedule, when added
will be good and collectible in the ordinary course of business at the
aggregate amounts recorded on the books of account, less the amount of
the reserve for bad accounts reflected therein (which reserve has been
established on a basis consistent with prior practice and in accordance
with GAAP) and will not subject to any right of offset or counterclaim.
17
(b) Section 3.13 of the ▇▇▇▇▇ Disclosure Schedule contains a
true and complete list of all machinery, equipment and other fixed
assets of ▇▇▇▇▇ as of the last full month preceding the date of this
Agreement, (the "Equipment"). Each such item of Equipment is in
reasonably good operating condition, normal wear and tear excepted, and
is adequate for the use to which it is being put. To the best knowledge
of ▇▇▇▇▇ and the Sellers, each such item has been maintained, in all
material respects, in accordance with prudent business practice and no
such maintenance has been unreasonably deferred.
(c) Section 3.13 of the ▇▇▇▇▇ Disclosure Schedule contains a
true and complete list of all inventory of ▇▇▇▇▇ as of December 31,
2005, which consists of items that are of a quality and quantity
presently usable and saleable in the ordinary course of business except
as may be set forth in that Schedule.
3.14 Bank Accounts; Credit Cards; Corporate Accounts and Powers of
Attorney. Section 3.14 of the ▇▇▇▇▇ Disclosure Schedule contains a complete and
correct list showing (i) the name of each bank in which ▇▇▇▇▇ has an account or
safe deposit box and the names of all persons authorized to draw thereon or have
access thereto, (ii) the names of all credit card issuers with whom ▇▇▇▇▇ has an
account and the names of all persons authorized to use such accounts or have
access thereto, (iii) the names of all cellular telephone, phone card or other
corporate accounts with whom ▇▇▇▇▇ has an account and the names of all persons
authorized to use such accounts or have access thereto and (iv) the names of all
persons, if any, holding powers of attorney from ▇▇▇▇▇.
3.15 Insurance. Section 3.15 of the ▇▇▇▇▇ Disclosure Schedule sets
forth a complete and accurate list of all material policies of insurance of
▇▇▇▇▇ currently in force, including surety bonds or other credit support
therefore (the "▇▇▇▇▇ Insurance Policies"), the current annual premiums for each
▇▇▇▇▇ Insurance Policy and the types of risk covered and limits of coverage. All
▇▇▇▇▇ Insurance Policies are in full force and effect and all premiums due
thereon have been paid. ▇▇▇▇▇ has complied in all material respects with the
terms and provisions of the ▇▇▇▇▇ Insurance Policies. ▇▇▇▇▇ has never applied
for and been refused or denied any policy of insurance with respect to product
liability matters, matters arising by reason of clinical trials, environmental
matters or workmen's compensation. ▇▇▇▇▇'▇ insurance coverage is adequate in
kind and amount based on current industry practice.
3.16 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of ▇▇▇▇▇.
3.17 Affiliate Arrangements. Except as disclosed in Section 3.17 of
the ▇▇▇▇▇ Disclosure Schedule, none of the officers, directors or shareholders
of ▇▇▇▇▇, and none of their affiliates, (i) is a party to any contract,
arrangement, understanding or other commitment or pending or proposed
transaction with ▇▇▇▇▇ other than compensation arrangements entered into in the
ordinary course of business, and employee health, welfare and benefit plans
available
18
generally to the officers or employees of ▇▇▇▇▇; (ii) owns, directly or
indirectly, individually or collectively, a material interest in a corporation,
partnership, firm or association, which is either a competitor, potential
competitor, customer or supplier of ▇▇▇▇▇ or has an existing contractual
relationship with ▇▇▇▇▇ or is engaged directly or indirectly in any similar
business except through ▇▇▇▇▇; (ii) owns any direct or indirect interest in any
asset used by ▇▇▇▇▇; (iii) owes any money to or is owed any money by ▇▇▇▇▇,
other than indebtedness for compensation earned and not yet paid in the ordinary
course of business; or (iv) has received any increase in his or her annual rate
of salary or any special bonus or compensation since the last full month
preceding the Closing.
3.18 Principal Place of Business. ▇▇▇▇▇'▇ principal place of
business is located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers severally represents and warrant to, and covenant
and agree with NetSol with respect only to such Seller as follows:
4.1 Capacity; Validity. Such Seller has the legal capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by such
Seller and constitutes a valid and binding obligation of such Seller enforceable
against it/him in accordance with its terms.
4.2 Sellers' Stock Ownership. Such Seller holds of record and
beneficially owns the number of shares of ▇▇▇▇▇ Common Stock set forth next to
his or her name in Section 3.2 of the ▇▇▇▇▇ Disclosure Schedule, and except as
set forth in Section 3.2 of the ▇▇▇▇▇ Disclosure Schedule, such shares of ▇▇▇▇▇
Common Stock are free and clear of any restrictions on transfer, claims, taxes,
security interests, options, warrants, rights, contracts, calls, commitments,
equities and demands. Such Seller is not a party to (or has otherwise waived all
rights under) any option, warrant, right, contract, call, put, or other
agreement or commitment providing for the disposition or acquisition of any
shares of ▇▇▇▇▇ Common Stock (other than this Agreement). Except as set forth in
Section 4.2 of the ▇▇▇▇▇ Disclosure Schedule, such Seller is not a party to (or
has otherwise terminated) any voting trust, proxy, or other agreement or
understanding with respect to the voting of any ▇▇▇▇▇ Common Stock.
4.3 Investment Warranties.
(a) that the purchase of the NetSol Shares involves a high
degree of risk, including, but not limited to, the following: (i) an investment
in NetSol is highly speculative, and only investors who can afford the loss of
their entire investment should consider investing in NetSol and the NetSol
Shares; (ii) Sellers may not be able to liquidate their investment; (iii)
transferability of NetSol Shares is extremely limited; (iv) in the event of a
disposition of the NetSol Shares, Sellers' could sustain the loss of their
entire investment; and, (v) NetSol has not paid any dividends on its common
stock since inception and does not anticipate the payment of dividends in the
foreseeable future.
19
(b) that (i) he has prior investment experience, including
investment in securities which are non-listed, unregistered and/or not traded on
the NASDAQ market, a national stock exchange or on the National Association of
Securities Dealers (the "NASD") automated quotation system for actively traded
stocks, or he has employed the services of an investment advisor, attorney
and/or accountant to read all of the documents furnished or made available by
NetSol to him and to evaluate the merits and risks of such investment of his
behalf; (ii) he recognizes the highly speculative nature of this investment;
and, (iii) is able to bear the economic risk which he hereby assumes.
(c) that he has been furnished with, or has had an opportunity
to acquire and carefully review, the following documents filed by NetSol with
the Securities and Exchange Commission (collectively the "SEC Filings"): (a)
Annual Report on Form 10-KSB for the years ended June 30, 2005 and 2004, and
amendments thereto (the "10-KSB"); (b) Quarterly Reports on Form 10-QSB for the
quarter ended September 30, 2005; (c) all Current Reports on Form 8-K filed
after the filing of the 10-KSB; and (d) NetSol's most recent definitive proxy
materials.
(d) acknowledges that as part of this transaction it has
conducted due diligence on NetSol and as part of that due diligence, he has been
furnished with all information regarding NetSol which he, his investment
advisor, attorney and/or account has requested or desired to know, has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of NetSol concerning NetSol, and
has received any additional information which he has requested.
