EXHIBIT 2.1
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MTI TECHNOLOGY CORPORATION,
A DELAWARE CORPORATION,
PURCHASER
AND
COLLECTIVE TECHNOLOGIES, LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
SELLER
Dated June 6, 2006
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
TABLE OF CONTENTS
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ARTICLE 1. THE TRANSACTION.............................................. 1
1.1 Purchased Assets................................................ 1
1.2 Excluded Assets................................................. 3
1.3 Assumed Liabilities............................................. 3
1.4 Excluded Liabilities............................................ 4
1.5 Non-Assignable Assets........................................... 5
ARTICLE 2. CONSIDERATION FOR TRANSFER................................... 6
2.1 Purchase Price.................................................. 6
2.2 Purchase Price Adjustments...................................... 7
2.3 Allocation of Purchase Price.................................... 8
2.4 Transfer Taxes; Prorations...................................... 9
ARTICLE 3. CLOSING AND CLOSING DELIVERIES............................... 9
3.1 Closing; Time and Place......................................... 9
3.2 Deliveries by Seller............................................ 9
3.3 Deliveries by Purchaser......................................... 10
3.4 Delivery by Purchaser and Seller................................ 11
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER..................... 11
4.1 Organization, Good Standing, Qualification...................... 11
4.2 Charter Documents; Books and Records............................ 12
4.3 Capitalization.................................................. 12
4.4 Authority; Binding Nature of Agreements......................... 12
4.5 No Conflicts; Required Consents................................. 12
4.6 Subsidiaries.................................................... 13
4.7 Financial Statements............................................ 13
4.8 Absence of Undisclosed Liabilities.............................. 13
4.9 Absence of Changes.............................................. 13
4.10 Transactions with Affiliates.................................... 14
4.11 Account Receivables............................................. 14
4.12 Inventory....................................................... 14
4.13 Material Contracts.............................................. 14
4.14 Title; Sufficiency; Condition of Assets......................... 17
4.15 Real Property Leases............................................ 17
4.16 Intellectual Property........................................... 17
4.17 Customers, Distributors and Suppliers........................... 19
4.18 Seller Products, Services and Warranty.......................... 21
4.19 Employees and Consultants....................................... 21
4.20 Seller Benefit Plans............................................ 22
4.21 Compliance with Laws............................................ 22
4.22 Governmental Approvals.......................................... 23
4.23 Proceedings and Orders.......................................... 23
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TABLE OF CONTENTS
(Continued)
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4.24 Environmental Matters.............................................. 23
4.25 Taxes.............................................................. 24
4.26 Brokers............................................................ 25
4.27 No Other Agreement................................................. 25
4.28 No Other Representations and Warranties............................ 25
4.29 Private Placement.................................................. 25
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER..................... 27
5.1 Organization and Good Standing..................................... 27
5.2 Authority; Binding Nature of Agreements............................ 27
5.3 No Conflicts; Required Consents.................................... 28
5.4 Brokers............................................................ 28
5.5 SEC Filings, Financial Statements.................................. 28
5.6 Shares............................................................. 28
ARTICLE 6. PRE-CLOSING COVENANTS........................................... 29
6.1 Seller's Conduct of the Business Prior to Closing.................. 29
6.2 Restrictions on Seller's Conduct of the Business Prior to Closing.. 29
6.3 No Solicitation.................................................... 31
6.4 Certain Notifications.............................................. 32
6.5 Updating the Disclosure Schedules.................................. 32
6.6 Access to Information.............................................. 33
6.7 Best Efforts....................................................... 33
6.8 Consents........................................................... 33
6.9 Indemnity.......................................................... 33
ARTICLE 7. POST CLOSING COVENANTS.......................................... 34
7.1 Seller Intellectual Property....................................... 34
7.2 Cooperation........................................................ 34
7.3 Change of Corporate Name........................................... 35
7.4 Records and Documents.............................................. 35
7.5 Collection of Receivables.......................................... 35
7.6 Noncompetition Agreement........................................... 36
7.7 Nondisclosure...................................................... 37
7.8 Listing of Shares.................................................. 38
ARTICLE 8. EMPLOYEES....................................................... 38
8.1 Transferred Employees.............................................. 38
8.2 Employee Benefit Arrangements...................................... 38
8.3 Post-Closing Employee Benefits..................................... 38
8.4 Compliance with Legal Requirements and Other Obligations........... 39
8.5 No Benefit to Seller Employees Intended............................ 39
ARTICLE 9. CONDITIONS TO CLOSING........................................... 40
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TABLE OF CONTENTS
(Continued)
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9.1 Conditions to Purchaser's Obligation to Close................... 40
9.2 Conditions to Seller's Obligation to Close...................... 41
9.3 Conditions to Obligations of Each Party to Close................ 41
ARTICLE 10. TERMINATION.................................................. 42
10.1 Circumstances for Termination................................... 42
10.2 Effect of Termination........................................... 42
10.3 Fees for Termination............................................ 42
ARTICLE 11. INDEMNIFICATION.............................................. 43
11.1 Survival of Representations and Warranties...................... 43
11.2 Indemnification by Seller....................................... 43
11.3 Indemnification by Purchaser.................................... 43
11.4 Procedures for Indemnification.................................. 43
11.5 Limitations on Indemnification.................................. 45
11.6 Sole Remedy..................................................... 46
11.7 Set Off......................................................... 46
ARTICLE 12. MISCELLANEOUS PROVISIONS..................................... 46
12.1 Expenses........................................................ 46
12.2 Further Assurances.............................................. 46
12.3 Amendments and Waivers.......................................... 46
12.4 Notices......................................................... 46
12.5 Governing Law................................................... 47
12.6 Dispute Resolution.............................................. 47
12.7 Exhibits and Schedules.......................................... 48
12.8 Assignments Prohibited; Successors and Assigns.................. 48
12.9 No Third-Party Beneficiaries.................................... 48
12.10 Counterparts.................................................... 48
12.11 Entire Agreement................................................ 48
12.12 Interpretation.................................................. 48
12.13 Number of Days.................................................. 49
12.14 Construction.................................................... 49
12.15 Provisional Relief; Specific Performance........................ 49
12.16 Recovery of Fees by Prevailing Party............................ 49
12.17 Disclosure Letter............................................... 50
12.18 Time of the Essence............................................. 50
12.19 Confidentiality; Publicity...................................... 50
12.20 Cumulative Remedies............................................. 50
12.21 Liquidated Damages.............................................. 50
12.22 Corporate Securities Law........................................ 51
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EXHIBITS, SCHEDULES AND APPENDICES
Exhibits
Exhibit A Certain Definitions
Exhibit 2.1(a)(ii) Promissory Note
Exhibit 2.1(a)(iv) Warrant
Exhibit 3.2(a) General Assignment and ▇▇▇▇ of Sale
Exhibit 3.2(b) Assignment and Assumption
Exhibit 3.2(e) Lock-Up Agreement
Exhibit 3.2(f) Employment Agreements
Exhibit 3.4 Registration Rights Agreement
Exhibit 6.9 Indemnification Agreements
Exhibit 7.1 Acknowledgments of License
Exhibit 9.1(d) Estoppel Letters
Exhibit 9.1(e) Opinion of Seller's Counsel
Exhibit 9.2(e) Opinion of Purchaser's Counsel
Schedules
Schedule 1.1(a) Receivables
Schedule 1.1(b) Inventory
Schedule 1.1(c) Machinery and Equipment
Schedule 1.1(d) Owned and Leased Vehicles
Schedule 1.1(e) Personal Property
Schedule 1.1(f) Leased Real Property
Schedule 1.1(g) Personal Property Leases
Schedule 1.1(h) Intellectual Property
Schedule 1.1(i) Deposits and Advances
Schedule 1.1(j) Rebates and Credits
Schedule 1.1(k) Seller Contracts
Schedule 1.1(l) Governmental Approvals
Schedule 1.1(m) Claims
Schedule 1.2(e) Excluded Personal Property
Schedule 1.3 Assumed Liabilities
Schedule 4 Seller Disclosure Schedule
Schedule 5 Purchaser Disclosure Schedule
Schedule 8.1 Transferred Employees
Schedule 8.3(b) Restricted Stock and Option Issuances
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into
this sixth day of June, 2006, by and between MTI Technology Corporation, a
Delaware corporation (the "Purchaser"), and Collective Technologies, LLC, a
Delaware limited liability company (the "Seller"). Certain capitalized terms
used in this Agreement are defined on Exhibit A hereto.
RECITALS
WHEREAS, Seller is engaged in IT infrastructure services, including
architectural consulting, system implementation and staff augmentation (the
"Business"); and
WHEREAS, Purchaser desires to purchase from Seller and Seller desires to
sell to Purchaser substantially all of the assets, properties, rights and claims
of, or related to, the Business on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
representations, warranties, covenants and promises contained herein, the
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
ARTICLE 1. THE TRANSACTION
1.1 PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, transfer, convey, assign, grant
and deliver to Purchaser, and Purchaser shall purchase from Seller, all of
Seller's right, title and interest in, to and under the assets, properties,
goodwill and rights of Seller of every nature, kind and description, tangible
and intangible, wherever located, whether or not carried on the books of Seller
(other than the Excluded Assets) (collectively, the "Purchased Assets"),
including the following:
(a) Receivables. Other than amounts owed under the Accenture
Agreements (as defined below), all accounts and notes receivable, negotiable
instruments and chattel papers (the "Receivables"), including the Receivables
listed on Schedule 1.1(a);
(b) Inventory. All inventory of Seller products and its components,
wherever located and whether held by Seller or third parties, including all raw
materials, work in process, samples, packaging, supplies, service parts,
purchased parts and goods and the finished goods listed on Schedule 1.1(b)
(collectively, the "Inventory") and any and all rights to market and sell all
such Inventory;
(c) Machinery and Equipment. All tools, dies, jigs, molds, patterns,
machinery and equipment (including manufacturing assembly and test equipment),
wherever located and whether held by Seller or third parties (the "Machinery and
Equipment"), including the Machinery and Equipment listed on Schedule 1.1(c);
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(d) Owned and Leased Vehicles. All vehicles owned by Seller and all
rights in, to and under vehicle leases to which Seller is a party (collectively,
the "Owned and Leased Vehicles"), including the Owned and Leased Vehicles listed
on Schedule 1.1(d);
(e) Personal Property. All personal property, office furnishings and
furniture, display racks, shelves, decorations, supplies and other tangible
personal property (the "Personal Property"), including the Personal Property
listed on Schedule 1.1(e);
(f) Leased Real Property. All rights in, to and under the real
estate leases listed on Schedule 1.1(f) (the "Real Property Leases"), together
with all of Seller's right, title and interest in and to all land, buildings,
structures, easements, appurtenances, improvements (including construction in
progress) and fixtures located thereon (the "Leased Real Property");
(g) Personal Property Leases. All rights in, to and under leases of
personal property to which Seller is a party (the "Personal Property Leases"),
including the Personal Property Leases listed on Schedule 1.1(g);
(h) Intellectual Property. All Seller Intellectual Property,
including the Seller Intellectual Property listed on Schedule 1.1(h);
(i) Deposits and Advances. All performance and other bonds, security
and other deposits, advances, advance payments, prepaid credits and deferred
charges (the "Deposits and Advances"), including the Deposits and Advances
listed on Schedule 1.1(i);
(j) Rebates and Credits. All rights in, to and under claims for
refunds, rebates or other discounts due from suppliers or vendors and rights to
offset in respect thereof (the "Rebates and Credits"), including those Rebates
and Credits listed on Schedule 1.1(j);
(k) Seller Contracts. Other than the Accenture Agreements, all
rights in, to and under any and all Contracts to which Seller is a party or may
be bound or receive benefits or receive and/or grant rights in and/or to the
Seller Intellectual Property or by which the Purchased Assets or Assumed
Liabilities may be affected (collectively, "Seller Contracts"), including those
listed on Schedule 1.1(k); provided, that, for the avoidance of doubt, Seller
Contracts shall not include any Contracts solely between or among ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ if Seller is not a party to such Contracts and
could not be bound or receive benefits thereunder, and if the Purchased Assets
or Assumed Liabilities could not be affected thereby and shall not include the
Agreement Among Shareholders dated on or about the date hereof among Seller,
Pencom Systems Incorporated, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇;
(l) Governmental Approvals. All Governmental Approvals (and pending
applications therefor), including the Governmental Approvals listed on Schedule
1.1(l);
(m) Claims. All claims, choses-in-action, rights in action, rights
to tender claims or demands to Seller's insurance companies, rights to any
insurance proceeds, and other similar claims (the "Seller Claims"), including
the Seller Claims listed on Schedule 1.1(m);
(n) Books and Records. All books, files, papers, agreements,
correspondence, databases, information systems, programs, software, documents,
records and documentation
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thereof related to any of the Purchased Assets or the Assumed Liabilities, or
used in the conduct of the Business, on whatever medium (the "Books and
Records"); and
(o) Other Assets. All other assets, properties, rights and claims
related to the operations or conduct of the Business or which arise in or from
the conduct thereof.
1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1, the following assets of
Seller (the "Excluded Assets") shall not be included in the Purchased Assets:
(a) Cash. Cash, cash equivalents and marketable securities;
(b) Certain Debt. Any intercompany or intracompany receivable cash
balances owed to Seller by any of its Affiliates;
(c) Entity Documents. Seals, certificates of organization, minute
books, member transfer records, or other similar records related to the
organization of Seller;
(d) Employee Benefit Contracts. Seller Benefit Plans and contracts
of insurance for employee group medical, dental and life insurance plans;
(e) Certain Other Property. The assets listed on Schedule 1.2(e);
(f) Accenture Agreements. Any rights or obligations under Seller's
License Agreement (including the acknowledgement thereof) with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ &
Co. Incorporated, dated July 16, 2004, and Seller's Asset Purchase Agreement
with Accenture, dated June 21, 2004, including the incorporated License
Agreement between Accenture and Seller (including the acknowledgement thereof
and any other documents or contracts executed and delivered by Seller in
connection therewith (collectively, the "Accenture Agreements"), true and
correct copies of which have been provided to Purchaser, including without
limitation, any amounts payable to Seller thereunder;
(g) Insurance Policies. All insurance policies (except to the extent
specified in Section 1.1(m)) and all refunds for unearned premiums;
(h) Records. All personnel, financial, tax, and accounting records
and other records that Seller is required by law to retain in its possession;
(i) Deposits. Any Deposits and Advances, Rebates and Credits or
Seller Claims related to any Excluded Liability; and
(j) Rights Under Certain Agreements. All rights under a Transaction
Agreement.
1.3 ASSUMED LIABILITIES. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall assign, and Purchaser shall assume only
the Assumed Liabilities. Thereafter, Purchaser shall pay and discharge all such
Assumed Liabilities as and when such Assumed Liabilities become due and owing.
For the purposes of this Agreement, the "Assumed Liabilities" shall mean only
the following Liabilities of Seller:
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(a) Any Liability arising at or after the Closing under the Seller
Contracts;
(b) Any Liability reflected on the Interim Balance Sheet or incurred
after the Interim Balance Sheet Date in the ordinary course of business, to the
extent it remains as a Liability of the Business at the Closing and is reflected
on the Audited Closing Balance Sheet;
(c) Any Liability for accrued but unused vacation time of
Transferred Employees reflected on the Audited Closing Balance Sheet ("Vacation
Accrual");
(d) One-half of any Transfer Taxes; and
(e) The Liabilities of Seller specifically listed on Schedule 1.3.
1.4 EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Purchaser
shall not assume and shall not be liable or responsible for any Liability of
Seller or any Affiliate of Seller (collectively, the "Excluded Liabilities").