(e) that this transaction has not been reviewed by the SEC or
any state securities regulatory authority or other governmental body or agency,
since the transaction is intended to be exempt from registration under Section 5
of the Securities Act of 1933, as amended (the "Act") pursuant to regulation D
promulgated under the Act.
(f) shall not sell or otherwise transfer the NetSol Shares
unless such transfer is registered under the Act or unless an exemption from
such registration is available.
(g) that the NetSol Shares are not registered under the Act by
reason of a claimed exemption under the provisions of the Act which depends, in
part, upon Seller's investment intention. In this connection, Seller hereby
represents that he is purchasing the NetSol Shares for his own account for
investment purposes only and not with a view toward the resale or distribution
to others and has no contract, undertaking, agreement or other arrangement, in
existence or contemplated, to sell, pledge, assign or otherwise transfer the
NetSol Shares to any other person. If Seller is an entity, Seller represents
that it was not formed for the purpose of purchasing the NetSol Shares.
(h) that although there currently is a public market for the
NetSol Shares, Rule 144 promulgated under the Act ("Rule 144") requires, among
other conditions, a one-year holding period prior to the resale (in limited
amounts) of securities acquired in a non-public placement without having to
satisfy the registration requirements under the Act. Seller understands and
hereby acknowledges that NetSol is under no obligation to register the NetSol
Shares under the Act or any state securities or "blue sky" laws or assist Seller
in obtaining an exemption from various registration requirements.
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(i) consents to the placement of a legend on any certificate
or other document evidencing the NetSol Shares, substantially as set forth
below, that such shares have not been registered under the Act or any state
securities or "blue sky" laws and setting forth or referring to the restrictions
or transferability and sale thereof contained in this agreement. Seller is aware
that NetSol will make a notation in its appropriate records with respect to the
restrictions on the transferability of the Securities.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NTO BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NETSOL
Except as disclosed in NetSol's SEC Reports (as defined in Section
5.1(a) filed prior to the date hereof or as set forth in the NetSol Disclosure
Schedule delivered by NetSol to the Sellers prior to the execution of this
Agreement (the "NetSol Disclosure Schedule"), NetSol represents and warrants to
▇▇▇▇▇ and Sellers as follows:
5.1 Organization, Standing and Power. Each of NetSol and each of its
Subsidiaries (as defined in Section 11(i), below) is a corporation or other
organization duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority to own, lease, use and operate its assets
and properties and to carry on its business as now being conducted, except where
the failure to be in good standing, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on NetSol. NetSol and
each of the Subsidiaries is duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in such
jurisdictions where the failure to qualify or to be in good standing,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on NetSol. The copies of the certificates or articles of
incorporation and bylaws of NetSol and each of its Subsidiaries in, or
incorporated by reference in, NetSol's SEC Reports are true, complete and
correct copies of such documents as in effect on the date of this Agreement. A
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list of the respective jurisdictions of organization of NetSol and each of its
Subsidiaries, and the respective jurisdictions where NetSol and each of its
Subsidiaries is qualified or licensed as a foreign corporation to do business,
are disclosed in Section 5.1 of the NetSol Disclosure Schedule.
5.2 Subsidiaries. Section 5.2 of the NetSol Disclosure Schedule
sets forth each Subsidiary of NetSol not included on Exhibit 21 to NetSol's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005. Exhibit 21
to NetSol's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005
includes all the Subsidiaries of NetSol which as of the date of this Agreement
are Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the
Securities and Exchange Commission (the "SEC")).
5.3 Capital Structure. The authorized capital stock of NetSol, as
of June 30, 2005, consists of (a) 45,000,000 shares of NetSol Common Stock, of
which 14,162,373 shares were issued and outstanding and (b) 5,000,000
undesignated shares of NetSol Preferred Stock, of which no shares were
outstanding. All issued and outstanding shares of the capital stock of NetSol
are duly authorized, validly issued, fully paid and nonassessable and free of
any preemptive rights. Except as disclosed in Sections 5.3 of the NetSol
Disclosure Schedule, there are no outstanding obligations of NetSol or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of NetSol
Capital Stock or any capital stock or other equity or ownership interests of any
Subsidiary of NetSol or to provide funds to, or make any investments (in form of
a loan, capital contribution or otherwise) in, any Subsidiary of NetSol or any
other Person.
5.4 Authority; No Conflicts.
(a) NetSol has all requisite corporate power and authority to
enter into this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement, the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the board of directors of
NetSol and no other corporate proceedings, other than, if necessary,
the approval by the shareholders of NetSol which would be a condition
precedent to the Closing, on the part of NetSol are necessary to
authorize the execution and delivery of this Agreement or to consummate
the other transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by NetSol and constitutes a
valid, legal and binding agreement of NetSol, enforceable against
NetSol in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally or by general
equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement by NetSol
does not, and the performance of its obligations hereunder and the
consummation by NetSol of the other transactions contemplated hereby
will not, conflict with, or result in any violation or breach of, or
constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of, or result by its terms in the,
termination, amendment,
22
cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a Lien, charge, "put" or
"call" right or other encumbrance on, or the loss of, any assets,
including Intellectual Property (as defined in Section 5.8, or cause
or create any right of payment or reimbursement (any such conflict,
violation, breach, default, right of termination, amendment,
cancellation or acceleration, loss, creation, payment or
reimbursement, a "Violation") pursuant to: (A) any provision of the
articles of incorporation or bylaws or similar organizational
document of NetSol or any Significant Subsidiary of NetSol, or (B)
except as (1) individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on NetSol; (2) would
not prevent or materially delay the consummation of the transactions
contemplated by this Agreement, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (c) below or (3)
as set forth in Section 5.4 of the NetSol Disclosure Schedule, any
loan or credit agreement, note, mortgage, bond, indenture, lease,
benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to NetSol or any
Subsidiary of NetSol or their respective properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity") or any other
Person is required by or with respect to NetSol or any Subsidiary of
NetSol in connection with the execution and delivery of this Agreement
by NetSol or the performance of its obligations hereunder or the
consummation of the other transactions contemplated hereby, except for
(i) if required, shareholder approval and (ii) those required under or
in relation to (A) state securities or "blue sky" laws (the "Blue Sky
Laws"), (B) the Securities Act of 1933, as amended (the "Securities
Act"), (C) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (D) the rules and regulations of the NASDAQ and (E)
such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain,
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on NetSol. Consents, approvals, orders,
authorizations, registrations, declarations and filings required under
or in relation to any of the foregoing clauses (i) through (ii) are
hereinafter referred to as "Necessary Consents."
5.5 SEC Reports and Financial Statements.
(a) NetSol has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since June 10, 1997
(collectively, including all exhibits thereto, the "NetSol SEC
Reports"). None of NetSol's SEC Reports, as of their respective dates
(and, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing), contained or will contain
any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to
make the
23
statements therein, in light of the circumstances under which
they were made, not misleading. Each of the financial statements
(including the related notes) included in NetSol's SEC Reports
presents fairly, in all material respects, the consolidated financial
position and consolidated results of operations and cash flows of
NetSol and its consolidated Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with
United States generally accepted accounting principles ("GAAP")
consistently applied during the periods involved except as otherwise
noted therein, and subject, in the case of the unaudited interim
financial statements, to the absence of notes and normal year-end
adjustments that have not been and are not expected to be material in
amount. All of such NetSol SEC Reports, as of their respective dates
(and as of the date of any amendment to the respective NetSol SEC
Report), complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder. Each Subsidiary of
NetSol is treated as a consolidated Subsidiary of NetSol in the
financial reports of NetSol included in NetSol's SEC Reports.
(b) Except as disclosed in NetSol's financial statements
contained in NetSol's SEC Reports, or as disclosed in Section 5.5 of
the NetSol Disclosure Schedule, neither NetSol nor any of its
Subsidiaries has any obligations, liabilities or debts (whether
accrued or fixed, or absolute or contingent, or unmatured, or
determined or determinable), including without limitation those
arising under law or any contract, arrangement or commitment or
undertaking that are of a nature that would be required to be
disclosed on the consolidated balance sheet of NetSol and its
consolidated Subsidiaries or the footnotes thereto prepared in
conformity with GAAP, other than (i) liabilities incurred in the
ordinary course of business consistent with past practices, (ii)
liabilities for Taxes (as defined in Section 5.11 or (iii) liabilities
that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on NetSol.
5.6 Litigation; Compliance with Laws.
(a) Except as disclosed in Section 5.6 to NetSol's Disclosure
Schedule and the NetSol SEC Reports, there are no claims,
investigations, suits, actions, judgments or proceedings (collectively,
"Actions") pending or, to the knowledge of NetSol, threatened, against
or affecting NetSol or any Subsidiary of NetSol or any property or
asset of NetSol or any Subsidiary of NetSol, before any court,
arbitrator or Governmental Entity (domestic or foreign), which,
individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect on NetSol, nor are there any judgments,
decrees, determinations, awards, injunctions, rules or orders of any
Governmental Entity or arbitrator outstanding against NetSol or any
Subsidiary of NetSol which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on NetSol.
(b) Except as, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on NetSol,
NetSol and its Subsidiaries hold all permits, licenses, franchises,
variances, exemptions, orders and approvals of all
24
Governmental Entities which are necessary for the operation of the
businesses as now being conducted of NetSol and its Subsidiaries,
(the "NetSol Permits"), and no suspension or cancellation of any of
NetSol's Permits is pending or, to the knowledge of NetSol,
threatened. NetSol and its Subsidiaries are in compliance with the
terms of NetSol's Permits, except where the failure to so comply,
individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on NetSol. Neither NetSol nor any
of its Subsidiaries is in violation of, and NetSol and its
Subsidiaries have not received any notices of violations with
respect to, any laws, statutes, ordinances, rules or regulations of
any Governmental Entity, except for violations which, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on NetSol.
5.7 Brokers or Finders. NetSol has engaged Maxim Group, LLC and is
therefore liable to Maxim Group, LLC for applicable brokers', finders', or
similar fees in connection with the transactions contemplated by this Agreement.
ARTICLE 6
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Covenants of NetSol. During the period from the date of this
Agreement and continuing until the Closing Date, NetSol agrees as to itself and
its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as set forth in the NetSol Disclosure Schedule or to the extent
that ▇▇▇▇▇ shall otherwise consent in writing) and, except as required by law,
NetSol shall not, and shall not permit any of its Subsidiaries to (a) take any
action that would, or would reasonably be expected to, result in (i) any of the
conditions to this Agreement not being satisfied or (ii) a material delay in the
satisfaction of such conditions.
From the Closing Date until the payment of the Deferred Compensation
(except as expressly contemplated or permitted by this Agreement or as set forth
in the NetSol Disclosure Schedule or to the extent that ▇▇▇▇▇ shall otherwise
consent to in writing) and, except as required by law, NetSol shall not cause
▇▇▇▇▇ to:
(a) pass any resolution for the voluntary winding-up or a
petition for the winding up;
(b) cease to carry on business in the normal and ordinary
course;
(c) dispose of any asset or assign or terminate any contract
which if in doing so would materially adversely affect the revenue earning
ability of ▇▇▇▇▇.
6.2 Covenants of ▇▇▇▇▇. During the period from the date of this
Agreement and continuing until the Closing Date, ▇▇▇▇▇ agrees that (except as
expressly contemplated or permitted by this Agreement or Section 6.2 of the
▇▇▇▇▇ Disclosure Schedule or to the extent that NetSol shall otherwise consent
in writing):
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(a) Ordinary Course.
(i) ▇▇▇▇▇ shall carry on its business in the usual,
regular and ordinary course in all material respects, in
substantially the same manner as heretofore conducted, and
shall use their reasonable best efforts to preserve intact
their present lines of business, maintain their rights and
franchises and preserve their relationships with customers,
suppliers and others having business dealings with them to the
end that their ongoing businesses shall not be impaired in any
material respect at the Closing Date; provided, however, that
no action by ▇▇▇▇▇ with respect to matters specifically
addressed by any other provision of this Section 6.2 shall be
deemed a breach of this Section 6.2(a)(i) unless such action
would constitute a breach of one or more of such other
provisions of this Section 6.2. ▇▇▇▇▇ shall promptly notify
NetSol of any event or occurrence or emergency not in the
ordinary course of business of ▇▇▇▇▇ and any event which would
reasonably be expected to have a Material Adverse Effect on
▇▇▇▇▇ or the transactions contemplated by this Agreement.
(ii) Other than in connection with acquisitions
permitted by Section 6.2(i) or investments permitted by
Section 6.2(k), ▇▇▇▇▇ shall not (A) enter into any new
material line of business or (B) incur or commit to any
capital expenditures or any obligations or liabilities in
connection therewith other than capital expenditures and
obligations or liabilities in connection therewith incurred or
committed to in the ordinary course of business consistent
with past practices.
(b) Stock Options. ▇▇▇▇▇ shall not grant, accelerate, amend or
change the period of exercisability of any outstanding ▇▇▇▇▇ Stock
Options or stock subject to vesting, or authorize cash payments in
exchange for any such outstanding options.
(c) Intellectual Property. ▇▇▇▇▇ shall not transfer to any
Person any rights to any ▇▇▇▇▇ Intellectual Property (other than
end-user licenses granted to customers of ▇▇▇▇▇ in the ordinary course
of business).
(d) Marketing Rights. ▇▇▇▇▇ shall not enter into or amend any
material agreements pursuant to which any other party is granted
marketing, distribution, or similar rights of any type or scope with
respect to any products of ▇▇▇▇▇ except in the ordinary course of
business consistent with past practices.
(e) Amendments to Agreements. ▇▇▇▇▇ shall not amend or
otherwise modify (or agree to do so), except in the ordinary course of
business, or materially violate the terms of, any of the agreements set
forth or described in the ▇▇▇▇▇ Disclosure Schedule.
(f) Dividends; Changes in Share Capital. ▇▇▇▇▇ shall not and
shall not propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of
or in substitution for, shares of its capital stock or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock
or any securities convertible into or exercisable for any shares of its
capital stock (or options, warrants, or other rights exercisable
therefore).
26
(g) Issuance of Securities. ▇▇▇▇▇ shall not issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock of any class or any securities convertible
into or exercisable for, or any rights, warrants, calls or options to
acquire, any such shares, or enter into any commitment, arrangement,
undertaking or agreement with respect to any of the foregoing.