Without limiting the foregoing, Purchaser shall not be obligated to assume, and
does not assume, and hereby disclaims any of the following Liabilities of Seller
or its Affiliates:
(a) Any Liability attributable to any assets, properties or
Contracts that are not included in the Purchased Assets, including the Accenture
Agreements, except Liabilities attributable to Non-Assignable Assets, for which
Seller and Purchaser have reached a mutually acceptable arrangement pursuant to
Section 1.5(b);
(b) Any Liability for breaches of any Seller Contract prior to the
Closing or any Liability for payments or amounts due under any Seller Contract
prior to the Closing;
(c) Any Liability for Taxes attributable to or imposed upon Seller
or its Affiliates, or attributable to or imposed upon the Purchased Assets for
the Pre-Closing Period, including one-half of any Transfer Taxes;
(d) Any Liability arising from accidents, occurrences, misconduct,
negligence, breach of fiduciary duty or statements made or omitted to be made
(including libelous or defamatory statements) prior to the Closing, whether or
not covered by workers' compensation or other forms of insurance;
(e) Any Liability arising as a result of any legal or equitable
action or judicial or administrative Proceeding initiated at any time, to the
extent related to any action or omission prior to the Closing relating to (i)
infringement or misappropriation of any Intellectual Property Rights or any
other rights of any Person (including any right of privacy or publicity); (ii)
breach of product warranties; (iii) injury, death, property damage or other
losses arising with respect to or caused by Seller Products or the manufacturer
or design thereof; or (iv) violations of any Legal Requirements (including
federal and state securities laws);
(f) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability arising out of any
Seller Benefit Plans or any contract of insurance for employee group medical,
dental or life insurance plans;
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(g) Other than the Vacation Accrual and any portion of any Liability
for making payments to employees specifically included in the Assumed
Liabilities under Section 1.3(b), any Liability for making payments of any kind
to employees (including as a result of the Transaction, the termination of an
employee by Seller, or other claims arising out of the terms of employment with
Seller) of Seller or with respect to payroll taxes relating to employees of
Seller;
(h) Any Liability incurred in connection with the making or
performance of this Agreement and the Transaction not reflected on the Audited
Closing Balance Sheet;
(i) Any Liability not reflected on the Audited Closing Balance Sheet
for expenses and fees incurred by Seller incidental to the preparation of the
Transaction Agreements, preparation or delivery of materials or information
requested by Purchaser, and the consummation of the Transaction, including all
broker, counsel and accounting fees;
(j) Any Liability for the violation of any Legal Requirement
applicable to Seller, the Purchased Assets or the Assumed Liabilities prior to
the Closing;
(k) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability to any stockholders,
members, or other equity holders;
(l) Any Liability to holders of options to purchase securities of,
or interests in, Seller or any of its Affiliates; and
(m) Any costs or expenses incurred in connection with shutting down,
deinstalling or removing equipment not purchased by Purchaser and any costs or
expenses associated with any Seller Contracts not assumed by Purchaser
hereunder.
1.5 NON-ASSIGNABLE ASSETS.
(a) Notwithstanding the foregoing, if any of the Seller Contracts or
other Purchased Assets are not assignable or transferable (each, a
"Non-Assignable Asset") without the consent of, or waiver by, a third party
(each, an "Assignment Consent"), either as a result of the provisions thereof or
applicable Legal Requirements, and any of such Assignment Consents are not
obtained by Seller prior to the Closing, Seller shall continue its efforts to
obtain the Assignment Consents after Closing, and, in either case, this
Agreement and the related instruments of transfer shall not constitute an
assignment or transfer of such Non-Assignable Assets, and Purchaser shall not
assume Seller's rights or obligations under such Non-Assignable Asset (and such
Non-Assignable Asset shall not be included in the Purchased Assets). Without
limiting Seller's obligations under Section 6.8, Seller shall use its Best
Efforts to obtain all such Assignment Consents as soon as reasonably practicable
after the Closing and thereafter assign to Purchaser such Non-Assignable Assets.
Following any such assignment, such assets shall be deemed Purchased Assets for
purposes of this Agreement. This Section 1.5(a) shall at all times remain
subject to Article 9.
(b) After the Closing, Seller shall cooperate with Purchaser in any
commercially reasonable arrangement designed to provide Purchaser with all of
the benefits of
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the Non-Assignable Assets as if the appropriate Assignment Consents had been
obtained, including by granting subleases and establishing arrangements whereby
Purchaser shall undertake the work necessary to perform and meet the obligations
under Seller Contracts; provided, that Seller shall not be required to incur any
material Liability, cost or expense in connection therewith.
ARTICLE 2. CONSIDERATION FOR TRANSFER
2.1 PURCHASE PRICE.
(a) Subject to Section 2.2, as full consideration for the sale,
assignment, transfer and delivery of the Purchased Assets by Seller to
Purchaser, Purchaser shall deliver to Seller at the Closing an executed
Assignment and Assumption and consideration (together with any amounts payable
under Section 2.2, the "Purchase Price"), payable in the following manner:
(i) A wire transfer of immediately available U.S. funds in an
aggregate amount of Six Million Dollars ($6,000,000) (the "Cash Amount");
(ii) A promissory note in the form of Exhibit 2.1(a)(ii) (the
"Note") in the amount of Two Million Dollars ($2,000,000);
(iii) A certificate for two million two hundred seventy-two
thousand seven hundred twenty-seven (2,272,727) shares (collectively, the
"Shares") of Purchaser's common stock; and
(iv) A warrant ("Warrant") to purchase one million (1,000,000)
shares of Purchaser's common stock at an exercise price of $1.32 per share in
the form set forth as Exhibit 2.1(a)(iv).
(b) At Closing Purchaser shall discharge liabilities of Seller to
Pencom Systems, Incorporated included in the Assumed Liabilities ("Affiliate
Liabilities") in an amount equal to the least of (i) amounts outstanding five
(5) Business Days prior to Closing under that certain Account Purchase Agreement
(the "▇▇▇▇▇ Fargo Agreement"), dated November 22, 2004, between ▇▇▇▇▇ Fargo
Business Credit, Inc. and Seller, (ii) One Million Five Hundred Thousand Dollars
($1,500,000), or (iii) the aggregate amount outstanding under such Affiliate
Liabilities less Five Hundred Thousand Dollars ($500,000). Purchaser shall
discharge any remaining liabilities of Seller to Pencom Systems, Incorporated
included in the Assumed Liabilities within five (5) Business Days of the Final
Resolution Date, subject to set off by an amount equal to the Net Asset
Adjustment, if applicable under Section 2.2(d). All liabilities of Seller to
Pencom Systems, Incorporated included in the Assumed Liabilities, including any
amounts discharged pursuant hereto, shall be fully reflected on the Preliminary
Closing Balance Sheet and the Audited Closing Balance Sheet, and shall be
subject to and included in the Net Asset Adjustment described below. Pencom
Systems, Incorporated agrees to the provisions of this Section 2.1(b), including
the set off described in the preceding sentences.
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2.2 PURCHASE PRICE ADJUSTMENTS.
(a) Seller shall deliver to Purchaser at least three (3) days prior
to the expected Closing Date an estimate of the Net Assets of Seller as of the
Closing Date, calculated in accordance with GAAP and consistent with the
accounting methods and practices used on the Interim Balance Sheet (the
"Preliminary Closing Balance Sheet"). The Purchase Price shall be increased,
dollar for dollar, by the amount by which the Net Assets are greater than One
Million Dollars ($1,000,000) and shall be decreased, dollar for dollar, by the
amount by which the Net Assets are less than such amount. The "Net Assets" of
the Business shall be the excess of (i) the book value of the Purchased Assets
over (ii) the book value of the Assumed Liabilities, except that no reserve for
doubtful accounts shall be included in such determination.
(b) As promptly as practicable, but in no event later than one
hundred fifty (150) days following the Closing Date, Purchaser shall cause the
following to be prepared and delivered to Seller (collectively, the "Audited
Closing Balance Sheet"): (i) an audited balance sheet of the Business as of the
Closing Date which reflects the book value of the Purchased Assets and the
Assumed Liabilities, together with an audit report thereon by an independent
accounting firm hired by Purchaser ("Purchaser's Accountant"), prepared in
accordance with GAAP on a basis consistent with the accounting methods and
practices used on the Interim Balance Sheet; and (ii) a statement based on such
Audited Closing Balance Sheet which sets forth in detail a calculation of the
Net Assets of the Business on the Closing Date. Purchaser shall, and shall cause
the Purchaser's Accountant to, provide Seller and Seller's accountant ("Seller's
Accountant") any and all work papers used in the preparation of the Audited
Closing Balance Sheet. Purchaser shall permit Seller to render all reasonable
assistance in connection with the preparation and audit of the Audited Closing
Balance Sheet. Except as set forth below, the Audited Closing Balance Sheet and
the accompanying Net Asset calculation shall be deemed to be and shall be final,
binding and conclusive on the parties upon the earlier of (the "Final Resolution
Date"): (A) Seller's delivery of a written notice to Purchaser of its approval
of the Audited Closing Balance Sheet; (B) the failure of Seller to notify
Purchaser in writing of a dispute with the Audited Closing Balance Sheet within
thirty (30) days of the delivery of such documents to Seller ; (C) the
resolution of all disputes, pursuant to Section 2.2(c), by Purchaser's
Accountant and Seller's Accountant; and (D) the resolution of all disputes,
pursuant to Section 2.2(c), by the Independent Accounting Firm.
(c) Seller may dispute any amounts reflected on the Audited Closing
Balance Sheet by delivery of a written notice to Purchaser (the "Audited Closing
Balance Sheet Dispute Notice"). If Seller delivers an Audited Closing Balance
Sheet Dispute Notice to Purchaser, Purchaser's Accountant and Seller's
Accountant shall attempt to reconcile the parties' differences, and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive on the parties. If Purchaser's Accountant and Seller's Accountant are
unable to reach a resolution within thirty (30) days after the delivery of the
Audited Closing Balance Sheet Dispute Notice, Purchaser's Accountant and
Seller's Accountant shall submit their respective determinations and
calculations and the items remaining in dispute for resolution to an independent
accounting firm of international reputation mutually acceptable to Purchaser and
Seller (the "Independent Accounting Firm"). The parties shall cause the
Independent Accounting Firm to submit a report to Purchaser and Seller with a
determination regarding the remaining disputed items, within thirty (30) days
after submission of the matter, and such report
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shall be final, binding and conclusive on Purchaser and Seller. The fees, costs
and expenses of the Independent Accounting Firm shall be paid by Purchaser and
Seller in the same proportion that the aggregate amount of such remaining
disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party as finally determined by the
Independent Accounting Firm bears to the total amount of such remaining disputed
items.
(d) The Purchase Price shall be increased or decreased on a
dollar-for-dollar basis by the amount by which the actual Net Assets of the
Business determined in accordance with Sections 2.2(b) and 2.2(c) is greater or
less than the amount of the estimated Net Assets of the Business determined in
accordance with Section 2.2(a). Any such adjustment to the Purchase Price shall
be referred to as a "Net Asset Adjustment." If the Purchase Price increases as a
result of the Net Asset Adjustment, Purchaser shall pay any additional amount
due to Seller by wire transfer of immediately available funds within five (5)
Business Days of the Final Resolution Date. If the Purchase Price declines as a
result of the Net Asset Adjustment, Purchaser, at Purchaser's sole option, may:
(i) deduct the amount by which the Purchase Price declines from the amount owed
under the Note; (ii) request within five (5) Business Days of the Final
Resolution Date that Seller, and upon such request Seller shall, return the
amount by which the Purchase Price declines to Purchaser by wire transfer of
immediately available funds within five (5) Business Days of such request or
(iii) deduct the amount by which the Purchase Price declines from the amount, if
any, owed to Pencom Systems Incorporated under Section 2.1(b). The party
required to make a payment under this Section 2.2 shall also pay interest on
such amount required to be paid from and including the Closing Date but
excluding the date of payment thereof at the prime rate published by The Wall
Street Journal, as that rate may vary from time to time, or if no longer
published, a comparable rate.
(e) The Purchase Price shall be increased by an amount equal to the
Dollar value set forth next to the name of any person or persons on Schedule
8.3(b) who has exercised any option to acquire equity securities of Seller on or
after the date of this Agreement and will, therefore, not receive any grant of
restricted stock or options under Section 8.3(b). Such amount shall be set off
against any Net Asset Adjustment and paid concurrent with the payment thereof as
set forth in Section 2.2(d) above.
2.3 ALLOCATION OF PURCHASE PRICE. As soon as practicable after the
applicable party has received cash or credit for the Net Asset Adjustment
pursuant to Section 2.2, Purchaser shall provide to Seller Purchaser's
allocation of the Purchase Price, as adjusted pursuant to Section 2.2, among the
various classes of Purchased Assets (as such classes are defined for the
purposes of Section 1060 of the Code), which shall be subject to Seller's
approval which shall not be unreasonably withheld. All allocations made pursuant
to this Section 2.3 shall be made in accordance with the requirements of Section
1060 of the Code. None of the parties shall take a position on any Tax Return
(including IRS Form 8594), before any Tax Authority or in any judicial
Proceeding that is in any manner inconsistent with such allocation by Purchaser
without the written consent of the other parties to this Agreement or unless
specifically required pursuant to a determination by an applicable Tax
Authority, in which case, notice shall be given to each party hereto of such
determination and the applicable position taken therein. Seller shall promptly
advise Purchaser of the existence of any tax audit, controversy or litigation
related to any allocation hereunder.
8
2.4 TRANSFER TAXES; PRORATIONS.
(a) Notwithstanding any Legal Requirements to the contrary, each of
Seller and Purchaser shall be responsible for and shall pay one-half of any
Transfer Taxes when due. Purchaser shall file all necessary tax returns and
other documentation with respect to all such Transfer Taxes; provided, however,
that, if required by any Legal Requirement, Seller will join in the execution of
any such tax returns and other documentation. Each of Seller and Purchaser shall
provide copies of any filings with respect to Transfer Taxes to the other.
(b) Seller shall be responsible for and shall pay any Taxes arising
or resulting from or in connection with the conduct of the Business or the
ownership of the Purchased Assets attributable to the Pre-Closing Period.
Purchaser shall be responsible for and shall pay any Taxes arising or resulting
from or in connection with the conduct of the Business or the ownership of the
Purchased Assets attributable to the Post-Closing Period.
(c) All real property, personal property, ad valorem or other
similar Taxes (not including income Taxes) levied with respect to the Purchased
Assets or the Business for a taxable period which includes (but does not end on)
the Closing Date shall be apportioned between Purchaser and Seller based on the
number of days included in such period through the Closing Date and the number
of days included in such period from and after the Closing Date, and the
Purchase Price shall be adjusted to reflect such apportionment.
(d) On or before the Closing Date, Seller shall furnish to Purchaser
Tax clearance certificates, under California Revenue and Taxation Code Section
6812 and California Unemployment Insurance Code Section 1732 or otherwise as
applicable, releasing Purchaser from liability with respect to any sales or use
Tax or employment Tax liability of Seller.
ARTICLE 3. CLOSING AND CLOSING DELIVERIES
3.1 CLOSING; TIME AND PLACE. The closing of the purchase and sale provided
for in this Agreement (the "Closing") shall occur at the offices of ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, at 10:00 A.M. on the
second (2nd) Business Day following the satisfaction or waiver of each of the
conditions set forth in Article 9 or at such other date, time or place as the
parties may agree upon in writing (the "Closing Date").
3.2 DELIVERIES BY SELLER. At the Closing, Seller shall (i) take all steps
necessary to place Purchaser in actual possession and operating control of the
Business and the Purchased Assets and (ii) deliver the following items, duly
executed by Seller as applicable, all of which shall be in a form and substance
reasonably acceptable to Purchaser and Purchaser's counsel:
(a) General Assignment and ▇▇▇▇ of Sale. General Assignment and ▇▇▇▇
of Sale covering all of the applicable Purchased Assets, substantially in the
form attached hereto as Exhibit 3.2(a) (the "General Assignment and ▇▇▇▇ of
Sale");
(b) Assignment and Assumption Agreement. Assignment and Assumption
Agreement, covering all of the Assumed Liabilities, substantially in the form
attached hereto as Exhibit 3.2(b) (the "Assignment and Assumption");
9
(c) Intellectual Property Assignment. Any and all documents
necessary to properly record the assignment to Purchaser of all of Seller's
right, title and interest in and to the Seller Intellectual Property, including
trademarks, patents and copyrights, in a form mutually satisfactory to Seller
and Purchaser;
(d) Other Conveyance Instruments. Such other specific instruments of
sale, transfer, conveyance and assignment as Purchaser may request;
(e) Lock-Up Agreements. Seller, Pencom Systems, Incorporated, and
each of their shareholders or members shall have executed and delivered a
Lock-Up Agreement substantially in the form attached hereto as Exhibit 3.2(e)
("Lock-Up Agreement");
(f) Employment Agreements. Employment Agreements, substantially in
the form attached hereto as Exhibit 3.2(f) ("Employment Agreements") shall be
executed and delivered by each of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇;
(g) Assignments of Leases. Assignments of all Real Property Leases
and Personal Property Leases;
(h) Owned and Leased Vehicles. Vehicle titles and assignments
sufficient to transfer title to the Owned and Leased Vehicles;
(i) Certificate of Organization. Form of Certificate of Amendment to
Seller's Charter documents, sufficient to change Seller's legal name to one
dissimilar to Collective Technologies consistent with Section 7.3;
(j) Seller Contracts. Originals of all Seller Contracts;
(k) Payoff and Release Letters. Payoff and release letters agreeing
to release liens against the Business or any of the Purchased Assets in form and
substance reasonably satisfactory to Purchaser;
(l) Books and Records. The Books and Records;
(m) Certificate of Representations and Warranties and Member
Approval. A certificate executed on behalf of Seller by its President,
certifying the matters in Section 9.1(a); and
(n) Certificate of Good Standing. A certificate from the Secretary
of State of Delaware, as of a date no earlier than three (3) Business Days prior
to the Closing Date, as to Seller's good standing and payment of all applicable
taxes.