(h) Governing Documents. Except to the extent required to
comply with their respective obligations hereunder or with applicable
law, ▇▇▇▇▇ shall not amend or propose to so amend its articles of
incorporation or bylaws.
(i) No Acquisitions. ▇▇▇▇▇ shall not acquire or agree to
acquire by merger or consolidation, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire
or agree to acquire any assets (excluding the acquisition of assets
used in the operations of the business of ▇▇▇▇▇ in the ordinary course,
which assets do not constitute a business unit, division or all or
substantially all of the assets of the transferor).
(j) No Dispositions. Other than (i) as may be required by or
in conformance with law or regulation in order to permit or facilitate
the consummation of the transactions contemplated hereby or (ii) as
disclosed in Section 6.2 of the ▇▇▇▇▇ Disclosure Schedule, ▇▇▇▇▇ shall
not sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets (but excluding inventory in the
ordinary course of business).
(k) Investments; Indebtedness. ▇▇▇▇▇ shall not (i) make any
loans, advances or capital contributions to, or investments in, any
other Person, other than (aa) employee loans or advances made in the
ordinary course of business or (bb) in the ordinary course of business
consistent with past practices which are not, individually or in the
aggregate, material to ▇▇▇▇▇ and its Subsidiaries taken as a whole or
(ii) without regard to anything contained in the ▇▇▇▇▇ Disclosure
Schedule, incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of ▇▇▇▇▇ or
any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another
(l) Compensation. Except (i) as set forth in Section 6.2 of
the ▇▇▇▇▇ Disclosure Schedule, (aa) as required by law or by the terms
of any agreement currently in effect between ▇▇▇▇▇ or any Subsidiary of
▇▇▇▇▇ and any executive officer or employee thereof or (bb) in the
ordinary course of business consistent with past practices, ▇▇▇▇▇ shall
not increase the amount of compensation of any director, executive
officer or key employee of ▇▇▇▇▇ or grant any severance or termination
pay to any director or officer or to any other employee of ▇▇▇▇▇, other
than severance or termination pay contained in any employment
agreements negotiated with employees named in Section 7.1 of the
Agreement, or make any increase in or commitment to increase any
employee benefits, issue any additional ▇▇▇▇▇ Stock Options, adopt or
amend or make any commitment to adopt or amend any Benefit Plan or make
any contribution, other than regularly scheduled contributions, to any
▇▇▇▇▇ Benefit Plan.
27
(m) Accounting Methods; Income Tax Elections. Except as
required by a Governmental Entity, ▇▇▇▇▇ shall not change its methods
of accounting, except as required by changes in GAAP as concurred by
▇▇▇▇▇'▇ independent public accountants. ▇▇▇▇▇ shall not (i) change its
fiscal year or (ii) make any tax election that, individually or in the
aggregate, would have a Material Adverse Effect on ▇▇▇▇▇.
(n) Certain Agreements and Arrangements. ▇▇▇▇▇ shall not enter
into any agreements or arrangements that limit or otherwise restrict
▇▇▇▇▇ or any of their its affiliates or any successor thereto, or that
could, after the Closing Date, limit or restrict ▇▇▇▇▇, NetSol or any
of its affiliates or any successor thereto, from engaging or competing
in any line of business or in any geographic area which agreements or
arrangements, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on NetSol, its Subsidiaries,
and ▇▇▇▇▇, taken together, after giving effect to the transactions
contemplated by this Agreement.
(o) Satisfaction of Closing Conditions. Except as required by
law, ▇▇▇▇▇ shall not take any action that would, or would reasonably be
expected to, result in (i) any of the conditions to the Agreement not
being satisfied or (ii) a material delay in the satisfaction of such
conditions.
(p) Write-Offs. ▇▇▇▇▇ shall not revalue any of ▇▇▇▇▇'▇ assets,
including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary
course of business.
(q) Strategic Alliances. ▇▇▇▇▇ shall not enter into any
strategic alliance, joint venture, partnership, joint development or
joint marketing agreement with any Person, which would have a Material
Adverse Effect on NetSol, its Subsidiaries or ▇▇▇▇▇, taken together,
after giving effect to the transactions contemplated by this Agreement.
(r) Other Actions. ▇▇▇▇▇ shall not agree orally or in writing
or otherwise to take, any action that would reasonably be expected to
cause a Material Adverse Effect on ▇▇▇▇▇, NetSol or any of its
Subsidiaries.
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ARTICLE 7
CERTAIN RELATED MATTERS AND ADDITIONAL AGREEMENTS
7.1 Employment Agreements. At or prior to the Closing Date, ▇▇▇▇▇
will take all action necessary to cause the Board of Directors of ▇▇▇▇▇ to
authorize, approve, execute and deliver at the Closing, an Employment Agreement
with ▇▇▇▇ ▇▇▇▇▇ upon terms and conditions satisfactory to NetSol and ▇▇▇▇▇ (the
"▇▇▇▇▇ Employment Agreement"). The form of the Employment Agreement is attached
hereto as Exhibit A.
7.2 Access to Information. Upon reasonable notice, each party
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Closing Date, to all its properties, books, contracts, commitments, records,
officers and employees and, during such period, such party shall (and shall
cause its Subsidiaries to) furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of federal, state or local laws (other than documents which such
party is not permitted to disclose under applicable law), and (b) all other
information concerning it and its business, properties and personnel as such
other party may reasonably request. Any investigation by either of NetSol or
▇▇▇▇▇ shall not affect the representations and warranties of the other.
7.3 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under this Agreement and applicable laws and
regulations to consummate the transactions contemplated by this Agreement as
soon as practicable after the date hereof, including (i) preparing and filing as
promptly as practicable all documentation to effect all necessary applications,
notices, petitions, filings, tax ruling requests and other documents and to
obtain as promptly as practicable all consents, waivers, licenses, orders,
registrations, approvals, permits, rulings, authorizations and clearances
necessary or advisable to be obtained under any of the parties' agreements,
contracts, licenses or leases in order to preserve the benefits thereunder or
otherwise in connection herewith and from any third party and/or any
Governmental Entity in order to consummate the transactions contemplated by this
Agreement (collectively, the "Required Approvals"), (ii) taking all reasonable
steps as may be necessary to obtain all Required Approvals and (iii) the
satisfaction of the conditions hereunder.
7.4 Public Announcements. NetSol and ▇▇▇▇▇ shall use reasonable
best efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or, to the extent practical, otherwise making any
public statement with respect to this Agreement or the
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transactions contemplated hereby. Prior to the Closing hereof neither NetSol nor
▇▇▇▇▇ shall issue any press release or otherwise make any public statement or
disclosure concerning the other party or the other party's business, financial
condition or results of operations without the consent of the other party, which
consent shall not be unreasonably withheld or delayed.
7.5 Investigation by NetSol and Sellers' Representative. NetSol
may, prior to the Closing Date, through its representatives (including its
counsel, accountants and consultants) make such reasonable investigations of the
properties, offices and operations of ▇▇▇▇▇ and such audit of the financial
condition of ▇▇▇▇▇ as it deems reasonably necessary or advisable in connection
with the transactions contemplated hereby, including, without limitation, any
reasonable investigation enabling it to familiarize itself with such properties,
offices, operations and financial condition; such investigation shall not,
however, affect ▇▇▇▇▇'▇ or the Sellers' representations, warranties and
agreements hereunder and shall be conducted in such a manner so as to not
unreasonably disrupt or interfere with ▇▇▇▇▇'▇ business or personnel. No
creditor or customer of ▇▇▇▇▇ shall be contacted by NetSol without the prior
written consent of ▇▇▇▇▇, which consent shall not be unreasonably withheld.
▇▇▇▇▇ and the Sellers shall permit NetSol and its authorized representatives to
have, after the date hereof, reasonable access to the premises and to all books
and records and Returns of ▇▇▇▇▇, and NetSol shall have the right to be provided
copies thereof and excerpts there from. ▇▇▇▇▇ and the Sellers shall furnish
NetSol with such financial and operating data and other information with respect
to ▇▇▇▇▇ as NetSol may from time to time reasonably request. NetSol shall
furnish the Sellers' Representative with such financial and other information,
with respect to NetSol as Sellers' Representative may from time to time
reasonably request, and which ▇▇▇▇▇ deems reasonably necessary or advisable in
connection with the transactions contemplated hereby, including, without
limitation, any reasonable investigation enabling it to familiarize itself with
NetSol's business, history, properties, offices, operations and financial
condition. NetSol and Seller shall advise the other with respect to the progress
made by it, him or her in securing any consent or the satisfaction of any
condition required for the completion of this transaction and shall supply
copies of any documents prepared or received by it, him or her in connection
therewith. Notwithstanding the above, the investigation by NetSol and/or
Sellers' Representative does not affect, alter or void the representations and
warranties made by NetSol, the Sellers and/or ▇▇▇▇▇.
7.6 Supplemental Disclosure. The parties agree that, with respect
to their representations and warranties made in this Agreement, they will have a
continuing right until the Closing Date to disclose additional information;
provided, however, that none of such disclosures shall be deemed to modify,
amend or supplement the representations and warranties of any party or the
Disclosure Schedules of either party hereto unless such disclosures are set
forth on the Disclosure Schedules of either party with respect to this Agreement
delivered at or before the Closing.
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ARTICLE 8
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Affect the Purchase
and Sale of the ▇▇▇▇▇ Capital Stock. The respective obligations of ▇▇▇▇▇ and
NetSol to effect the Purchase and Sale of the ▇▇▇▇▇ Capital Stock are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Director and Shareholder Approval. (i) ▇▇▇▇▇ shall have
obtained the required approval by its Board of Directors and the agreement of
▇▇▇▇▇ shareholders to sell their shares of ▇▇▇▇▇ Capital Stock, and (ii) NetSol
shall have obtained the required approval by its Board of Directors.
(b) No Injunctions or Restraints, Illegality. No laws shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect, having the
effect of making the purchase and sale of the ▇▇▇▇▇ Common Stock and other
transactions contemplated by this Agreement illegal or otherwise prohibiting
consummation of such transactions.
8.2 Additional Conditions to Obligations of NetSol. The
obligations of NetSol to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, or waiver by NetSol, on or prior to
the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Sellers and ▇▇▇▇▇ set forth in this
Agreement, disregarding all qualifications and exceptions contained
therein relating to materiality or Material Adverse Effect, shall be
true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent
that such representations and warranties speak as of another date, in
which case such representations and warranties shall be true and
correct as of such other date), except where the failure of such
representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on ▇▇▇▇▇; and NetSol shall have received a
certificate of Sellers' Representative and a senior executive officer
and a senior financial officer of ▇▇▇▇▇ to such effect.
(b) Performance of Obligations of ▇▇▇▇▇. Sellers shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date
that are qualified as to materiality or Material Adverse Effect and
shall have performed or complied in all material respects with all
other material agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are not so
qualified, and NetSol shall have received a certificate of Sellers'
Representative to such effect.
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(c) Governmental and Regulatory and Other Consents and
Approvals. All consents, approvals, and actions of, filings with and
notices to any Governmental Entity or any other public or private third
parties required of ▇▇▇▇▇ or NetSol, to consummate the transactions
contemplated by this Agreement, the failure of which to be obtained or
taken could be reasonably expected to have a Material Adverse Effect on
NetSol or ▇▇▇▇▇, or to materially diminish the value of the
transactions contemplated by this Agreement to NetSol, or on the
ability of ▇▇▇▇▇ and NetSol to consummate the transactions contemplated
hereby, shall have been obtained, all in form and substance reasonably
satisfactory to NetSol.
(d) Material Adverse Change. There shall not have occurred any
Material Adverse Effect on ▇▇▇▇▇ since the date of this Agreement.
(e) No Legal Proceedings. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated hereby, and on the Closing Date
there will be no court or governmental actions or proceedings pending
or threatened against or affecting ▇▇▇▇▇ and/or Sellers that involve a
demand for any judgment or liability, whether or not covered by
insurance, and that may result in any Material Adverse Effect on ▇▇▇▇▇.
(f) Consents. Unless the failure to receive such consent is
the fault of Sellers and/or ▇▇▇▇▇, NetSol shall have received all
Consents necessary to effectuate this Agreement and to consummate the
transactions contemplated hereby.
(g) Ancillary Agreements. The Sellers shall have executed and
delivered, or caused to be executed and delivered, each of Sellers'
Ancillary Agreements.
(h) Certificates of Status. Except as provided in Section 8.2
of the ▇▇▇▇▇ Disclosure Schedule, NetSol shall have received
certificates from the Secretary of State of the State of California and
of each jurisdiction set forth in Section 8.2 the ▇▇▇▇▇ Disclosure
Schedule, each dated not more than 30 days prior to Closing, to the
effect that ▇▇▇▇▇ is subsisting in good standing in each such
jurisdiction.
(i) Dismissal of Litigation. ▇▇▇▇▇ shall have furnished NetSol
with evidence of the dismissal of the Litigation disclosed in Section
3.5 of the ▇▇▇▇▇ Disclosure Schedule. .
(j) Closing Deliveries. NetSol shall have received at or prior
to the Closing all documents set forth in this Section 8.2 and such
other documents, instruments, or certificates as NetSol may reasonably
request, including, without limitation, a certificate signed by an
authorized representative of ▇▇▇▇▇ attesting to the authenticity of the
resolutions authorizing the transactions contemplated by this
Agreement.
(k) Certificate of Non-Foreign Status. Each of the Sellers
shall have provided NetSol with a certificate of non-foreign status,
certifying that such Seller is not a non-resident alien and, therefore,
not subject to withholding under Section 1445 of the Code.
8.3 Additional Conditions to Obligations of ▇▇▇▇▇. The obligations
of ▇▇▇▇▇ to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, or waiver by ▇▇▇▇▇, on or prior to the Closing Date
of the following additional conditions:
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(a) Representations and Warranties. Each of the
representations and warranties of NetSol set forth in this Agreement,
disregarding all qualifications and exceptions contained therein
relating to materiality or Material Adverse Effect, shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent that
such representations and warranties speak as of another date, in which
case such representations and warranties shall be true and correct as
of such other date), except where the failure of such representations
and warranties to be true and correct would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
NetSol or its Subsidiaries, and ▇▇▇▇▇ shall have received a certificate
of a senior executive officer and a senior financial officer of NetSol
to such effect.