3.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver the
following items, duly executed by Purchaser as applicable, all of which shall be
in a form and substance reasonably acceptable to Seller and Seller's counsel:
10
(a) Wire Transfer. A wire transfer to Silicon Valley Bank for credit
to Seller's account (which account shall be specified in writing by Seller at
least two (2) Business Days prior to the Closing), in the Cash Amount; and
(b) Shares. Certificate(s) representing the Shares, in the name of
Seller delivered to Seller;
(c) Note. The Note executed by Purchaser;
(d) Warrant. The Warrant executed by Purchaser;
(e) Certificate of Representations and Warranties. A certificate
executed on behalf of Purchaser by its Chief Executive Officer, certifying the
matters in Section 9.2(a); and
(f) Employment Agreements. The Employment Agreements executed by
Purchaser.
3.4 DELIVERY BY PURCHASER AND SELLER. At the Closing, Purchaser and Seller
shall deliver the following items, duly executed by the appropriate parties, all
of which shall be in a form and substance reasonably acceptable to the
non-delivering party and its counsel:
(a) Acknowledgements of License. The Acknowledgements of License;
(b) Registration Rights Agreement. A Registration Rights Agreement,
substantially in the form of Exhibit 3.4 (the "Registration Rights Agreement").
(c) Assignment and Assumption Agreement. The Assignment and
Assumption Agreement; and
(d) Other Documentation. Such other certificates, instruments or
documents required pursuant to the provisions of this Agreement or otherwise
necessary or appropriate to transfer the Purchased Assets and Assumed
Liabilities in accordance with the terms hereof and consummate the Transaction,
and to vest in Purchaser and its successors and assigns full, complete,
absolute, legal and equitable title to the Purchased Assets, free and clear of
all Encumbrances other than Permitted Encumbrances, including such certificates,
instruments and documents to be executed or delivered by Seller pursuant to this
Article 3.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as specifically set forth on Schedule 4 (the "Seller Disclosure
Schedule") attached to this Agreement (the parts of which are numbered to
correspond to the individual Section numbers of this Article 4), Seller hereby
represents and warrants to Purchaser as follows:
4.1 ORGANIZATION, GOOD STANDING, QUALIFICATION. The Seller Disclosure
Schedule sets forth Seller's jurisdiction of organization and each state or
other jurisdiction in which Seller is qualified to do business. Seller (a) is a
limited liability company duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (b) is duly qualified to
conduct business and is in good standing under the laws of each jurisdiction in
which
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the failure to be so qualified would have a Material Adverse Effect on Seller;
and (c) has full corporate power and authority required to own, lease and
operate its assets and to carry on its business (including the Business) as now
being conducted.
4.2 CHARTER DOCUMENTS; BOOKS AND RECORDS.
(a) Seller has delivered to Purchaser accurate, correct and complete
copies of (i) the charter and organizational documents of Seller, including all
amendments thereto, as presently in effect; and all books of account and other
financial records of Seller.
(b) The books of account and other financial records of Seller are
accurate and complete and have been maintained in accordance with sound business
practices.
(c) Seller is not in violation of any of the provisions of its
charter documents, and to the Knowledge of Seller, no condition or circumstance
exists that likely would (with or without notice or lapse of time) constitute or
result directly or indirectly in such a violation.
4.3 CAPITALIZATION. Seller has provided Purchaser with a true and accurate
list of each holder of interests in Seller and Pencom Systems, Incorporated and
their respective state of residence. No other interests are issued or
outstanding.
4.4 AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller has all requisite
limited liability company power and authority to execute and deliver this
Agreement and all other Transaction Agreements to which it is a party and to
carry out the provisions of this Agreement and the other Transaction Agreements.
The execution, delivery and performance by Seller of this Agreement and the
other Transaction Agreements have been approved by all requisite action on the
part of Seller. This Agreement has been duly and validly executed and delivered
by Seller. Each of this Agreement and the other Transaction Agreements
constitutes, or upon execution and delivery, will constitute, the legal, valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles related to or
limiting creditors' rights generally and by general principles of equity.
4.5 NO CONFLICTS; REQUIRED CONSENTS. The execution, delivery and
performance of this Agreement or any other Transaction Agreement by Seller do
not and will not (with or without notice or lapse of time):
(a) conflict with, violate or result in any breach of (i) any of the
provisions of Seller's charter and organization documents; (ii) any of the terms
or requirements of any Governmental Approval held by Seller or any of its
employees or that otherwise relates to the Business or any of the Purchased
Assets or Assumed Liabilities; or (iii) any provision of any Seller Contract;
(b) give any Governmental Authority or other Person the right to (i)
validly challenge the Transaction; (ii) exercise any remedy or obtain any relief
under any Legal Requirement or any Order to which Seller, or any of the
Purchased Assets or Assumed Liabilities, is subject; (iii) declare a default of,
exercise any remedy under, accelerate the
12
performance of, cancel, terminate, modify or receive any payment under any
Seller Contract; or (iv) revoke, suspend or modify any Governmental Approval;
(c) cause Seller to become subject to, or to become liable for the
payment of, any Tax other than Taxes included in Excluded Liabilities and
Transfer Taxes;
(d) result in the imposition or creation of any Encumbrance upon or
with respect to any of the Purchased Assets; or
(e) require Seller to obtain any Consent or make or deliver any
filing or notice to a Governmental Authority.
4.6 SUBSIDIARIES. Seller does not own any shares of capital stock or other
securities of, or control, directly or indirectly, any other Entity.
4.7 FINANCIAL STATEMENTS.
(a) Seller has previously delivered to Purchaser the following
financial statements (collectively, the "Financial Statements"): (i) the
unaudited balance sheets, and the related unaudited statements of operations and
cash flows of the Business as of and for the fiscal years ended December 31,
2003, 2004, and 2005, together with the notes thereto; and (ii) the unaudited
balance sheets (the "Interim Balance Sheet"), and the related unaudited
statements of operations and cash flows of Seller as of and for the three (3)
months ended March 31, 2006 (the "Interim Balance Sheet Date").
(b) All of the Financial Statements (i) are consistent with the
Books and Records of Seller; (ii) present fairly and in all material respects
the financial condition of Seller as of the respective dates thereof and the
results of operations and cash flows of Seller for the periods covered thereby;
and (iii) have been prepared in accordance with GAAP, applied on a consistent
basis throughout the periods covered; provided, however, that the Interim
Balance Sheet is subject to year-end adjustments consistent with past practice
(which will not be material individually or in the aggregate) and does not
contain all of the footnotes required by GAAP. All reserves established by
Seller and set forth in the Interim Balance Sheet other than reserves for
accounts receivable are adequate for the purposes for which they were
established.
(c) The Seller Disclosure Schedule sets forth an accurate, correct
and complete breakdown and aging of each of Seller's accounts payable (including
to all of its suppliers) as of March 31, 2006;
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no Liabilities other
than (a) those set forth in the Interim Balance Sheet; (b) those incurred in the
ordinary course of business and not required to be set forth in the Interim
Balance Sheet under GAAP; (c) those incurred in the ordinary course of business
since the date of the Interim Balance Sheet; and (d) those incurred in
connection with the execution of any of the Transaction Agreements.
4.9 ABSENCE OF CHANGES. Since the Interim Balance Sheet Date, (a) Seller
has conducted the Business in the ordinary course of business; (b) no event or
circumstance has occurred that could reasonably have a Material Adverse Effect
on Seller; and (c) Seller has not
13
taken any action, agreed to take any action, or omitted to take any action that
would constitute a breach of Section 6.1 or 6.2 if such action or omission were
taken between the date of this Agreement and the Closing Date.
4.10 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Financial
Statements, no Affiliate (a) is indebted to Seller, nor is Seller indebted (or
committed to make loans or extend or guarantee credit) to any Affiliate other
than with respect to any of Seller's obligations to pay accrued salaries,
reimbursable expenses or other standard employee benefits; (b) has any direct or
indirect interest in any asset (including the Purchased Assets), property or
other right used in the conduct of or otherwise related to the Business; (c) has
any claim or right against Seller, and no event has occurred, and no condition
or circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any claim or right
in favor of any Affiliate against Seller; (d) is a party to any Seller Contract
or has had any direct or indirect interest in, any Seller Contract, transaction
or business dealing of any nature involving Seller; or (e) received from or
furnished to Seller any goods or services (with or without consideration) since
the Interim Balance Sheet Date.
4.11 ACCOUNT RECEIVABLES. Schedule 1.1(a) sets forth an accurate and
complete list of all Receivables existing as of March 31, 2006. Each Receivable
is (a) a valid and legally binding obligation of the account debtor enforceable
in accordance with its terms, free and clear of all Encumbrances other than
Permitted Encumbrances, and not subject to setoffs, adverse claims,
counterclaims, assessments, defaults, prepayments, defenses, and conditions
precedent; (b) a true and correct statement of the account for merchandise
actually sold and delivered to, or for services actually performed for and
accepted by, such account debtor; and (c) fully collectible and will be
collected within one hundred twenty (120) days after the Closing Date, subject
to trade discounts provided in the ordinary course of business and any allowance
for doubtful accounts contained in the Interim Balance Sheet.
4.12 INVENTORY. All of the items in Seller's Inventory are (a) valued on
the Financial Statements at the lower of cost and market value, on a first-in,
first-out basis in accordance with GAAP; (b) of good and merchantable quality,
fit for the purpose for which they are intended, and saleable and useable in the
ordinary course of business; (c) free of defects and damage; and (d) in
quantities adequate and not excessive in relation to the circumstances of
Seller's Business and in accordance with Seller's past inventory stocking
practices. All of the items in Seller's Inventory meet Seller's current
standards and specifications.
4.13 MATERIAL CONTRACTS.
(a) Schedule 1.1(k) sets forth an accurate, correct and complete
list of all unperformed or continuing Seller Contracts to which any of the
descriptions set forth below may apply (the "Material Contracts"):
(i) Personal Property Leases, Contracts affecting any Seller
Intellectual Property or Seller's Information Systems or Software,
Contracts with Contractors, Seller Benefit Plans and Governmental
Approvals;
14
(ii) Any Contract for capital expenditures or for the purchase
of goods or services in excess of $20,000, except those fully performed or
those incurred in the ordinary course of business and to be performed in
three (3) months or less;
(iii) Any Contract obligating Seller to sell or deliver any
product or service at a price which does not cover the cost (including
labor, materials and production overhead) plus the customary profit margin
associated with such product or service;
(iv) Any Contract involving financing or borrowing of money,
or evidencing indebtedness, any liability for borrowed money, any
obligation for the deferred purchase price of property in excess of
$20,000 (excluding normal trade payables) or guaranteeing in any way any
Contract in connection with any Person;
(v) Any joint venture, partnership, cooperative arrangement or
any other Contract involving a sharing of profits;
(vi) Any advertising Contract not terminable without payment
or penalty on thirty (30) days (or less) notice;
(vii) Any Contract affecting any right, title or interest in
or to Real Property;
(viii) Any Contract with any Governmental Authority;
(ix) Any Contract relating to any license or royalty
arrangement;
(x) The charter, bylaws and other organizational or
constitutive documents of Seller and any Contract among members of Seller;
(xi) Any Contract for the purchase or sale of any assets other
than in the ordinary course of business or for the option or preferential
rights to purchase or sell any assets;
(xii) Any Contract to indemnify any Person or to share in or
contribute to the liability of any Person;
(xii) Any Contract containing covenants not to compete in any
line of business or with any Person in any geographical area;
(xiv) Any Contract related to the acquisition of a business or
the equity of any other Entity;
(xv) Any other Contract which (i) provides for payment or
performance by either party thereto having an aggregate value of $50,000
or more; (ii) is not terminable without payment or penalty on thirty (30)
days (or less) notice; or (iii) is between, inter alia, an Affiliate and
Seller;
15
(xvi) Any other Contract that involves future payments,
performance of services or delivery of goods or materials to or by Seller
of an aggregate amount or value in excess of $50,000, on an annual basis,
or that otherwise is material to the Business; and
(xvii) Any proposed arrangement of a type that, if entered
into, would be a Contract described in any of (i) through (xvi) above.
For the avoidance of doubt, Material Contracts shall not include any Contracts
solely between or among ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ if Seller
is not a party to such Contracts or Seller could not be bound or receive
benefits thereunder, and if the Purchased Assets or Assumed Liabilities could
not be affected thereby, and shall not include the Agreement among Shareholders
dated on or about the date hereof among Seller, Pencom Systems Incorporated,
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇.
(b) Seller has delivered to Purchaser accurate, correct and complete
copies of all Material Contracts (or written summaries of the material terms
thereof, if not in writing), including all amendments, supplements,
modifications and waivers thereof. All nonmaterial Contracts of Seller do not,
in the aggregate, represent a material portion of the Liabilities of Seller.
(c) Each Seller Contract is currently valid and in full force and
effect, and is enforceable by Seller in accordance with its terms except where
the failure to be valid and in full force and effect would not have a Material
Adverse Effect.
(d) Seller is not in default, and no party has notified Seller that
it is in default, under any Seller Contract, except for such defaults that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Seller. To the Knowledge of Seller, no event has occurred, and
no circumstance or condition exists, that could reasonably (with or without
notice or lapse of time) (a) result in a violation or breach of any of the
provisions of any Seller Contract; (b) give any Person the right to declare a
default or exercise any remedy under any Seller Contract; (c) give any Person
the right to accelerate the maturity or performance of any Seller Contract or to
cancel, terminate or modify any Seller Contract; or (d) otherwise have a
Material Adverse Effect on Seller in connection with any Seller Contract. Seller
has not waived any of its material rights under any Seller Contract.
(e) To the Knowledge of Seller, each Person against which Seller has
or may acquire any rights under any material Seller Contract is solvent and able
to satisfy such Person's material obligations and liabilities to Seller.
(f) The performance of the Seller Contracts will not result in any
violation of or failure by Seller to comply with any Legal Requirement except
where the violation or failure to comply with such Legal Requirement would not
have a Material Adverse Effect.
(g) The Material Contracts constitute all of the Contracts
reasonably necessary to enable Seller to conduct the Business in the manner in
which such Business is currently being conducted.
16
4.14 TITLE; SUFFICIENCY; CONDITION OF ASSETS.
(a) Seller has good and marketable title to, is the exclusive legal
and equitable owner of, and has the unrestricted power and right to sell, assign
and deliver the Purchased Assets. The Purchased Assets are free and clear of all
Encumbrances of any kind or nature, except restrictions imposed in any
Governmental Approval and Permitted Encumbrances. Upon Closing, Purchaser will
acquire exclusive, good and marketable title or license to or a valid leasehold
interest in (as the case may be) the Purchased Assets.
(b) To Seller's Knowledge, the Purchased Assets include all the
assets reasonably necessary to permit Purchaser to conduct the Business after
the Closing in a manner substantially equivalent to the manner as it is being
conducted on the date of this Agreement in compliance with all Legal
Requirements.
(c) The tangible Purchased Assets taken as a whole are (i) in good
operating condition and repair, ordinary wear and tear excepted; and (ii)
suitable and adequate for continued use in the manner in which they are
presently being used.
(d) Seller does not own and has not owned any Real Property.
4.15 REAL PROPERTY LEASES. Schedule 1.1(f) sets forth an accurate, correct
and complete list of all Real Property Leases (including the street address of
each Leased Real Property and the name of the lessor) and a list of Contracts
affecting each Leased Real Property. Seller has been in lawful possession of the
premises covered by each Real Property Lease since the commencement of the
original term of such Lease. Seller has delivered to Purchaser accurate, correct
and complete copies of each Real Property Lease. To Seller's Knowledge (without
any duty to inquire of any third party), there are no Environmental Reports for
the Real Property subject to the Real Property Leases. All Real Property Leases
are in good standing and are valid and effective in accordance with their
respective terms and there exists no default thereunder or occurrence or
condition which could result in a default thereunder or termination thereof.
4.16 INTELLECTUAL PROPERTY.
(a) Schedule 1.1(h) lists all Seller Intellectual Property
reasonably necessary to conduct the Business as currently conducted, specifying
in each case whether such Seller Intellectual Property is owned or controlled by
or for, licensed to, or otherwise held by or for the benefit of Seller,
including all Registered Intellectual Property Rights owned by, filed in the
name of or applied for by Seller and used in the Business (the "Seller
Registered Intellectual Property Rights").
(b) Each item of Seller Intellectual Property is free and clear of
any Encumbrances, except for Permitted Encumbrances and non-exclusive licenses
granted to end-user customers in the ordinary course of business.
(c) The Seller Intellectual Property constitutes all the
Intellectual Property Rights used in or reasonably necessary to the conduct of
the Business as it is currently conducted.
17
(d) Seller has the right to use each item of Seller Intellectual
Property in the manner currently used by Seller in the conduct of the Business,
and upon Closing, each item of the Seller Intellectual Property will be owned by
Purchaser or will be immediately available for use by Purchaser on terms and
conditions substantially identical to those under which Seller presently uses
such Seller Intellectual Property, without any affirmative act by Purchaser or
any other Person. Such ownership and right to use are (and upon Closing, will
be) free and clear of any Encumbrances, except for Permitted Encumbrances and
non-exclusive licenses granted to end-user customers in the ordinary course of
business.
(e) Seller has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Intellectual Property Rights
that is Seller Intellectual Property to any Person. Seller has no Knowledge of
any facts, circumstances or information that reasonably would be expected to
materially and adversely affect or impede the ability of Seller to use any
Seller Intellectual Property in the conduct of the Business as it is currently
conducted or, to the Knowledge of Seller, by Purchaser following the Closing.
Seller has not misrepresented, or failed to disclose, and has no Knowledge of
any misrepresentation or failure to disclose, any fact or circumstances in any
application for any Seller Registered Intellectual Property Right that would
constitute fraud or a misrepresentation with respect to such application or that
would otherwise affect the validity or enforceability of any Seller Registered
Intellectual Property Right.
(f) All necessary registration, maintenance and renewal fees in
connection with each item of Seller Registered Intellectual Property Rights have
been paid and all necessary documents and certificates in connection with such
Seller Registered Intellectual Property Rights have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Seller Registered Intellectual Property Rights. There are no actions that must
be taken by Seller within one hundred twenty (120) days following the Closing
Date, including the payment of any registration, maintenance or renewal fees or
the filing of any responses to office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting, preserving
or renewing any Registered Intellectual Property Rights. To the maximum extent
provided for by, and in accordance with, applicable laws and regulations, Seller
has recorded in a timely manner each such assignment of a Registered
Intellectual Property Right assigned to Seller with the relevant governmental
authority, including the United States Patent and Trademark Office (the "PTO"),
the U.S. Copyright Office or their respective counterparts in any relevant
foreign jurisdiction, as the case may be.
(g) Seller has taken commercially reasonable and customary actions
to maintain and protect (i) Seller's Intellectual Property, and (ii) the
secrecy, confidentiality, value and Seller's rights in the Confidential
Information and Trade Secrets of Seller and those provided by any Person to
Seller, including by having and enforcing a policy requiring all current and
former employees, consultants and contractors of Seller to execute appropriate
confidentiality and intellectual property assignment agreements. Seller has no
Knowledge of any violation or unauthorized disclosure of any Trade Secret or
Confidential Information related to the Business, the Purchased Assets or the
Assumed Liabilities, or obligations of confidentiality with respect to such.
18
(h) To the Knowledge of Seller, the Business as it is currently
conducted does not and will not, and will not when operated by Purchaser
substantially in the same manner following the Closing: (i) infringe or
misappropriate any Intellectual Property Rights of any Person; (ii) violate any
right of any Person (including, without limitation, any right to privacy or
publicity), (iii) defame any Person; or (iv) constitute unfair competition or
trade practices under the laws of any jurisdiction. The Seller has not received
any written notice or claim from any Person: (A) asserting any ownership
interest in any Seller Intellectual Property; (B) of any actual, alleged,
possible or potential infringement, misappropriation or unauthorized use or
disclosure by the Seller of any Intellectual Property Right, defamation of any
Person, violation of any right of any Person (including, without limitation, any
right to privacy or publicity), or violation of any unfair competition or trade
practice law by the Seller or any aspect of the Business as currently conducted;
or (C) suggesting or inviting the Seller to take a license or otherwise obtain
the right to use any Intellectual Property Right in connection with the Business
as currently conducted. To the Knowledge of the Seller, and no Person is
violating, infringing or misappropriating any Seller Intellectual Property
Right.
(i) There are no Proceedings before any Governmental Authority
(including before the PTO) anywhere in the world related to any of the Seller
Intellectual Property, including any Seller Registered Intellectual Property
Rights.
(j) No Seller Intellectual Property or Seller Product is subject to
any Proceeding or any outstanding decree, Order, judgment, office action or
settlement agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by Seller or that may affect the validity, use or
enforceability of such Seller Intellectual Property.
(k) Schedule 1.1(k) lists all Seller Contracts affecting any
Intellectual Property Rights. Seller is not in material breach of, nor has
Seller failed to perform in any material respect under, any such Seller
Contracts and, to Seller's Knowledge, no other party to any such Seller
Contracts, is in material breach thereof or has failed to perform in any
material respect thereunder.
(l) To the Knowledge of Seller, there is no Seller Contract
affecting any Seller Intellectual Property under which there is any material
dispute regarding the scope of such Seller Contract, or performance under such
Seller Contract, including with respect to any payments to be made or received
by Seller thereunder.
4.17 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.
(a) Customers. All Seller Contracts with customers were entered into
by or on behalf of Seller and were entered into in the ordinary course of
business for usual quantities and at normal prices. The Seller Disclosure
Schedule sets forth an accurate, correct and complete:
(i) list of the 25 largest customers of the Business,
determined on the basis of sales revenues, for each of the fiscal years ended
December 31, 2003, 2004 and 2005, and the three (3) month period ended March 31,
2006;
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(ii) breakdown of the revenues received from each customer
that accounted for more than $10,000 of the gross revenues of Seller, on an
annualized basis, for each of the fiscal years ended December 31, 2003, 2004 and
2005, and the three (3) month period ended March 31, 2006; and
(iii) breakdown of all customer deposits of greater than
$10,000 held by Seller as of the date of this Agreement.
(b) Suppliers. All Seller Contracts with suppliers were entered into
by or on behalf of Seller and were entered into in the ordinary course of
business for usual quantities and at normal prices. The Seller Disclosure
Schedule sets forth an accurate, correct and complete:
(i) list of the 25 largest suppliers of the Business,
determined on the basis of costs of items purchased for each of the fiscal years
ended December 31, 2003, 2004 and 2005 and the three (3) month period ended
March 31, 2006;
(ii) breakdown of the amounts paid to each supplier that
received more than $10,000 from Seller (on an annualized basis) for each of the
fiscal years ended December 31, 2005, 2004, and 2005 and the three (3) month
period ended March 31, 2006; and
(iii) list of all sole source suppliers of Seller.
(c) Seller has not entered into any Contract under which Seller is
restricted from selling, licensing or otherwise distributing any Seller products
or services to any class of customers, in any geographic area, during any period
of time or in any segment of the market.
(d) Seller has not received any notice or other communication, has
not received any other information indicating, and otherwise has no Knowledge,
that any current customer or supplier identified in the Seller Disclosure
Schedule may cease dealing with Seller, may otherwise materially reduce the
volume of business transacted by such Person with Seller or otherwise is
materially dissatisfied with the service Seller provides such Person. Seller has
no reason to believe that any such Person will cease to do business with
Purchaser after, or as a result of, consummation of the Transaction, or that
such Person is threatened with bankruptcy or insolvency. Seller has no Knowledge
of any fact, condition or event which could reasonably, by itself or in the
aggregate, adversely affect its relationship with any such Person. Since March
31, 2006, there has been no cancellation of backlogged orders in excess of the
average rate of cancellation prior to such date.
(e) Neither Seller nor any of its officers or employees has directly
or indirectly given or agreed to give any rebate, gift or similar benefit to any
customer, supplier, distributor, broker, governmental employee or other Person,
who was, is or may be in a position to help or hinder the Business (or assist in
connection with any actual or proposed transaction) which could subject Seller
(or Purchaser after consummation of the Transaction) to any damage or penalty in
any civil, criminal or governmental litigation or Proceeding or which would have
a Material Adverse Effect on Seller (or Purchaser after consummation of the
Transaction).
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4.18 SELLER PRODUCTS, SERVICES AND WARRANTY. All services rendered by
Seller have been in material conformity with all applicable contractual
commitments and all expressed or implied warranties.
4.19 EMPLOYEES AND CONSULTANTS.
(a) Employees and Contracts. No employee of Seller has been granted
the right to continued employment by Seller except as set forth in the standard
offer letter provided to Purchaser or to any material compensation following
termination of employment with Seller in excess of two (2) weeks' notice. Seller
has no Knowledge that any officer, director, employee or consultant of Seller
(collectively, the "Contractors") intends to terminate his or her employment or
other engagement with Seller, nor does Seller have a present intention to
terminate the employment or engagement of any Contractor.
(b) Compensation. The Seller Disclosure Schedule sets forth an
accurate, correct and complete list of all (i) employees of Seller, including
each employee's name, title or position, present annual compensation (including
bonuses, commissions and deferred compensation), accrued and unused paid
vacation and other paid leave, years of service, interests in any incentive
compensation plan, and estimated entitlements to receive supplementary
retirement benefits or allowances (whether pursuant to a contractual obligation
or otherwise) and (ii) individuals who are currently performing services for
Seller related to the Business who are classified as "consultants" or
"independent contractors." The Seller Disclosure Schedule sets forth all (i)
bonuses, severance payments, termination pay and other special compensation of
any kind paid to, accrued with respect to, or that would be payable to (as a
result of the Transaction), any present or former Contractor since the Interim
Balance Sheet Date; (ii) increases in any employee's wage or salary since the
Interim Balance Sheet Date; or (iii) increases or changes in any other benefits
or insurance provided to any employees since the Interim Balance Sheet Date. No
employee of Seller is eligible for payments that would constitute "parachute
payments" under Section 280G of the Code.
(c) Disputes. There are no claims, disputes or controversies pending
or, to the Knowledge of Seller, threatened involving any employee or group of
employees. Seller has not suffered or sustained any work stoppage and no such
work stoppage is threatened.
(d) Compliance with Legal Requirements. Seller has complied in all
material respects with all Legal Requirements related to the employment of its
employees, including provisions related to wages, hours, leaves of absence,
equal opportunity, occupational health and safety, workers' compensation,
severance, employee handbooks or manuals, collective bargaining and the payment
of social security and other Taxes.
(e) WARN Act. Seller is in full compliance with the Worker
Readjustment and Notification Act (the "WARN Act") (29 USC Section 2101),
including all obligations to promptly and correctly furnish all notices required
to be given thereunder in connection with any "plant closing" or "mass layoff"
to "affected employees", "representatives" and any state dislocated worker unit
and local government officials. No reduction in the notification period under
the WARN Act is being relied upon by Seller. The Seller Disclosure Schedule sets
forth an accurate, correct and complete list of all employees terminated (except
with cause, by voluntarily
21
departure or by normal retirement), laid off or subjected to a reduction of more
than 50% in hours or work during the two full calendar months and the partial
month preceding the date hereof.
(f) Unions. Seller has no collective bargaining agreements with any
of its employees. There is no labor union organizing or election activity
pending or, to the Knowledge of Seller, threatened with respect to Seller.
4.20 SELLER BENEFIT PLANS.
(a) The Seller Disclosure Schedule sets forth an accurate, correct
and complete list of each Seller Benefit Plan. To the Knowledge of Seller, each
Seller Benefit Plan has been maintained in compliance in all material respects
with its terms and with the requirements under applicable law, including but not
limited to ERISA and the Code.
(b) None of the Seller Benefit Plans is a (i) a Multiemployer Plan,
(ii) a Defined Benefit Plan, or (iii) a plan that is subject to Section 412 of
the Code; and neither Seller nor any ERISA Affiliate has at any time within the
past six (6) years contributed to, maintained, or incurred any liability with
respect to any such plan.
(c) Each Seller Benefit Plan which is intended to be qualified under
Section 401(a) of the Code (and any related trust intended to be exempt from tax
under Section 501(a) of the Code) is the subject of a favorable IRS
determination, notification, or opinion letter issued after January 1, 1997 and
has been administered in substantial compliance with the Economic Growth and Tax
Relief Reconciliation Act of 2001 and subsequent legislation enacted through the
date hereof, and Section 501 of the Code. To the Knowledge of the Company,
nothing has occurred since the issuance of the IRS's most recent favorable
determination letter (or opinion or notification letter, if applicable) that
could adversely affect the qualification of such Seller Benefit Plan or the tax
exempt status of its related trust.
(d) No Seller Benefit Plan provides benefits, including death or
medical benefits (whether or not insured), with respect to employees or former
employees of Seller and its ERISA Affiliates beyond retirement or other
termination of service, other than coverage required by Section 4980B of the
Code and Sections 601 through 608 of ERISA (and, if applicable, comparable state
law).
(e) Nothing contained in any of the Seller Benefit Plans will
obligate Purchaser to provide any benefits to employees, former employees or
beneficiaries of employees or former employees, or to make any contributions to
any plans from and after the Closing.
4.21 COMPLIANCE WITH LAWS. Seller is, and at all times since January 1,
2004 has been, in compliance in all respects with each Legal Requirement that is
applicable to Seller or any of Seller's properties, assets (including the
Purchased Assets), operations or businesses (including the Business), and no
event has occurred, and no condition or circumstance exists, that could
reasonably (with or without notice or lapse of time) constitute, or result
directly or indirectly in, a default under, a breach or violation of, or a
failure comply with, any such Legal Requirement in any respect, in each case
except for defaults under, breaches or violations of, or failures to comply
with, any such Legal Requirements that could not, individually or in the
22
aggregate, reasonably be expected to have a Material Adverse Effect on Seller.
Seller has not received any notice from any third party regarding any actual,
alleged or potential violation of any Legal Requirement.
4.22 GOVERNMENTAL APPROVALS.
(a) Seller has all Governmental Approvals that are reasonably
necessary in connection with Seller's ownership and use of its properties or
assets (including the Purchased Assets) or Seller's operation of its businesses
(including the Business). Schedule 1.1(l) contains an accurate, correct and
complete list and summary description of each such Governmental Approval. Each
such Governmental Approval, filing and notification is valid and in full force
and effect, and there is not pending or, to the Knowledge of Seller, threatened
any Proceeding which could result in the suspension, termination, revocation,
cancellation, limitation or impairment of any such Governmental Approval. No
violations have been recorded in respect of any such Governmental Approvals, and
Seller knows of no meritorious basis therefor. No fines or penalties are due and
payable in respect of any such Governmental Approval or any violation thereof.
(b) Seller has delivered to Purchaser accurate and complete copies
of all of the Governmental Approvals identified in Schedule 1.1(l), including
all renewals thereof and all amendments thereto.
4.23 PROCEEDINGS AND ORDERS.
(a) There is no Proceeding pending or, to the Knowledge of Seller,
threatened against or affecting Seller, any of Seller's properties, assets
(including the Purchased Assets), operations or businesses (including the
Business), or Seller's rights relating thereto. To Seller's Knowledge, no event
has occurred, and no condition or circumstance exists, that could reasonably
directly or indirectly give rise to or serve as a basis for the commencement of
any such Proceeding where there is a reasonable likelihood of an adverse result
that could have a Material Adverse Effect. Seller has delivered to Purchaser
true, accurate and complete copies of all pleadings, correspondence and other
documents relating to any such Proceeding. No insurance company has asserted in
writing that any such Proceeding is not covered by the applicable policy related
thereto.
(b) Neither Seller nor any of Seller's properties, assets (including
the Purchased Assets), operations or businesses (including the Business), nor
Seller's rights relating to any of the foregoing, is subject to any Order or any
proposed Order.
4.24 ENVIRONMENTAL MATTERS. Seller is now and, to the Knowledge of the
Seller, has been at all times in compliance in all material respects with all
Environmental Laws. The Seller has now and at all times has had all the
necessary permits required under Environmental Laws for the operation of its
business, and is not and has not been in violation of any of the terms and
conditions of any of its permits, except for such violations as individually and
in the aggregate would not have a Material Adverse Effect on the Seller. The
Seller has not received any notice or other communication (in writing or
otherwise) that alleges that the Seller is not in compliance with any
Environmental Law. The Seller has not generated, manufactured, produced,
23
transported, imported, used, treated, refined, processed, handled, stored,
discharged, released, or disposed of any Hazardous Materials (whether lawfully
or unlawfully) at any of the leased premises occupied or controlled by the
Seller on or at any time prior to the Closing Date other than common household
and office products in de minimis quantities. To the Knowledge of the Seller,
there are no circumstances that may prevent or interfere with the Company's
compliance in any material respect with any Environmental Law.
4.25 TAXES.
(a) Seller has timely filed all Tax Returns that it was required to
file, and such Tax Returns are true, correct and complete in all material
respects. All Taxes shown to be payable on such Tax Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis, and
no other Taxes are payable by Seller with respect to any period ending prior to
the date of this Agreement, whether or not shown due or reportable on such Tax
Returns. Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. Seller has no liability
for unpaid Taxes accruing after the date of its latest Financial Statements
except for Taxes incurred in the ordinary course of business. There are no liens
for Taxes on the properties of Seller, other than liens for Taxes not yet due
and payable.