(b) Performance of Obligations of NetSol. NetSol shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date
that are qualified as to materiality or Material Adverse Effect and
shall have performed or complied in all material respects with all
other material agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are not so
qualified, and ▇▇▇▇▇ shall have received a certificate of a senior
executive officer and a senior financial officer of NetSol to such
effect.
(c) Governmental and Regulatory and Other Consents and
Approvals. All consents, approvals and actions of, filings with and
notices to any Governmental Entity or any other public or private third
parties required of ▇▇▇▇▇, NetSol or any of their Subsidiaries to
consummate the transactions contemplated by this Agreement, the failure
of which to be obtained or taken could be reasonably expected to have a
Material Adverse Effect on NetSol, its Subsidiaries or ▇▇▇▇▇ or to
materially diminish the value of the transactions contemplated by this
Agreement to ▇▇▇▇▇, or on the ability of ▇▇▇▇▇ and NetSol to consummate
the transactions contemplated hereby, shall have been obtained, all in
form and substance reasonably satisfactory to NetSol.
(d) Material Adverse Change. There shall not have occurred any
Material Adverse Effect on NetSol and its Subsidiaries taken as a whole
since the date of this Agreement.
(e) Agreements and Conditions. On or before the Closing Date,
NetSol shall have complied with and duly performed in all material
respects all agreements, covenants and conditions on their respective
parts to be complied with and performed pursuant to or in connection
with this Agreement on or before the Closing Date.
(f) No Legal Proceedings. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated hereby and on the Closing Date
there will be no court or governmental actions or proceedings pending
or threatened against or affecting NetSol that involve a demand for any
judgment or liability, whether or not covered by insurance, and that is
reasonably likely to result in any Material Adverse Effect on (i) the
condition (financial or otherwise), business, operations or prospects
of NetSol or (ii) the aggregate value of their properties or assets.
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(g) Ancillary Agreements. NetSol shall have executed and
delivered, or caused to be executed and delivered, each of NetSol's
Ancillary Agreements.
(h) Closing Deliveries. ▇▇▇▇▇ and the Sellers shall have
received at or prior to the Closing all documents set forth in this
Section 8.3 and such other documents, instruments, or certificates as
▇▇▇▇▇ or the Sellers may reasonably request, including, without
limitation, a certificate signed by authorized representatives of
NetSol attesting to the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement.
ARTICLE 9
CERTAIN TAX MATTERS
9.1 Tax Periods Ending on or before the Closing Date. NetSol
shall cause ▇▇▇▇▇ to prepare and file or cause to be filed all Tax Returns for
▇▇▇▇▇ for all periods beginning prior to the Closing Date that are filed after
the Closing Date. ▇▇▇▇▇ shall permit the Sellers' Representative reasonable time
to review and comment on each such Tax Return described in the preceding
sentence prior to filing. The Sellers shall reimburse NetSol for any Taxes of
▇▇▇▇▇, if any, with respect to such periods ending on the Closing Date within
thirty (30) days after payment by NetSol or ▇▇▇▇▇ 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) on the Interim Balance Sheet or were not incurred in
connection with the operation of business of ▇▇▇▇▇ in the ordinary course prior
to Closing.
9.2 Cooperation on Tax Matters.
(a) NetSol, ▇▇▇▇▇, and the 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. ▇▇▇▇▇, NetSol and Sellers agree (A) to retain all books and
records with respect to Tax matters pertinent to ▇▇▇▇▇ relating to any
taxable period beginning before the Closing Date until the expiration
of the statute of limitations (and, to the extent notified by NetSol or
the Sellers, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any
taxing authority, and (B) 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, ▇▇▇▇▇ or the Sellers,
as the case may be, shall allow the other party to take possession of
such books and records.
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(b) ▇▇▇▇▇, NetSol 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 or entity 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).
ARTICLE 10
INDEMNIFICATION
10.1 Survival of Representations. The representations and
warranties of NetSol, ▇▇▇▇▇ and the Sellers contained in sections 3.1, 3.2, 3.3,
3.4, 3.5, and the liability referred to therein in section 3.8, 4.1, 4.2, 5.1
and 5.4 (the "Fundamental Representations and Warranties") in this Agreement,
the Exhibits hereto and the respective Disclosure Schedules of NetSol, ▇▇▇▇▇ and
the Sellers, shall survive the Closing Date of this Agreement. All other
representations and warranties contained in this Agreement, the Exhibits hereto
and the respective Disclosure Schedules of NetSol, ▇▇▇▇▇ and the Sellers, shall
survive the Closing Date for a period of two (2) years, and shall then
terminate; provided, however, that any such representation and warranty shall
survive the time it would otherwise terminate only with respect to claims of
which notice has been given as provided in section 10.5 of this Agreement prior
to such termination. Notwithstanding the above, the representations and
warranties in this Agreement shall not be deemed to have terminated if the
assertion or non-assertion thereof is determined to constitute fraud.
10.2 Indemnitors; Indemnified Persons. For purposes of this
Section 10, each party that, pursuant to this Section 10, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity that is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
10.3 Indemnification by ▇▇▇▇▇ and the Sellers. ▇▇▇▇▇ (if the
transaction does not close) and the Sellers (if there is a Closing) hereby
jointly and severally, agree to defend, indemnify, hold harmless and reimburse
NetSol and its directors, officers, agents and employees from and against any
and all claims, liabilities, losses, damages and expenses incurred by such
Indemnified Persons (including reasonable attorneys' fees and disbursements) to
the extent caused by or arising out of (a) any breach (or alleged breach in
connection with a claim asserted by a third party) of any representation or
warranty of ▇▇▇▇▇ and/or the Sellers contained in this Agreement; (b) any breach
of any covenant or agreement of ▇▇▇▇▇ or the Sellers contained in this
Agreement; (c) any breach of any covenant, representation or warranty in the
▇▇▇▇▇ or Sellers' Disclosure Schedule, and, (d) any failure or breach by any
Seller to carry out, perform, satisfy and discharge any of Sellers' covenants,
agreements, undertakings, liabilities, or obligations under this Agreement and
shall reimburse such Indemnified Persons for all costs and expenses (including
reasonable attorneys' fees and disbursements) as they shall be reasonably
incurred, in connection with paying, investigating, preparing for or defending
any action, claim, investigation, inquiry or other proceeding, in connection
with pending or threatened litigation, that shall be caused by or shall arise
out of such breach (or alleged breach in connection with a claim asserted by a
third party), whether or not any such Indemnified Person shall be named as a
party thereto and whether or not any liability shall result there from. The
Sellers and ▇▇▇▇▇ further agree that they shall not, without the prior written
consent of NetSol, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding indemnifiable
hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person to which such indemnification
would apply under this Section 10.3 from all liability arising out of such
claim, action, suit or proceeding to which such indemnification would apply.