(b) The Seller Disclosure Schedule (i) lists all income and
franchise Tax Returns filed by Seller for all taxable periods since December 31,
2000, (ii) indicates any Tax Returns filed by Seller since 1995 that have been
audited, and (iii) indicates any Tax Returns filed by Seller that currently are
subject of audit. To the Knowledge of Seller, no other audit of any Tax Return
is currently pending or threatened. No claim has ever been made by any
Governmental Authority in a jurisdiction where Seller does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. Seller has
delivered or made available to Purchaser correct and complete copies of all Tax
Returns filed, examination reports, and statements of deficiencies assessed or
agreed to by Seller since 1995. Seller has not waived any statute of limitations
in respect of any Tax or agreed to an extension of time with respect to any Tax
assessment or deficiency which waiver or extension currently remains open.
(c) Seller is not a party to or bound by any tax indemnity
agreement, tax sharing agreement or similar Contract which could give rise to
liability of Purchaser on or after the Closing Date. Seller is not a party to
any joint venture, partnership, or other arrangement or Contract which could be
treated as a partnership or "disregarded entity" for United States federal
income tax purposes.
(d) Seller is not obligated under any agreement, Contract or
arrangement that may result in the payment of any amount that would not be
deductible by reason of Section 280G or Section 404 of the Code.
(e) Pencom Systems, Incorporated has treated itself as owner of each
of the Purchased Assets for Tax purposes. None of the Purchased Assets is the
subject of a "safe-harbor lease" within the provisions of former Section
168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and
Fiscal Responsibility Act of 1982. None of the Purchased
24
Assets directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code. None of the Purchased Assets is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(f) Seller is a "United States person" within the meaning of Section
7701(a)(30) of the Code.
(g) Purchaser is not subject to liability as a transferee pursuant
to Code Section 6901 et seq. or otherwise, nor will Purchaser be subject to such
liability as a direct or indirect result of Purchaser's acquisition of the
Purchased Assets.
4.26 BROKERS. Seller has not retained any broker or finder or incurred any
liability or obligation for any brokerage fees, commissions or finders fees with
respect to this Agreement or the Transaction.
4.27 NO OTHER AGREEMENT. Other than for sales of assets in the ordinary
course of business, neither Seller, nor any of its Representatives, has entered
into any unperformed Contract with respect to the sale or other disposition of
any assets (including the Purchased Assets) except as set forth in this
Agreement.
4.28 NO OTHER REPRESENTATIONS AND WARRANTIES. Each representation and
warranty set forth in this Article 4 will not merge on Closing or by reason of
the execution and delivery of any Contract at the Closing, will remain in force
on and immediately after the Closing Date in accordance with this Agreement, is
given with the intention that liability is not limited to breaches discovered
before Closing, is separate and independent and is not limited by reference to
any other representation or warranty or any other provision of this Agreement,
and is made and given with the intention of inducing Purchaser to enter into
this Agreement.
4.29 PRIVATE PLACEMENT.
(a) Seller is acquiring the Shares to be received in the Transaction
for investment for Seller's own account, not as a nominee or agent and not with
a view to the resale or distribution of any part thereof except pursuant to a
valid exemption from registration or pursuant to an effective registration
statement, and Seller has no present intention of selling, granting any
participation in, or otherwise distributing the same except pursuant to a valid
exemption from registration or pursuant to an effective registration statement.
Purchaser acknowledges that it has been informed that Seller intends to transfer
and assign the Shares to Pencom Systems, Incorporated which in turn intends to
transfer and assign the Shares to one or more of its shareholders (which consist
exclusively of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇), and Purchaser
hereby consents to such transfers and assignments and agrees to take all actions
reasonably requested by any such applicable transferee to effectuate any such
applicable transfer and assignment on the books and records of Purchaser,
provided that, unless such transfer and assignment is made pursuant to an
effective registration statement under the Securities Act, such transferee
agrees in writing to be subject to the terms hereof and in connection therewith
makes the representations contained in this Section 4.29 to the same extent as
if such transferee were Seller hereunder.
25
(b) Seller has received all the information it considers necessary
or appropriate for deciding whether to obtain the Shares as consideration in
this Transaction. Seller has had an opportunity to ask questions and receive
answers from Purchaser regarding the rights, preferences and privileges under
the Shares and the business, properties, prospects and financial condition of
Purchaser; provided, that this representation and warranty in no way limits
Seller's ability to rely on the Purchaser's representations and warranties in
Article 5.
(c) Seller acknowledges that it is able to fend for itself, can bear
the economic risk of owning the Shares, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of owning the Shares. Seller acknowledges that its ownership of the Shares
involves a high degree of risk and that Seller is able, without materially
impairing its financial condition, to hold the Shares for an indefinite period
of time and to suffer a complete loss of its investment.
(d) Seller is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Securities Act, as presently in effect
and, for the purpose of Section 25102(f) of the California Corporations Code,
Seller is excluded from the count of "purchasers" pursuant to Rule 260.102.13
thereunder.
(e) Seller understands that the Shares are characterized as
"restricted securities" under the federal securities laws in that they are being
acquired from Purchaser in a transaction not involving a public offering and
that under such laws and applicable regulations such Shares may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection, Seller is familiar with Rule 144 promulgated
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. SELLER UNDERSTANDS AND
ACKNOWLEDGES HEREIN THAT AN INVESTMENT IN PURCHASER'S SHARES INVOLVES AN
EXTREMELY HIGH DEGREE OF RISK AND MAY RESULT IN A COMPLETE LOSS OF ITS
INVESTMENT.
(f) Without in any way limiting the representations set forth above,
Seller agrees not to make any disposition of all or any portion of the Shares
unless and until:
(i) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(ii) (A) Seller shall have notified Purchaser of the proposed
disposition and shall have furnished Purchaser with a detailed statement
of the circumstances surrounding the proposed disposition and (B) if
reasonably requested by Purchaser, Seller shall have furnished Purchaser
with an opinion of counsel reasonably satisfactory to Purchaser that such
disposition will not require registration of such shares under the
Securities Act;
provided, however, that notwithstanding the provisions of the foregoing
clauses (i) and (ii), no such registration statement or opinion of counsel
shall be necessary for a transfer by Seller to Pencom Systems,
Incorporated or by Pencom Systems, Incorporated to ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.,
▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇, if any such transferee agrees in writing
26
to be subject to the terms hereof and in connection therewith makes the
representations contained in this Section 4.29 to the same extent as if he
or she were Seller hereunder
(g) It is understood that the certificates evidencing the Shares may
bear one or all of the following legends unless and until registered under the
Act:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(ii) Any legend required by applicable state securities laws,
including without limitation, any legal requirement by the California
Department of Corporations and Sections 417 and 418 of the California
Corporations Code.
(h) Seller understands that the representations, warranties,
covenants and acknowledgements set forth in this Section 4.29 constitute a
material inducement to Purchaser to enter into this Agreement.
(i) Seller acknowledges that it is not relying upon any person, firm
or corporation, other than Purchaser and its officers and directors, in making
its investment or decision to invest in Purchaser.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as specifically set forth on the Schedule 5 (the "Purchaser
Disclosure Schedule") attached to this Agreement (the parts of which are
numbered to correspond to the applicable Section numbers of this Agreement) or
in Purchaser's reports or filings with the Securities and Exchange Commission,
Purchaser hereby represents and warrants as of the date hereof to Seller as
follows:
5.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
5.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. Purchaser has all requisite
corporate power and authority to execute and deliver this Agreement and all
other Transaction Agreements to which it is a party and to carry out the
provisions of this Agreement and the other Transaction Agreements. The
execution, delivery and performance by Purchaser of this Agreement and the other
Transaction Agreements have been approved by all requisite action on the part of
Purchaser. This Agreement has been duly and validly executed and delivered by
Purchaser. Each of this Agreement and the other Transaction Agreements
constitutes, or upon execution and delivery, will constitute, the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
related to or limiting creditors' rights generally and by general principles of
equity.
27
5.3 NO CONFLICTS; REQUIRED CONSENTS. The execution, delivery and
performance of this Agreement or any other Transaction Agreement by Purchaser do
not and will not (with or without notice or lapse of time), except to the extent
all necessary consents or approvals have been received and filings made prior to
Closing:
(a) conflict with, violate or result in any breach of (i) any of the
provisions of Purchaser's Certificate of Incorporation or bylaws; (ii) any
resolutions adopted by Purchaser's stockholders, or its board of directors or
committees thereof; (iii) any of the terms or requirements of any Governmental
Approval held by Purchaser or any of its employees or that otherwise relates to
Purchaser's business; or (iv) any provision of a Contract to which Purchaser is
a party;
(b) give any Governmental Authority or other Person the right to (i)
challenge the Transaction; (ii) exercise any remedy or obtain any relief under
any Legal Requirement or any Order to which Purchaser or any of its assets is
subject; or (iii) declare a default of, exercise any remedy under, accelerate
the performance of, cancel, terminate or modify any Contract to which Purchaser
is a party; or
(c) require Purchaser to obtain any Consent or make or deliver any
filing or notice to a Governmental Authority.
5.4 BROKERS. Purchaser has not retained any broker or finder or incurred
any liability or obligation for any brokerage fees, commissions or finders fees
with respect to this Agreement or the Transaction.
5.5 SEC FILINGS, FINANCIAL STATEMENTS.
(a) Purchaser has timely filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission since
April 2, 2005 (the "SEC Reports"). The SEC Reports complied as to form in all
material respects with the applicable requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, as the
case may be, and the applicable rules and regulations promulgated thereunder,
and did not, at the time they were filed, or if amended as of the date of such
amendment, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the process
indicated (except as may be indicated in the notes thereto) and each fairly
presents, in all material respects, the consolidated financial position, results
of operation and cash flows of Purchaser as of the respective dates thereof and
for the respective periods indicated therein, subject in the case of interim
period, to normal and necessary year-end adjustments and the omission of
footnotes.
5.6 SHARES. The Shares have been duly authorized, and will be validly
issued, fully paid and nonassessable when issued at Closing pursuant to the
terms of this Agreement.
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ARTICLE 6. PRE-CLOSING COVENANTS
6.1 SELLER'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING. From the date of this
Agreement until the Closing Date, Seller shall, and shall cause its members,
officers, directors and employees, to:
(a) Conduct the Business in the ordinary course of business;
(b) Pay all of its Liabilities and Taxes when due, subject to good
faith disputes over such Liabilities or Taxes;
(c) Maintain insurance coverage in accordance with Seller's past
practices; and
(d) Use commercially reasonable efforts to (i) preserve intact all
rights of the Business to retain its employees and (ii) maintain good
relationships with employees, licensors, licensees, suppliers, contractors,
distributors, customers, and others having business dealings with the Business.
6.2 RESTRICTIONS ON SELLER'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING.
From the date of this Agreement until the Closing Date, Seller shall not, and
shall cause its members, officers, directors and employees, not to:
(a) Enter into, create, incur or assume (i) any borrowings under
capital leases or (ii) any obligations which would have a Material Adverse
Effect on Seller or Purchaser's ability to conduct the Business in substantially
the same manner and condition as currently conducted by Seller;
(b) Acquire by merging or consolidating with, or by purchasing any
equity securities or assets (which are material, individually or in the
aggregate, to Seller) of, or by any other manner, any business or any Entity;
(c) Sell, transfer, lease, license or otherwise encumber any of the
Purchased Assets, except for the sale of Inventory and the granting of
non-exclusive licenses in the ordinary course of business;
(d) Take any action not announced prior to the date of this
Agreement to the customers, suppliers or distributors of Seller, including
providing promotions, coupons, discounts or price increases, except in the
ordinary course of business consistent with Seller's past practices;
(e) Enter into any agreements or commitments with another Person,
except on commercially reasonable terms in the ordinary course of business;
(f) Violate in any material respect any Legal Requirement applicable
to Seller;
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(g) Materially change or announce any change to the Seller products
or any services sold by Seller;
(h) Violate or amend in any material respect or terminate any Seller
Contract or Governmental Approval, except amendments and terminations in the
ordinary course of business consistent with Seller's past practices;
(i) Commence a Proceeding other than (i) for the routine collection
of Receivables, (ii) for injunctive relief on the grounds that Seller has
suffered immediate and irreparable harm not compensable in money damages if
Seller has obtained the prior written consent of Purchaser, such consent not to
be unreasonably withheld or (iii) with respect to the Excluded Assets or
Excluded Liabilities;
(j) Purchase, lease, license or otherwise acquire any assets, except
for supplies acquired by Seller in the ordinary course of business;
(k) Make any capital expenditure in excess of Twenty-Five Thousand
Dollars ($25,000), individually or in the aggregate;
(l) Borrow from any Person by way of a loan, advance, guaranty,
endorsement, indemnity, or warranty; provided that borrowings in the ordinary
course of business under the ▇▇▇▇▇ Fargo Agreement are permitted;
(m) Change its credit practices, accounting methods or practices or
standards used to maintain its books, accounts or business records;
(n) Incur or become subject to any Liability, contingent or
otherwise, except current Liabilities in the ordinary course of business;
(o) Make any material change affecting the Business, including (i)
changes in wholesaler alignments, inventory levels, management organization or
personnel arrangements with sales brokers, advertising agencies, market research
projects, advertising and promotion budgets or the content of advertisements or
working capital levels (payables, receivables and inventory); (ii) changes in
discretionary costs, such as advertising, maintenance and repairs, research and
development, and training; (iii) any capital expenditures or deferrals of
capital expenditures; (iv) deviations from operating budgets or plans on sales
and profitability; or (v) other than in the ordinary course of business, changed
any of its business policies, including, advertising, investments, marketing,
pricing, purchasing, production, personnel, sales, returns, budget or product
acquisition policies;
(p) Amend its charter or organizational documents in any manner that
could adversely effect Seller's ability to consummate the transactions
contemplated hereby and perform its obligations hereunder;
(q) Accelerate, amend or change the period of exercisability or
vesting of Seller Options or other rights granted under the Seller Stock Option
Plan or any Seller Benefit Plans, except as specifically contemplated in this
Agreement;
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(r) Issue, sell, or authorize the issuance or sale of any options,
warrants, or other rights to acquire any shares of such capital stock or any
other ownership interest in Seller;
(s) Hire any new employee other than in the ordinary course of
business, terminate any officer or key employee of Seller, increase the annual
level of compensation of any existing employee except for regular, scheduled
compensation increases in the ordinary course of business, establish or adopt
any Employee Benefit Plan, or grant any bonuses, benefits or other forms of
direct or indirect compensation to any employee, officer, director or
consultant;
(t) Make or change any election in respect of Taxes, adopt or change
any accounting method in respect of Taxes, file any amendment to a Tax Return,
enter into any closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes, in each case only to the extent
such action could affect the liability of Purchaser for Taxes of Seller;
(u) Fail to maintain all Inventory at current levels or fail to
maintain the Purchased Assets, taken as a whole, in good repair, order and
condition, reasonable wear and tear excepted; or
(v) Enter into any Contract or agree, in writing or otherwise, to
take any of the actions described in Section 6.2(a) through (u) above, or any
action that would make any of its representations or warranties contained in
this Agreement untrue or incorrect in any material respect or prevent it from
performing or cause it not to perform in any material respect its covenants
hereunder. Notwithstanding the foregoing, Seller shall be permitted to
distribute cash to its members, discharge liabilities to affiliates and cause
its affiliates to forgive or contribute to Seller the forgiveness of liabilities
owed to them as long as the Net Assets at Closing are not less than One Million
Dollars ($1,000,000).
6.3 NO SOLICITATION. Until the earlier of (a) the Closing and (b) the
termination of this Agreement pursuant to its terms, Purchaser and Seller shall:
(i) immediately halt any discussions with third parties regarding any
transaction, the closing of which would be inconsistent with or interfere with
or prevent or delay the Closing of the Transaction (any such transaction, a
"Competing Transaction"); and (ii) not hold any discussion with, provide any
information to or respond to any inquiry made by any third party concerning a
proposed Competing Transaction, or cooperate in any way with, agree to, assist
or participate in, solicit, consider, facilitate or otherwise encourage, any
effort or attempt by any third party to do or seek any of the foregoing. If at
any time a party is approached in any manner by a third party concerning a
Competing Transaction (such third party, a "Competing Party") such party shall
promptly inform the Competing Party that it is unable to communicate with such
Competing Party with respect to a Competing Transaction and promptly inform the
other party of such contact and the terms of such proposal or inquiry. Solely
with respect to Purchaser, "Competing Transaction" shall mean any acquisition by
it of a business that provides the same or substantially the same services that
Seller provides to its customers.
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6.4 CERTAIN NOTIFICATIONS.
(a) From the date of this Agreement until the Closing, Seller shall
promptly notify Purchaser in writing regarding any:
(i) Action taken by Seller not in the ordinary course of
business and any circumstance or event that could reasonably be expected
to have a Material Adverse Effect on the Business;
(ii) Fact, circumstance, event, or action by Seller (A) which,
if known on the date of this Agreement, would have been required to be
disclosed in or pursuant to this Agreement; or (B) the existence,
occurrence, or taking of which would result in any of the representations
and warranties of Seller contained in this Agreement or in any Transaction
Agreement not being true and correct when made or at Closing;
(iii) Breach of any covenant or obligation of Seller
hereunder; and
(iv) Circumstance or event which will result in, or could
reasonably be expected to result in, the failure of Seller to timely
satisfy any of the closing conditions specified in Article 9 of this
Agreement.
(b) From the date of this Agreement until the Closing, Purchaser
shall promptly notify Seller in writing regarding any:
(i) Filing of Purchaser with the SEC;
(ii) Fact, circumstance, event or action by Purchaser (A)
which, if known on the date of this Agreement, would have been required to
be disclosed in or pursuant to this Agreement; or (B) the existence,
occurrence, or taking of which would result in any of the representations
and warranties of Purchaser contained in this Agreement or in any
Transaction Agreement not being true and correct when made or at Closing;
(iii) Breach of any covenant or obligation of Purchaser
hereunder; and
(iv) Circumstances or event which will result in, or could
reasonably be expected to result in, the failure of Purchaser to fully
satisfy any of the closing conditions specified in Article 9 of this
Agreement.
6.5 UPDATING THE DISCLOSURE SCHEDULES. If any event, condition, fact or
circumstance that is required to be disclosed pursuant to Section 6.4 would
require a change to the Seller or Purchaser Disclosure Schedule if the Seller or
Purchaser Disclosure Schedule were dated as of the date of the occurrence,
existence or discovery of such event, condition, fact or circumstance, then
Seller or Purchaser, as applicable shall promptly deliver to Purchaser or
Seller, as applicable an update to the Seller or Purchaser, as applicable
Disclosure Schedule specifying such change and shall use its Best Efforts to
remedy same, as applicable; provided, however, that no such update shall be
deemed to supplement or amend the Seller or Purchaser Disclosure Schedule for
the purpose of (i) determining the accuracy of any of the representations
32
and warranties made by Seller or Purchaser in this Agreement or (ii) determining
whether any of the conditions set forth in Article 9 have been satisfied.
6.6 ACCESS TO INFORMATION. From the date of this Agreement until the
Closing, each of Seller and Purchaser shall (a) permit Purchaser and Seller, as
applicable and its Representatives to have free and complete access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Seller or Purchaser, as applicable, to all premises,
properties, personnel, Persons having business relationships with Seller or
Purchaser, as applicable (including suppliers, licensees, customers and
distributors), books, records (including Tax records), Contracts, and documents
of or pertaining to Seller; (b) furnish Purchaser or Seller with all financial,
operating and other data and information related to the Business (including
copies thereof), as Purchaser or Seller may reasonably request; and (c)
otherwise cooperate and assist, to the extent reasonably requested by Purchaser
or Seller, with Purchaser's investigation of the Business and Seller's
investigation of Purchaser, the Purchased Assets and the Assumed Liabilities.
Neither party hereto shall communicate with Persons known by such party to have
business relationships with the other party hereto regarding this Agreement, the
transactions contemplated hereby, or the other party hereto, unless such
communications are approved in advance by the other party hereto. No information
or knowledge obtained in any investigation pursuant to this Section 6.6 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Transaction.
6.7 BEST EFFORTS. From the date of this Agreement until the Closing, each
of Seller and Purchaser shall use their respective Best Efforts to cause to be
fulfilled and satisfied all of the other party's conditions to Closing set forth
in Article 9.
6.8 CONSENTS. As promptly as possible after the date of this Agreement,
Seller shall use its Best Efforts to obtain all Consents and make and deliver
all filings and notices listed or required to be listed on Schedule 4.5(e) other
than Consents, filings or notices from or to Dell Computer Corporation and its
affiliates or subsidiaries, and Purchaser shall use its Best Efforts to obtain
all Consents and make and deliver all filings and notices listed or required to
be listed on Schedule 5.3(c). Purchaser shall not be required to (a) agree to
any material changes in, or the imposition of any material condition to the
transfer to Purchaser of, any Seller Contract or Governmental Approval as a
condition to obtaining any Consent; or (b) dispose of or make any changes to its
business, expend any material funds or incur any other burden in order to comply
with this Section 6.8. Seller shall not be required to (i) agree to any material
changes in, or the imposition of any material condition to the transfer to
Purchaser of, any Seller Contract or Governmental Approval as a condition to
obtaining any Consent; or (ii) dispose of or make any changes to its business,
expend any material funds or incur any other burden in order to comply with this
Section 6.8.
6.9 INDEMNITY. Each of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇
shall enter into an Indemnification Agreement substantially in the form of
Exhibit 6.9 (the "Indemnification Agreements") hereto.
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ARTICLE 7. POST CLOSING COVENANTS
7.1 SELLER INTELLECTUAL PROPERTY.
(a) Seller agrees that, from and after the Closing Date and except
as otherwise provided in the Acknowledgements of License, it shall not, and it
shall cause its Representatives not to, use any of the Seller Intellectual
Property. If Seller or any assignee of Seller owns or has any right or interest
in any Seller Intellectual Property that cannot be, or for any reason is not,
assigned to Purchaser at the Closing, Seller shall grant or cause to be granted
to Purchaser, at the Closing, a worldwide, royalty-free, fully paid up,
perpetual, irrevocable, transferable, sublicensable, and exclusive license to
Exercise All Rights in and to such Seller Intellectual Property.
(b) If Purchaser is unable to enforce its Intellectual Property
Rights against a third party as a result of any Legal Requirement that prohibits
enforcement of such rights by a transferee of such rights, Seller agrees to
assign to Purchaser such rights as may be required by Purchaser to enforce its
Intellectual Property Rights in its own name. If such assignment still does not
permit Purchaser to enforce its Intellectual Property Rights against the third
party, Seller agrees to initiate proceedings against such third party in
Seller's name; provided, however, that Purchaser shall be entitled to
participate in such proceedings and provided further that Purchaser shall be
responsible for the costs and expenses of such proceedings and all other costs
and expenses other than those for which Purchaser is entitled to indemnification
under Section 11.2.
(c) Purchaser and Seller shall enter into the acknowledgements of
license (the "Acknowledgements of License") substantially in the form of Exhibit
7.1.
7.2 COOPERATION. After the Closing, upon the request of Purchaser, Seller
shall (i) execute and deliver any and all further materials, documents and
instruments of conveyance, transfer or assignment as may reasonably be requested
by Purchaser to effect, record or verify the transfer to, and vesting in
Purchaser, of Seller's right, title and interest in and to the Purchased Assets,
free and clear of all Encumbrances other than Permitted Encumbrances, in
accordance with the terms of this Agreement; and (ii) cooperate with Purchaser,
at Purchaser's expense, to enforce the terms of any Seller Contracts, including
terms relating to confidentiality and Intellectual Property Rights, and to
contest or defend against any Proceeding relating to the Transaction or to the
operation of Seller's Business before the Closing Date. After the Closing, upon
the request of Seller, Purchaser shall execute and deliver any and all further
materials, documents and instruments of conveyance, transfer or assumption as
may reasonably be requested by Seller to effect, record or verify the transfer
to, and assumption by Purchaser, of the Assumed Liabilities. After the Closing,
Seller shall (a) cooperate with Purchaser in its efforts to continue and
maintain for the benefit of Purchaser those business relationships of Seller
existing prior to the Closing and relating to the business to be operated by
Purchaser after the Closing; (b) satisfy the Excluded Liabilities in a manner
that is not detrimental to any of such relationships; (c) refer to Purchaser all
inquiries relating to such business; and (d) promptly deliver to Purchaser (x)
any mail, packages and other communications addressed to Seller relating to the
Business, Purchased Assets or Assumed Liabilities and (y) any cash or other
property that Seller receives and that properly belongs to Purchaser, payments
with respect to Receivables, and
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interest payable thereon. Neither Seller nor any of its officers, employees,
agents or stockholders shall take any action that would tend to materially
diminish the value of the Purchased Assets after the Closing or that would
materially interfere with the business of Purchaser to be engaged in after the
Closing, including disparaging the name or business of Purchaser.
7.3 CHANGE OF CORPORATE NAME. On the Closing Date or as soon as
practicable thereafter, Seller shall change its legal name, by filing the
Certificate of Amendment delivered to Purchaser pursuant to Section 3.2(i) (or
any revision of such Certificate of Amendment necessary to comply as to form
under Delaware law) with the Secretary of State of the State of Delaware, to a
new name which does not include the term Collective Technologies or the acronym
or abbreviation "CT" or any variations, translations or combinations thereof or
similar names and otherwise is not likely to be confused with its present name
so as to make Seller's present name available to Purchaser. Seller shall deliver
to Purchaser a file-stamped copy of such filing as soon as practicable following
its filing with and acceptance by the Secretary of State of the State of
Delaware. From and after the Closing, Seller shall not, without the prior
written consent of Purchaser, use the term "Collective Technologies" or the
acronym or abbreviation "CT" or any variations, translations or combinations
thereof or similar names in connection with any business; provided, however,
that Seller may reference that "Collective Technologies" or "CT" was formerly a
subsidiary of Pencom Systems, Incorporated, or that a particular individual was
formerly associated with or employed by "Collective Technologies" or "CT," in
documents of a historical or biographical nature.
7.4 RECORDS AND DOCUMENTS. For a period of ten (10) years after the
Closing, at Purchaser's request, Seller shall provide Purchaser and its
Representatives with access to and the right to make copies of those records and
documents related to the Business, possession of which is retained by Seller, as
may be reasonably necessary in connection with Purchaser's conduct of the
Business after the Closing. If during such period Seller elects to dispose of
such records and documents, Seller shall give Purchaser sixty (60) days' prior
written notice, during which period Purchaser shall have the right to take such
records and documents, at Purchaser's expense, without further consideration.
For a period of ten (10) years after the Closing, at Seller's request, Purchaser
shall provide Sellers and its Representatives with access to and the right to
make copies of those records and documents related to the conduct of the
Business prior to the Closing, possession of which is delivered to Purchaser, as
may be reasonably necessary in connection with filing taxes, responding to
audits or any other bona fide business reason. If during such period Purchaser
elects to dispose of such records and documents, Purchaser shall give Seller
sixty (60) days' prior written notice, during which period Seller shall have the
right to take such records and documents, at Seller's expense, without further
consideration.
7.5 COLLECTION OF RECEIVABLES.
(a) Payments received by Purchaser from account debtors as payment
for a Receivable shall be applied against the oldest unpaid balance of such
account debtor, unless the account debtor designates another application, in
which case the application designated may be followed in applying the payment.
In return for payment of claims for defaulted Receivables, Purchaser shall
reassign the account or note involved to Seller. The uncollected receivables
reassigned to Seller as provided herein shall be transferred by Purchaser
subject to no defenses or
35
setoffs by the debtor which did not arise as a result of the conduct of the
Business prior to Closing.
(b) Purchaser shall be entitled, in its sole discretion, to reassign
and transfer to Seller any Receivables which have not been collected in full by
one hundred twenty (120) days after the Closing Date and Seller shall be
required to accept any such uncollected Receivable which have been so reassigned
and transferred. If Purchaser determines to so reassign and transfer any such
uncollected Receivables, the Purchase Price, as may have been adjusted pursuant
to the terms hereof, shall be reduced as set forth in Section 2.2 by an amount
equal to the aggregate face amount of such uncollected Receivables. Purchaser
shall use commercially reasonable efforts to collect all Receivables in full by
one hundred twenty (120) days after the Closing Date. Purchaser shall provide to
Seller an accurate and complete account aging and collection report regarding
outstanding Receivables within the first five (5) Business Days of each calendar
month occurring within one hundred twenty (120) days after the Closing Date.
Seller may, with the prior written consent of Purchaser, assist Purchaser in
collecting outstanding Receivables during the one hundred twenty (120) day
period following the Closing Date.
7.6 NONCOMPETITION AGREEMENT.
(a) For and in consideration of the Transaction contemplated herein,
during the period commencing with the Closing Date and ending on the second
anniversary of the Closing Date (the "Noncompetition Period"), Seller shall not
engage in any "Competitive Activity" in the "Restricted Territory" (as both are
defined below).
(b) "Competitive Activity" shall mean directly or indirectly (or
having any interest in, or performing any services for, any Person directly or
indirectly) (i) engaging in any activity that is the same as, similar to, or
competitive with Business; (ii) engaging in the development or distribution of
any product that is the same as, similar to, or competitive with any Seller
Product being developed or distributed by Purchaser during the Noncompetition
Period; (iii) employing, soliciting for employment, or recommending for
employment any Person employed by Purchaser or any Affiliate or Subsidiary of
Purchaser during such Person's employment with Purchaser (or any Affiliate or
Subsidiary of Purchaser) or for one year thereafter; or (iv) diverting or
attempting to divert from Purchaser or any Affiliate or Subsidiary of Purchaser
any business of any kind in which they are engaged, including the solicitation
of or interference with any suppliers, contractors, or customers.
(c) "Restricted Territory" shall mean every state, territory,
country, or jurisdiction in which Seller has carried on the Business prior to
the Closing Date.
(d) Notwithstanding the foregoing, the provisions of this Section
7.6 shall not prevent Seller from beneficially owning up to five percent (5%),
on a full-diluted basis, of the total shares of all classes of stock outstanding
of any corporation having securities listed on the NYSE, the American Stock
Exchange, or traded on NASDAQ.
(e) It is the understanding of the parties that the scope of the
covenants contained in this Section 7.6, both as to time and area covered, are
necessary to protect the rights of Purchaser and the goodwill that is a part of
the Business of Seller to be acquired by Purchaser.
36
It is the parties' intention that these covenants be enforced to the greatest
extent (but to no greater extent) in time, area, and degree of participation as
is permitted by the law of that jurisdiction whose law is found to be applicable
to any acts in breach of these covenants. It being the purpose of this Agreement
to govern competition by Seller in the Restricted Territory, these covenants
shall be governed by and construed according to that law (from among those
jurisdictions arguably applicable to this Agreement and those in which a breach
of this Agreement is alleged to have occurred or to be threatened) which best
gives them effect. The prohibitions in each of subsections (a)-(d) in Section
7.6 above shall be deemed, and shall be construed as separate and independent
agreements between Purchaser on the one hand, and Seller, on the other. If any
such agreement or any part of such agreement is held invalid, void or
unenforceable by any court of competent jurisdiction, such invalidity, voidness,
or unenforceability shall in no way render invalid, void, or unenforceable any
other part of them or any separate agreement not declared invalid, void or
unenforceable; and this Agreement shall in such case be construed as if the
invalid, void, or unenforceable provisions were omitted.
(f) The parties agree that the covenants of Seller not to compete
contained in this Section 7.6 may be assigned by Purchaser to any Person to whom
may be transferred the Business of Seller by the sale or transfer of their
business and assets or otherwise. It is the parties' intention that these
covenants of Seller shall inure to the benefit of any Person that may succeed to
the Business and Purchased Assets of Seller (as acquired by Purchaser under this
Agreement) with the same force and effect as if these covenants were made
directly with such successor.
7.7 NONDISCLOSURE.
(a) Seller recognizes and acknowledges that it has had in the past,
currently has, and in the future may possibly have, access to certain
Confidential Information (as defined below) of Seller that is a valuable,
special and unique asset of the Business. Seller agrees that it shall not
disclose such Confidential Information to any Person, for any purpose or reason
whatsoever, except (a) to authorized Representatives of Purchaser and (b) to
counsel and other advisers to Seller provided that such advisers agree to the
confidentiality provisions of this Section 7.7.
(b) "Confidential Information" shall mean all Trade Secrets and
other confidential and/or proprietary information of a Person, including
information derived from reports, investigations, research, work in progress,
codes, marketing and sales programs, financial projections, cost summaries,
pricing formula, contract analyses, financial information, projections,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such Person by its
employees, officers, directors, agents, representatives, or consultants.
Information shall not be deemed Confidential Information hereunder if (i) such
information becomes available to or known by the public generally through no
fault of Seller or (ii) disclosure is required by law or the Order of any
Governmental Authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), Seller shall, if
possible, give prior written notice thereof to Purchaser and, at Purchaser's
election, either provide Purchaser with the opportunity to contest such
disclosure or seek to obtain a protective order narrowing the scope of such
disclosure and/or use of the Confidential
37
Information; or (iii) Seller reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against Seller. Nothing
herein shall be construed as prohibiting Purchaser from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
Damages.
(c) The parties agree that, in the event of breach or threatened
breach of Seller's covenants in this Section 7.7, the damage or imminent damage
to the value and the goodwill of Purchaser and the Business will be irreparable
and extremely difficult to estimate, making any remedy at law or in damages
inadequate. Accordingly, the parties agree that Purchaser shall be entitled to
injunctive relief against Seller in the event of any breach or threatened breach
of any of such covenants by Seller, in addition to any other relief (including
Damages) available to Purchaser under this Agreement or under applicable law.
7.8 LISTING OF SHARES. Purchaser shall use its Best Efforts to cause the
Shares to be listed on the Nasdaq Capital Market as soon as reasonably
practicable following the Closing.