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10.4 Indemnification by NetSol. NetSol hereby agrees to defend,
indemnify, hold harmless and reimburse the Sellers from and against any and all
claims, liabilities, losses, damages and expenses incurred by them (including
reasonable attorneys' fees and disbursements) to the extent caused by or arising
out of: (a) any breach (or alleged breach in connection with a claim asserted by
a third party) of any representation or warranty of NetSol contained in this
Agreement; and (b) any breach of any covenant or agreement of NetSol contained
in the Agreement, and (c) any breach of any covenant, representation or warranty
in the NetSol Disclosure Schedule, and shall reimburse such Indemnified Persons
for all costs and expenses (including reasonable attorneys' fees and
disbursements) as shall be reasonably incurred, in connection with paying,
investigating, preparing for or defending any action, claim, investigation,
inquiry or other proceeding, in connection with pending or threatened
litigation, that shall be caused by or shall arise out of such breach (or
alleged breach in connection with a claim asserted by a third party), whether or
not such Indemnified Persons shall be named as a party thereto and whether or
not any liability shall result there from. NetSol further agrees that it shall
not, without the prior written consent of the Sellers' Representative, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding indemnifiable hereunder unless such
settlement, compromise or consent shall include an unconditional release of each
Indemnified Person to which such indemnification would apply under this Section
10.4 from all liability arising out of such claim, action, suit or proceeding to
which such indemnification would apply.
10.5 Procedures for Indemnification; Defense. Promptly after receipt by
an Indemnified Person of notice of the commencement of any action or proceeding
with respect to which indemnification may be sought hereunder ("Notice of
Claim"), such Indemnified Person shall notify the Indemnitor of the commencement
of such action or proceeding, but failure to so notify the Indemnitor shall not
relieve the Indemnitor from any liability that the Indemnitor may have hereunder
or otherwise, unless the Indemnitor shall be materially prejudiced by such
failure. If the Indemnitor shall so elect, the Indemnitor shall demonstrate its
capacity to and assume in writing the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall pay the fees and disbursements of such counsel. In the event,
however, that such Indemnified Person shall reasonably determine in its judgment
that having common counsel would present such counsel with a conflict of
interest or alternative defenses shall be available to an Indemnified Person or
if the Indemnitor shall fail to assume the defense of the action or proceeding
in a timely manner, then such Indemnified Person may employ separate counsel to
represent or defend it in any such action or proceeding and the Indemnitor shall
pay the reasonable fees and disbursements of such counsel; provided, however,
that the Indemnitor shall not be required to pay the fees and disbursements of
more than one separate counsel for all Indemnified Persons in any jurisdiction
in any single action or proceeding. In any action or proceeding the defense of
which the Indemnitor shall assume, the Indemnified Person shall have the right
to participate in (but not control) such litigation and to retain its own
counsel at such Indemnified Person's own expense except as otherwise provided
above in this Section 10.5, so long as such participation does not interfere
with the Indemnitor's control of such litigation.
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10.6 Limitation on Indemnification.
(a) Notwithstanding any provision of this Section 10 to the
contrary, the dollar amount of such indemnification obligations of any Seller
may not exceed the total Purchase Price (the "Claims Limitation"). Unless
otherwise specified by agreement with Seller and NetSol, notwithstanding any
provision of this Section 10 to the contrary, the dollar amount of such
indemnification obligations of any Seller shall not exceed the total prorated
Purchase Price (the "Claims Limitation") received by said Seller. Provided,
however, that actions based on fraud and/or a breach of a Fundamental
Representation and Warranty will not be subject to this Claims Limitations.
(b) The amount which an Indemnitor is required to pay to, for
or on behalf of any Indemnified Person pursuant to this Section 10 (the
"Indemnity Payment") shall be reduced by the amount of any Net Insurance
Recovery (as defined below) made in respect thereof and the amount, if any, of
claims, cross-claims, counterclaims or the like that are either received
directly by the indemnified party or by the indemnifying party on behalf of the
indemnified party and remitted to the indemnified party as a direct result of
the event giving rise to the claim for indemnification after deducting there
from all fees, costs and expenses (including, without limitation, reasonable
attorneys and disbursements) incurred in connection therewith. In such
connection, an indemnified party shall fully cooperate with the indemnifying
party in pursing and realizing all amounts which may reasonably be available
from third persons. Nothing in this Section 10 shall (i) obligate any
Indemnified Person to obtain or maintain insurance with respect to any matters
for which it is entitled to seek indemnification under this Agreement or (ii)
obligate any Indemnitor to obtain or maintain insurance with respect to any
matters for which it is obligated to provide indemnity hereunder or to prosecute
or attempt to prosecute any claim, cross-claim, counterclaim or the like against
any party; provided that if, in fact, such Indemnitor shall maintain any such
insurance, it shall submit such claim in accordance with the terms of such
insurance policy. Each Indemnitor hereby waives all rights of subrogation it may
have against any insurer insuring the Indemnified Person in respect of any loss
for which such Indemnitor has made an Indemnity Payment. "Net Insurance
Recovery" shall mean the amount by which insurance proceeds actually recovered
by an Indemnified Person in respect of a loss covered hereunder exceed 150% of
the annual premium paid by the Indemnified Person or its Affiliate in the most
recent fiscal year in respect of such insurance.
10.7 Indemnification Damage. In no event shall any Indemnitor be
liable hereunder for punitive damages incurred by an Indemnified Person, except
for any such damages required to be paid to third parties in respect of any
claim indemnifiable hereunder.
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10.8 Right to Set-off. In the event of a claim for damages against
NetSol under circumstances which give rise to an obligation of Sellers to
indemnify and defend NetSol, NetSol shall be entitled to reduce the dollar value
of any payment of consideration due to Sellers from NetSol by an amount equal to
a reasonable reserve for the payment of the claim, and costs and expenses
related to the defense or prosecution of such claim.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Further Assurances. From time to time after the Closing, upon
the request of NetSol, and at NetSol's expense for any out-of-pocket costs of
Sellers or Sellers' Representative, the Sellers shall execute and deliver, and
cause to be executed and delivered, such further instruments of conveyance,
assignment and transfer and take such further action (excluding any obligation
to make payments) as NetSol may reasonably request in order more effectively to
sell, assign, convey, transfer, reduce to possession and record title to the
Purchased Shares pursuant to this Agreement.
11.2 Entire Agreement. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto
and the schedules attached hereto) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof, and supersedes all
prior term sheets, agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
11.3 Amendment and Modification. No amendment, supplement,
modification, waiver, or termination of this Agreement shall be binding unless
executed in writing by the NetSol on the one hand and Sellers' Representative on
the other. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision of this Agreement, whether
or not similar, nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
11.4 Binding Effect; Benefits. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
11.5 Fees and Disbursements. NetSol shall pay its own expenses, and
the fees and disbursements of the counsel, accountants or auditors retained by
it in connection with the preparation, execution, delivery and performance of
this Agreement. The Sellers shall pay their own expenses, and the fees and
disbursements of the counsel, accountants or other professionals retained by
them or ▇▇▇▇▇ in connection with the preparation, delivery and performance of
this Agreement
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11.6 Disclosure Schedules. All Exhibits to this Agreement and the
respective Disclosure Schedules of NetSol, ▇▇▇▇▇ and the Sellers ("Schedules")
are integral parts to this Agreement. The parties are responsible for preparing
and arranging their Schedules corresponding to the lettered and numbered
paragraphs contained herein.
11.7 Preservation of Records. NetSol shall cause ▇▇▇▇▇ to preserve
its books and records, which for purposes of this Agreement is defined as all
books, documents and records owned or used by the ▇▇▇▇▇ , including but not
limited to personnel, medical and accounting records, tax records, minute and
stock record books, correspondence, governmentally required records, manuals,
engineering data, designs, drawings, blueprints, plans, specifications, lists,
customer lists, computer media, software and software documentation, sales
literature, catalogues, promotional items, advertising materials and other
written materials and to make such Records available to Sellers' Representative
upon advance written notice thereof for purposes reasonably related to this
Agreement and the obligations, representations and warranties contained herein.