ARTICLE 8. EMPLOYEES
8.1 TRANSFERRED EMPLOYEES. Purchaser shall offer employment, to be
effective as of the Closing Date and contingent upon the Closing, on terms to be
determined by Purchaser, to those employees of Seller who are listed on Schedule
8.1 (collectively, the "Transferred Employees"); provided that each such
Transferred Employees shall be offered a base salary not less than the base
salary for each such person set forth on Seller's Disclosure Schedule as such
person's current base salary. Seller shall terminate the employment, to be
effective as of the Closing Date, of any employees of the Business who are not
Transferred Employees. Effective as of Closing, Seller waives any noncompetition
or other restrictions in any agreement between Seller and any Transferred
Employee with respect to any employment by Purchaser. The parties acknowledge
and agree that it is not the intention of the parties that any Contracts of
employment of any employees of Seller shall be assumed by Purchaser as a result
of the Transaction. Seller shall use commercially reasonable efforts to (a)
encourage the Transferred Employees to continue their employment with Seller
until Closing and thereupon to accept employment with Purchaser and (b) assist
Purchaser in employing Transferred Employees.
8.2 EMPLOYEE BENEFIT ARRANGEMENTS. In order to secure an orderly and
effective transition of the employee benefit arrangements for Transferred
Employees and their respective beneficiaries and dependents, Seller and
Purchaser shall cooperate, both before and after the Closing Date, to (a)
exchange information related to the Transferred Employees, including employment
records, benefits information, and financial statements and (b) take any other
actions with respect to the Transferred Employees and their respective
beneficiaries and dependents.
8.3 POST-CLOSING EMPLOYEE BENEFITS.
(a) After the Closing, Purchaser shall arrange for each Transferred
Employee to receive benefits under Purchaser's benefit plans that are, in the
aggregate and taking into account benefits provided pursuant to the provisions
of applicable law, no less favorable in substance than those provided to other
similarly situated (as to seniority, job description, salary
38
and location) employees of Purchaser and its subsidiaries from time to time (the
"Purchaser Plans"); provided, however, that this Section 8.3(a) shall not
obligate Purchaser to provide any particular benefit plans nor shall it limit
Purchaser's general ability to modify, amend, or terminate any of its benefit
plans.
(b) Purchaser shall issue shares of its restricted stock and options
to purchase common stock at fair market value on the date of grant to the
persons and in the amounts listed on Schedule 8.3(b) as soon as reasonably
practicable following the Closing, subject to Purchaser first obtaining any
necessary federal and state securities law qualifications, permits and
registrations in connection therewith; provided that as to any such person the
person shall not have exercised any option to acquire equity securities of
Seller after the date hereof. In the event any person on Schedule 8.3(b)
exercises any such option, the Purchase Price shall be adjusted as set forth in
Section 2.2 (e) and such person shall receive no restricted stock pursuant to
this Section 8.3(b). Purchaser shall, at its sole expense, use commercially
reasonable efforts to obtain any necessary federal and state securities law
qualifications, permits and registrations in connection with such issuances.
Purchaser shall further, at its sole expense, use commercially reasonable
efforts to register the shares of restricted stock and options it issues
pursuant to this Section 8.3(b) with the Securities and Exchange Commission on
Form S-8. All of the shares subject to each respective grant of restricted stock
made pursuant to this Section 8.3(b) shall vest six (6) months after the
respective grant date; provided, however, that if Purchaser shall terminate the
employment of any such grantee without cause prior to the date that is six (6)
months after the applicable grant date, then such grantee's grant of restricted
stock pursuant to this Section 8.3(b) shall vest in full on the date of such
grantee's termination of employment. The remaining terms and conditions of each
such grant of restricted stock and option shall be as set forth in Purchaser's
standard form of Restricted Stock Award Agreement and Stock Option Award
Agreement.
(c) Subject to Section 8.3(a), nothing in Section 8.1 or this
Section 8.3 shall be construed to entitle any Transferred Employee to continue
his or her employment with Purchaser for any period of time, nor to interfere
with the rights of Purchaser or Seller to discharge or discipline any
Transferred Employee, to change the terms of any Transferred Employee's
employment, or to amend or terminate any employee benefit plans at any time.
8.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND OTHER OBLIGATIONS. Prior to the
Closing, at its sole cost and expense, Seller shall take all actions necessary
to comply with all appropriate Legal Requirements in connection with Seller's
employment of its employees, including any Legal Requirements under the WARN
Act. Seller shall be solely responsible, before and after the Closing, for the
payment of any amounts required to be paid under any Legal Requirement,
including the WARN Act and any similar state laws, as a result of the
termination or layoff of any employee of Seller who is not a Transferred
Employee in connection with this Transaction. Prior to the Closing, Seller shall
perform all of its contractual and other obligations in connection with the
employment of its employees.
8.5 NO BENEFIT TO SELLER EMPLOYEES INTENDED. This Article 8 is not
intended to, and does not, create any rights or obligations to or for the
benefit of anyone other than Purchaser and Seller.
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ARTICLE 9. CONDITIONS TO CLOSING
9.1 CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE. The obligations of
Purchaser to consummate the Transaction shall be subject to the satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by Purchaser in writing:
(a) Representations, Warranties and Covenants. (i) All of the
representations and warranties of Seller in this Agreement shall have been true
and correct in all material respects (considered collectively and individually)
as of the date of this Agreement and shall be true and correct in all material
respects (considered collectively and individually) as of the Closing Date (or,
to the extent such representations and warranties speak only as of an earlier
date, they shall be true and correct in all material respects as of such earlier
date); (ii) all of the representations and warranties of Seller in Sections 4.4
and 4.7 of this Agreement and all of the other representations and warranties of
Seller in this Agreement that contain an express materiality qualification shall
have been true and correct in all respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all respects (considered collectively and individually) as of the Closing Date
(or, to the extent such representations and warranties speak only as of an
earlier date, they shall be true and correct in all respects as of such earlier
date); and (iii) Seller shall have performed, in all material respects
(considered collectively and individually), all covenants and obligations in
this Agreement required to be performed by Seller as of the Closing Date;
(b) Documents. Seller shall have delivered to Purchaser all of the
documents and agreements set forth in Sections 3.2 and 3.4;
(c) Consents. Seller shall have delivered to Purchaser all
Assignment Consents and other Consents (a) required (i) for the transfer of the
Business and the Purchased Assets (other than Seller Contracts and Government
Approvals) or (ii) for the consummation of the Transaction (other than the
transfer or assignment to Purchaser of any Seller Contracts and Government
Approvals in connection therewith) and (b) listed on Schedule 9.1(c); provided,
however, that if Seller shall not have obtained any Consent with respect to a
Contract listed on Schedule 9.1(c), in lieu thereof, Seller shall have entered
into a subcontract with Purchaser reasonably acceptable in form and substance to
each of them under which Seller engages Purchaser, and Purchaser agrees, to
perform the services required under such Contract on a pass-through basis;
(d) Estoppel Letters. Seller shall have delivered to Purchaser
Estoppel Letters, substantially in the form attached hereto as Exhibit 9.1(d)
(the "Estoppel Letters"), from each lessor of Real Property or Personal
Property;
(e) Opinion of Counsel. Seller shall have delivered to Purchaser an
Opinion of Seller's counsel, substantially in the form attached hereto as
Exhibit 9.1(e) ("Opinion of Seller's Counsel");
(f) No Proceedings. Since the date of this Agreement, no Proceeding
shall have been commenced or threatened against Purchaser, or against any
Representative of Purchaser (i) involving any challenge to, or seeking Damages
or other relief in connection with,
40
the Transaction; or (ii) that may have the effect of preventing, delaying,
making illegal, imposing limitations or conditions on or otherwise interfering
with the Transaction; and
(g) Material Adverse Condition. Seller shall not have suffered a
Material Adverse Effect since the date of this Agreement.
9.2 CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. The obligations of Seller
to consummate the Transaction shall be subject to the satisfaction, on or prior
to the Closing Date, of each of the following conditions, any of which may be
waived by Seller in writing:
(a) Representations, Warranties and Covenants. (i) All of the
representations and warranties of Purchaser in this Agreement shall have been
true and correct in all material respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all material respects (considered collectively and individually) as of the
Closing Date (or, to the extent such representations and warranties speak only
as of an earlier date, they shall be true and correct in all material respects
as of such earlier date); (ii) all of the representations and warranties of
Purchaser in this Agreement that contain an express materiality qualification
shall have been true and correct in all respects (considered collectively and
individually) as of the date of this Agreement and shall be true and correct in
all respects (considered collectively and individually) as of the Closing Date
(or, to the extent such representations and warranties speak only as of an
earlier date, they shall be true and correct in all respects as of such earlier
date); and (iii) Purchaser shall have performed, in all material respects
(considered collectively and individually), all covenants and obligations in
this Agreement required to be performed by Purchaser as of the Closing Date;
(b) Deliveries. Purchaser shall have delivered to Seller all of the
documents and agreements set forth in Sections 3.3 and 3.4;
(c) Restricted Stock Approval. Purchaser's Board of Directors or
Compensation Committee shall have duly authorized and approved the issuances of
restricted stock and options to be issued pursuant to Section 8.3(b) and the
options and restricted stock to be issued pursuant to the Employment Agreements,
subject only to Purchaser obtaining any necessary federal and state securities
law qualifications, permits and registrations in connection with such issuances,
and shall have reserved a sufficient number of shares of Purchaser's common
stock to satisfy its obligations under Section 8.3(b);
(d) Consents. Purchaser shall have delivered to Seller all Consents
listed on Schedule 5.3;
(e) Opinion of Counsel. Purchaser shall have delivered to Seller an
Opinion of Purchaser's counsel, substantially in the form attached hereto as
Exhibit 9.2(e) ("Opinion of Purchaser's Counsel") and
(f) Material Adverse Condition. Purchaser shall not have suffered a
Material Adverse Effect since the date of this Agreement.
9.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CLOSE. The respective
obligations of each party to this Agreement to consummate the Transaction shall
be subject to the
41
satisfaction, on or prior to the Closing Date, of each of the following
condition(s), any of which may be waived by Purchaser or Seller, as applicable,
in writing:
(a) No Legal Impediments to Closing. There shall not be in effect
any Order issued by any Governmental Authority preventing the consummation of
the Transaction, seeking any Damages as a result of the Transaction, or
otherwise affecting the right or ability of Purchaser to own, operate or control
the Business, the Purchased Assets or the Assumed Liabilities, nor shall any
Proceeding be pending that seeks any of the foregoing. There shall not be any
Legal Requirement prohibiting Seller from selling or Purchaser from owning,
operating or controlling the Business, the Purchased Assets or the Assumed
Liabilities or that makes this Agreement or the consummation of the Transaction
illegal.
ARTICLE 10. TERMINATION
10.1 CIRCUMSTANCES FOR TERMINATION. At any time prior to the Closing, this
Agreement may be terminated by written notice explaining the reason for such
termination (without prejudice to other remedies which may be available to the
parties under this Agreement, at law or in equity):
(a) by the mutual written consent of Purchaser and Seller;
(b) by either Purchaser or Seller if (i) (A) the non-terminating
party is in material breach of any material provision of this Agreement and such
breach shall not have been cured within thirty (30) days of receipt by such
party of written notice from the terminating party of such breach or (B) the
non-terminating party is in breach of Section 6.3; and (ii) the terminating
party is not, on the date of termination, in material breach of any material
provision of this Agreement;
(c) by either Purchaser or Seller if (i) the Closing has not
occurred on or prior to the date that is sixty (60) days after the date hereof
(the "Outside Closing Date") for any reason; and (ii) the terminating party is
not, on the date of termination, in material breach of any material provision of
this Agreement; and
(d) by either Purchaser or Seller if (i) satisfaction of a closing
condition of the terminating party in Article 9 is impossible; and (ii) the
terminating party is not, on the date of termination, in material breach of any
material provision of this Agreement.
10.2 EFFECT OF TERMINATION. Subject to Section 10.3, if this Agreement is
terminated in accordance with Section 10.1, all obligations of the parties
hereunder shall terminate, except for the obligations set forth in this Article
10; provided, however, that nothing herein shall relieve any party from
liability for the breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
10.3 FEES FOR TERMINATION. If (a) a party breaches Section 6.3 and this
Agreement terminates, (b) the other party has satisfied all closing conditions
contained in Article 9 for which the party is responsible, and (c) a Competing
Transaction is consummated by the breaching party then the breaching party shall
promptly pay the nonbreaching party One Million Dollars ($1,000,000) as a
termination fee ("Fee").
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ARTICLE 11. INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller or Purchaser in this Agreement or any other Transaction
Agreement shall survive the Closing until the one year anniversary of the
Closing Date (the "Survival Date"); provided, however, that (a) all
representations and warranties under Section 4.25 shall survive until thirty
(30) days after expiration of all applicable statutes of limitations; and (b)
any claim for indemnification based upon a breach of any such representation or
warranty and asserted prior to the Survival Date by written notice in accordance
with Section 11.4 shall survive until final resolution of such claim. The
representations and warranties contained in this Agreement (and any right to
indemnification for breach thereof) shall not be affected by any investigation,
verification or examination by any party hereto or by any Representative of any
such party or by any such party's Knowledge of any facts with respect to the
accuracy or inaccuracy of any such representation or warranty.
11.2 INDEMNIFICATION BY SELLER. Subject to the limitations set forth in
this Article 11, Seller and Pencom Systems, Incorporated, shall jointly and
severally indemnify and hold harmless Purchaser and its Representatives from and
against any and all Damages, whether or not involving a third-party claim,
including attorneys' fees (collectively, "Purchaser Damages"), arising out of,
relating to or resulting from (a) any breach of a representation or warranty of
Seller contained in this Agreement or in any other Transaction Agreement; (b)
any breach of a covenant of Seller contained in this Agreement or in any other
Transaction Agreement; (c) Excluded Assets or Excluded Liabilities; (d) any
Taxes of Seller for any period or with respect to the Business or the Purchased
Assets attributable to a Pre-Closing Period; or (e) any amount by which the Net
Assets of the Business are less than One Million Dollars ($1,000,000) as
determined pursuant to Section 2.2; provided that Seller shall not be liable for
amounts pursuant to (e), above, to the extent Purchaser has received the Net
Asset Adjustment pursuant to Section 2.2(d).
11.3 INDEMNIFICATION BY PURCHASER. Subject to the limitations set forth in
this Article 11, Purchaser shall indemnify and hold harmless Seller and its
Representatives (collectively, the "Seller Indemnified Persons") from and
against any and all Damages, whether or not involving a third-party claim,
including attorneys' fees (collectively, "Seller Damages"), arising out of,
relating to or resulting from (a) any breach of a representation or warranty of
Purchaser contained in this Agreement or in any other Transaction Agreement; (b)
any breach of a covenant of Purchaser contained in this Agreement or in any
other Transaction Agreement; (c) an Assumed Liability; (d) any amount by which
the Net Assets of the Business exceed One Million Dollars ($1,000,000) as
determined pursuant to Section 2.2 or (e) the operation of the Business after
Closing; provided, that Purchaser shall not be liable for amounts pursuant to
(d), above, to the extent Seller has received the Net Asset Adjustment pursuant
to Section 2.2(d).
11.4 PROCEDURES FOR INDEMNIFICATION. The party making a claim under this
Article 11 is referred to as the "Indemnitee" and the party against whom such
claims are asserted under this Article 11 is referred as the "Indemnitor." All
claims by an Indemnitee under this Article 11 shall be asserted and resolved as
follows:
43
(a) In the event that any claim or demand by a third party for which
an Indemnitor would be liable to an Indemnitee hereunder is asserted against or
sought to be collected from such Indemnitee, the Indemnitee shall with
reasonable promptness (but in no event later than five (5) Business Days after
the Indemnitee knew or should have known about the existence of such claim)
notify in writing the Indemnitor of such claim or demand, specifying the nature
of the specific basis for such claim or demand, and the amount or the estimated
amount thereof to the extent then feasible which estimate shall not be
conclusive of the final amount of such claim and demand (the "Claim Notice"). To
the extent a claim will be made under the Indemnification Agreement among
Purchaser, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, notice shall also be
given in accordance with such Indemnification Agreement. Notwithstanding
anything herein to the contrary, failure of the Indemnitee to give the
Indemnitor notice as provided herein shall not relieve the Indemnitor of the
obligation hereunder except to the extent that the Indemnitor is prejudiced
thereby. The Indemnitor shall within ten (10) days of receipt of a Claim Notice
notify the Indemnitee whether it will defend such third party claim or demand on
behalf of the Indemnitee. In the event the Indemnitor elects to defend such
claim or demand on behalf of the Indemnitee, it shall retain counsel (who shall
be reasonably acceptable to the Indemnitee) to represent the Indemnitee and
shall pay the reasonable fees and disbursements of such counsel with regard
thereto; provided, however, that any Indemnitee is hereby authorized prior to
the date on which it receives written notice from the Indemnitor designating
such counsel, to retain counsel, whose fees and expenses shall be at the expense
of the Indemnitor, to file any motion, answer or other pleading and take such
other action which it reasonably shall deem necessary to protect its interests
or those of the Indemnitor until the date on which the Indemnitee received such
notice from the Indemnitor. In the event the Indemnitor elects to defend such
claim or demand, the Indemnitee shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless (x) the Indemnitor and the Indemnitee shall have mutually
agreed in writing to the retention of such counsel or (y) the named parties of
any such proceeding (including any impleaded parties) include both the
Indemnitor and the Indemnitee and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The Indemnitor shall not, in connection with any proceedings or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one such firm for the Indemnitee (except to the extent the
Indemnitee retained counsel to protect its (or the Indemnitor's) right prior to
the selection of counsel by the Indemnitor as set forth above). If requested by
the Indemnitor, the Indemnitee agrees to cooperate with the Indemnitor and its
counsel in contesting any claim or demand which the Indemnitor defends. A claim
or demand may not be settled by the Indemnitor without the prior written consent
of the Indemnitee unless the settlement is for cash and as part of such
settlement the Indemnitee shall receive a full and unconditional release
reasonably satisfactory to the Indemnitee. If the Indemnitor does not elect to
defend such third party claim or demand or does not defend such third party
claim or demand in good faith, the Indemnitee shall have the right, in addition
to any other right or remedy it may have hereunder, at the Indemnitor's
reasonable expense, to defend such third party claim or demand; provided,
however, that (a) the Indemnitor shall not have any obligation to participate in
the defense of, or defend, any such third party claim or demand; and (b) the
Indemnitor's defense of, or its participation in the defense of any such third
party claim or demand, shall not in any way diminish or lessen the obligations
of the Indemnitor under the agreements of indemnification set forth in this
Article 11.