Sellers' Representative, on behalf of Sellers agrees execute a confidentiality
agreement binding it and its representatives preventing the unauthorized
disclosure of confidential Records disclosed hereby.
11.8 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an Article
or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." In addition, each Section of this Agreement is
qualified by the matters set forth in the NetSol Disclosure Schedule, the ▇▇▇▇▇
Disclosure Schedule and the Schedules to this Agreement, as applicable, to the
extent specified therein and such other Sections of this Agreement to the extent
a matter in such Section is disclosed in such a way as to make its relevance
called for by such other Section readily apparent.
11.9 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
11.10 Termination. This Agreement shall terminate, upon written
notice by either party, if the Closing has not occurred within five months of
the date of this Agreement, unless expressly extended in writing by NetSol and
Sellers' Representative. This Agreement may be terminated at any time prior to
the Closing Date by any of the following:
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(a) By mutual written agreement of the parties hereto;
(b) Subject to the provisions of Section 11.11 hereof, by
NetSol, by written notice to ▇▇▇▇▇ and the Sellers' Representative, if
there has been a material breach of this Agreement by ▇▇▇▇▇ or the
Sellers which remains uncured or by its nature can not be cured within
thirty days from such notice date; or
(c) Subject to the provisions of Section 11.11 hereof, by
▇▇▇▇▇ or by the Sellers, by written notice to NetSol, if there has been
a material breach of this Agreement by NetSol which remains uncured or
by its nature can not be cured within thirty days from such notice
date.
11.11 Effects of Termination. If this Agreement is terminated as
provided in Section 11.10 hereof, then this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any party
hereto (or any of their respective the stockholders, officers, directors or
employees.
11.12 Governing Law, Jurisdiction and Venue. This Agreement and the
legal relations among the parties hereto shall be governed by and construed in
accordance with the internal laws of the State of California. The parties hereby
consent to the exclusive jurisdiction of Federal and California State courts
located in the County of Los Angeles, California and agree that service of
process by certified mail, return receipt requested, shall constitute personal
service for all purposes hereof.
11.13 Arbitration. Any controversy or claim arising out of, or
relating to, this Agreement or any Schedule or Exhibit hereto, or any breach
thereof (other than a disagreement concerning Purchase Price Adjustments, which
shall be resolved as provided in Section 1.4 hereof), shall be settled by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association.
11.14 Attorneys' Fees and Costs. If this Agreement gives rise to a
lawsuit or other legal proceeding between any of the parties hereto, the
prevailing party shall be entitled to recover court costs, necessary
disbursements (including expert witnesses' fees) and reasonable attorneys' fees,
in addition to any other relief such party may be entitled.
11.15 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or facsimile, upon confirmation of receipt,
(b) on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to Seller(s), addressed to:
▇▇▇▇▇ Systems, Inc.
Attention: ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
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If to NetSol, addressed to:
NetSol Technologies, Inc.
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Chairman
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or to such other address as shall be specified by like notice to the
other parties.
11.16 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
11.17 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
11.18 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.19 Definitions. Unless otherwise defined elsewhere in this
Agreement, the following terms as used in this Agreement shall mean:
(a) "beneficial ownership" or "beneficially own" shall have
the meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(b) "Benefit Plans" means, with respect to any Person, each
employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and any bonus, deferred compensation, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, stay
agreement or bonus, change in control and severance plan, program,
arrangement and contract) in effect on the date of this Agreement or
disclosed on the ▇▇▇▇▇ Disclosure Schedule or the NetSol Disclosure
Schedule, as the case may be, to which such Person or its Subsidiary is
a party, which is maintained or contributed to by such Person, or with
respect to which such Person could incur material liability under
Sections 4069, 4201 or 4212(c) of ERISA.
(c) "Board of Directors" means the Board of Directors of any
specified Person and any committees thereof.
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(d) "Business Day" means any day on which banks are not
required or authorized to close in the City of Los Angeles.
(e) "Financial Statements" means: (a) the audited financial
statements of ▇▇▇▇▇ for the years ended December 31, 2005 and, 2004 (b)
the interim financial statements for the three (3) month period ended
March 31, 2006; (c) the books and records of account of ▇▇▇▇▇; and (d)
all other financial information relating to the financial condition of
▇▇▇▇▇ delivered or to be delivered by the Sellers to NetSol.
(f) "Hazardous Materials": any solid wastes, toxic or
hazardous substances, materials or wastes, defined, listed, classified
or regulated as such in or under any Environmental Laws, including,
without limitation, asbestos, petroleum or petroleum products
(including gasoline, crude oil or any fraction thereof),
polychlorinated biphenyls, and urea-formaldehyde insulation, and any
other substance the presence of which may give rise to liability under
any Environmental Law.
(g) "known" or "knowledge" means, with respect to any party,
the knowledge of such party's or its Subsidiaries' executive officers
after reasonable inquiry.
(h) "Material" means, with respect to materiality for purposes
of the indemnification and defense obligations set forth in Section 10
hereof ▇▇▇▇▇, NetSol and Sellers shall not be entitled to
indemnification until the cumulative aggregate amount of indemnifiable
losses under such Section exceeds $10,000 and then the indemnified
party shall be entitled to indemnification on all Losses back to the
first dollar.
(i) "Material Adverse Effect" means, with respect to any
entity any event, change, circumstance or effect that is or is
reasonably likely to be materially adverse to the business, financial
condition or results of operations of such entity and its Subsidiaries
taken as a whole, other than (x) any event, change, circumstance or
effect relating to the economy or financial markets in general, (y) any
event, change, circumstance or effect relating in general to the
industries in which such entity operates and not specifically relating
to (or having the effect of specifically relating to or having a
materially disproportionate effect (relative to most other industry
participants) on) such entity or (z) a decline in the market price of
the capital stock of such entity in the absence of any other event,
change, circumstance or effect with regard to such entity that
otherwise would cause a Material Adverse Effect.
(j) "Person" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated
organization, other entity or group (as defined in the Exchange Act).
(k) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or
unincorporated, at least a majority of the securities or other
interests of which having by their terms ordinary voting power to elect
a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one
or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
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(l) "Environmental Laws" means all applicable U.S. federal,
state, local and foreign laws, regulations, rules and orders relating
to pollution or protection of the environment (including ambient air,
surface water, ground water, land surface or subsurface strata).
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement the day and year first above written.
NETSOL TECHNOLOGIES, INC.
A Nevada Corporation
Dated: ____________________ ________________________________
By:
Its: President
Dated: ____________________ ________________________________
By:
Its: Secretary
▇▇▇▇▇ SYSTEMS, INC.
A California Corporation
Dated: ____________________ ________________________________
By:
Its: President
Dated: ____________________ ________________________________
By:
Its: Secretary
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SELLERS
Dated: ____________________ ____________________________________
▇▇▇▇ ▇. ▇. ▇▇▇▇▇, III
Dated: ____________________ ____________________________________
Dated: ____________________ ____________________________________
Dated: ____________________ ____________________________________
Dated: ____________________ ____________________________________
Dated: ____________________ ____________________________________
44