44
(b) In the event any Indemnitee shall have a claim against any
Indemnitor hereunder which does not involve a claim or demand being asserted
against or sought to be collected from it by a third party, the Indemnitee shall
send a written Claim Notice with respect to such claim to the Indemnitor. If the
Indemnitor does not notify the Indemnitee within twenty (20) Business Days of
receipt of such Claim Notice that it disputes such claim, the amount of such
claims shall be conclusively deemed a liability of the Indemnitor hereunder.
(c) So long as any right to indemnification exists pursuant to this
Article 11, the affected parties each agree to retain all books and records
related to the Claim Notice. In each instance where the Indemnitor elects to
defend a claim or demand on behalf of the Indemnitee, the Indemnitee shall have
the right to be kept fully informed by the Indemnitor and its legal counsel with
respect to any legal proceedings. Any information or documents made available to
any party hereunder and designated as confidential by the party providing such
information or documents and which is not otherwise generally available to the
public and not already within the knowledge of the party to whom the information
is provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third party (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which is otherwise required
hereunder to be kept confidential.)
11.5 LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding anything herein to the contrary, Seller shall
not be obligated to indemnify Purchaser under this Article 11: (i) unless the
aggregate of all Purchaser Damages exceeds One Hundred Fifty Thousand Dollars
($150,000) (the "Seller's Basket"), in which case the Purchaser shall be
entitled to recover all Purchaser Damages in excess of the Seller's Basket
(provided, however, that notwithstanding the foregoing, if Purchaser shall
suffer any individual loss or series of related losses which is indemnifiable
under this Articles 11 and is in excess of One Hundred Fifty Thousand Dollars
($150,000), then Purchaser shall be entitled to recover all Purchaser Damages);
or (ii) to the extent the aggregate of all Purchaser Damages exceeds the
Purchase Price ("Seller's Indemnification Cap"); provided, however, that the
Seller's Basket and the Seller's Indemnification Cap shall not apply to any
Seller indemnification obligation (x) arising out of, relating to or resulting
from fraud or intentional misrepresentation by Seller; (y) arising out of,
relating to or resulting under Section 11.2(b), (c), (d) or (e), Section 4.4 or
Section 4.14(a); or (z) if the Transaction does not close.
(b) Notwithstanding anything herein to the contrary, Purchaser shall
not be obligated to indemnify Seller under this Article 11: (i) unless the
aggregate of all Seller Damages exceeds One Hundred Fifty Thousand Dollars
($150,000) (the "Purchaser's Basket"), in which case Seller shall be entitled to
recover all Seller Damages in excess of the Purchaser's Basket; or (ii) to the
extent that the aggregate of all Seller Damages exceeds Three Million Dollars
($3,000,000) (the "Purchaser's Indemnification Cap"); provided, however, that
the Purchaser's Indemnification Cap and the Purchaser's Basket shall not apply
to any Purchaser indemnification obligation (x) arising out of, relating to or
resulting from fraud or intentional misrepresentation by Purchaser; (y) arising
out of, relating to or resulting under Section 11.3(b) or (c); or (z) if the
Transaction does not close.
45
11.6 SOLE REMEDY. Except with respect to fraud or gross negligence,
indemnification under this Article 11 shall be the sole recourse and remedy
available for matters arising out of the Transaction.
11.7 SET OFF. Purchaser shall be permitted to satisfy claims for
indemnification hereunder by offsetting the amount owed for indemnification
against amounts owed under the Note. In addition to any rights of setoff that
any Person may have at common law or otherwise, each Person shall have the right
to set off any amount that may be owed to it by the other under this Article 11
against any amount otherwise payable by such Person hereunder.
ARTICLE 12. MISCELLANEOUS PROVISIONS
12.1 EXPENSES. Subject to Section 10.3, whether or not the Transaction is
consummated, each party shall pay its own costs and expenses in connection with
this Agreement and the Transaction (including the fees and expenses of its
advisers, accountants and legal counsel).
12.2 FURTHER ASSURANCES. Each party agrees (a) to furnish upon request to
each other party such further information, (b) to execute and deliver to each
other party such other documents, and (c) to do such other acts and things, all
as another party may reasonably request for the purpose of carrying out the
intent of this Agreement and the Transaction.
12.3 AMENDMENTS AND WAIVERS. This Agreement may not be amended,
supplemented or modified except by an agreement in writing signed by each of the
parties. Any party may waive compliance by any other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform with respect to such waiving party; provided, however, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver. Neither the failure
nor any delay on the part of either party to exercise any right, remedy, power
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise of the same or of any other right, remedy, power
or privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence.
12.4 NOTICES. All notices, consents, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received (i) when
delivered personally or by telecopy, (ii) one (1) day following the day when
deposited with a reputable, established overnight courier service for delivery
to the intended addressee, or (iii) three (3) days following the day when
deposited with the United States Postal Service as first class, registered or
certified mail, postage prepaid and addressed as set forth below:
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(a) If to Collective Technologies, LLC:
c/o Pencom Systems, Incorporated
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy, given in the manner prescribed above, to:
Wick ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to MTI Technology Corporation:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy, given in the manner prescribed above, to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may alter its notice address by notifying the other parties of
such change of address in conformity with the provisions of this section.
12.5 GOVERNING LAW. This Agreement is to be construed in accordance with
and governed by the internal laws of the State of Delaware, without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of Delaware to the
rights and duties of the parties.
12.6 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of
or relating to this Agreement or the breach thereof, whether based on contract,
tort, statute or other legal or equitable theory (the "Dispute") shall be
settled by binding arbitration administered by the American Arbitration
Association in accordance with its applicable rules then in effect. The
47
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16. The award of the arbitrator shall be final and binding, and
judgment on the award may be entered, confirmed and enforced in any court having
jurisdiction thereof. The place of the arbitration shall be Dover, Delaware;
however, preliminary conferences and hearings may be held in such other
place(s), or by telephone, as the arbitrator(s) or the parties select from time
to time for the purpose of compelling or receiving testimony or documentary
evidence or otherwise.
12.7 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.
12.8 ASSIGNMENTS PROHIBITED; SUCCESSORS AND ASSIGNS. No party shall
assign, or suffer or permit an assignment (by operation of law or otherwise) of,
its rights or obligations under or interest in this Agreement without the prior
written consent of the other parties. Any purported assignment or other
disposition by a party, except as permitted herein, shall be null and void. In
the event of a breach of this provision, the non-breaching party shall have the
option, in addition to any other remedy available at law or in equity, to
terminate this Agreement at any time subsequent to such breach. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and permitted assigns.
12.9 NO THIRD-PARTY BENEFICIARIES. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors and permitted assigns, and the parties do not intend to
confer third-party beneficiary rights upon any other person.
12.10 COUNTERPARTS. This Agreement may be executed (including, without
limitation, by facsimile signature) in one or more counterparts, with the same
effect as if the parties had signed the same document. Each counterpart so
executed shall be deemed to be an original, and all such counterparts shall be
construed together and shall constitute one agreement.
12.11 ENTIRE AGREEMENT. This Agreement and the other Transaction
Agreements contain the entire understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written. The parties intend that this Agreement and the other
Transaction Agreements be the several, complete and exclusive embodiment of
their agreement, and that any evidence, oral or written, of a prior or
contemporaneous agreement that alters or modifies this Agreement shall not be
admissible in any Proceeding concerning this Agreement. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof.
12.12 INTERPRETATION. Unless otherwise indicated herein, with respect to
any reference made in this Agreement to a Section (or Article, Subsection,
Paragraph, Subparagraph or Clause), Exhibit or Schedule, such reference shall be
to a section (or article, subsection, paragraph, subparagraph or clause) of, or
an exhibit or schedule to, this Agreement. The table of contents and any
article, section, subsection, paragraph or subparagraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Any reference made in this
Agreement to a statute or statutory
48
provision shall mean such statute or statutory provision as it has been amended
through the date as of which the particular portion of the Agreement is to take
effect, or to any successor statute or statutory provision relating to the same
subject as the statutory provision so referred to in this Agreement, and to any
then-applicable rules or regulations promulgated thereunder. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed, as the context indicates, to be followed by the words "but (is/are) not
limited to." The words "herein," "hereof," "hereunder" and words of like import
shall refer to this Agreement as a whole (including its Schedules and Exhibits),
unless the context clearly indicates to the contrary (for example, that a
particular section, schedule or exhibit is the intended reference). Words used
herein, regardless of the number and gender specifically used, shall be deemed
and construed to include any other number, singular or plural, and any other
gender, masculine, feminine or neuter, as the context indicates is appropriate.
Where specific language is used to clarify or illustrate by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict the construction of the general statement which is
being clarified or illustrated.
12.13 NUMBER OF DAYS. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or holiday on which national banks are or may elect to be closed, then
the final day shall be deemed to be the next day which is not a Saturday, Sunday
or such holiday.
12.14 CONSTRUCTION. The construction of this Agreement shall not take into
consideration the party who drafted or whose representative drafted any portion
of this Agreement, and no canon of construction shall be applied that resolves
ambiguities against the drafter of a document. Each party acknowledges that: (a)
it has read this Agreement; (b) it has been represented in the preparation,
negotiation and execution of this Agreement by legal counsel of its own choice
or has voluntarily declined to seek such counsel; and (c) it understands the
terms and consequences of this Agreement and is fully aware of the legal and
binding effect of this Agreement.
12.15 PROVISIONAL RELIEF; SPECIFIC PERFORMANCE. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement are not performed in accordance with their specific terms or were
otherwise breached. Accordingly, it is agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any state
or federal court of the State of Delaware, in addition to any other remedy to
which they are entitled at law or in equity.
12.16 RECOVERY OF FEES BY PREVAILING PARTY. If any legal action,
including, without limitation, an action for arbitration or injunctive relief,
is brought relating to this Agreement or the breach or alleged breach hereof,
the prevailing party in any final judgment or arbitration award, or the
non-dismissing party in the event of a voluntary dismissal by the party
instituting the action, shall be entitled to the full amount of all reasonable
expenses, including all court costs, arbitration fees and actual attorneys' fees
paid or incurred in good faith.
49
12.17 DISCLOSURE LETTER. The disclosures in the Disclosure Letters, and
those in any supplement thereto, shall be deemed to relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement. In the event of any inconsistency between the statements in the body
of this Agreement and those in the Disclosure Letters (other than an exception
expressly set forth as such in the Disclosure Letters with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
12.18 TIME OF THE ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
12.19 CONFIDENTIALITY; PUBLICITY. The parties acknowledge that the
transaction described herein is of a confidential nature and shall not be
disclosed prior to the Closing except to consultants, advisors and Affiliates,
or as required by law. None of the parties hereto shall make any public
disclosure of the terms of this Agreement prior to the Closing, except as
required by law. In the event disclosure is required under applicable law, the
party making such disclosure shall use reasonable efforts to provide the other
with a reasonable opportunity to review and comment on the disclosure in advance
of its release. The parties shall endeavor to make only those press releases or
other public disclosures as are required by law. In the event disclosure is
required under applicable law, the party providing such disclosure shall use
reasonable efforts to provide the other with a reasonable opportunity to review
and comment on such disclosure in advance of its release.
12.20 CUMULATIVE REMEDIES. The rights and remedies of either party as set
forth in this Agreement are not exclusive and are in addition to any other
rights and remedies now or hereafter provided by law or at equity.
12.21 LIQUIDATED DAMAGES. The parties agree that the Fee provided in
Section 10.3 is fair and reasonable in light of the anticipated harm that would
ensue from any event triggering payment of the Fee, the difficulties in proving
the loss and ascertaining the amount of loss to the aggrieved party, the
limitation on liability herein and the inconvenience or non-feasibility of
otherwise obtaining an adequate remedy. The parties further acknowledge and
agree that the Fee is not a penalty. If a court of competent jurisdiction shall
nonetheless, by a final, non-appealable judgment, determine that the amount of
the Fee exceeds the maximum amount permitted by law, then the amount of the Fee
shall be reduced to the maximum amount permitted by law in the circumstances, as
determined by such court of competent jurisdiction.
50
12.22 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES THAT ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 or 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURES FOLLOW ON A SEPARATE PAGE]
51
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by their respective officers thereunto duly authorized
all as of the date first written above.
"Purchaser"
MTI Technology Corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CEO
"Seller"
Collective Technologies, LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: CEO
Solely for purposes of Articles 2, 11 and 12
Pencom Systems, Incorporated
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: EXEC. VP
Signature Page
EXHIBIT A
CERTAIN DEFINITIONS
"Accenture Agreements" shall have the meaning specified in Section 1.2(f).
"Acknowledgements of License" shall have the meaning specified in Section
7.1(c).
"Affiliate" shall mean any member of the immediate family (including spouse,
brother, sister, descendant, ancestor or in-law) of any officer, director or
stockholder of Seller or any corporation, partnership, trust or other entity in
which Seller or any such family member has a five percent (5%) or greater
interest or is a director, officer, partner or trustee. The term Affiliate shall
also include any entity which controls, or is controlled by, or is under common
control with any of the individuals or entities described in the preceding
sentence.
"Affiliate Liabilities" shall have the meaning specified in Section 2.1(b).
"Agreement" shall mean the Asset Purchase Agreement to which this Exhibit A is
attached (including the Seller Disclosure Schedule and all other schedules and
exhibits attached hereto), as it may be amended from time to time.
"Assignment and Assumption" shall have the meaning specified in Section 3.2(b).
"Assignment Consent" shall have the meaning specified in Section 1.5(a).
"Assumed Liabilities" shall have the meaning specified in Section 1.3.
"Audited Closing Balance Sheet" shall have the meaning specified in Section
2.2(b).
"Audited Closing Balance Sheet Dispute Notice" shall have the meaning specified
in Section 2.2(c).
"Best Efforts" shall mean the efforts that a prudent Person desiring to achieve
a particular result would use in similar circumstances to achieve such result as
expeditiously as possible provided, however, that a person required to use his
Best Efforts under this Agreement will not be thereby required to take actions
that would result in a materially adverse change in the benefits to such person
of this Agreement and the Transaction, or to dispose of or make any change to
its business, expend any material funds or incur any other material burden.
"Books and Records" shall have the meaning specified in Section 1.1(n).
"Breach" shall mean the occurrence of any inaccuracy in or breach of, or any
failure to comply with or perform, a representation, warranty, covenant,
obligation or other provision of any Contract.
"Business" shall have the meaning set forth in the first Recital.
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"Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking and savings and loan institutions in the States of Texas or
California are authorized or required by law to be closed.
"Cash Amount" shall have the meaning specified in Section 2.1(a)(i).
"Claim Notice" shall have the meaning specified in Section 11.4(a).
"Closing" shall have the meaning specified in Section 3.1.
"Closing Date" shall have the meaning specified in Section 3.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competing Party" shall have the meaning specified in Section 6.3.
"Competing Transaction" shall have the meaning specified in Section 6.3.
"Competitive Activity" shall have the meaning specified in Section 7.6(b).
"Confidential Information" shall have the meaning specified in Section 7.7(b).
"Consent" shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Approval).
"Contract" shall mean any agreement, contract, consensual obligation, promise,
understanding, arrangement, commitment or undertaking of any nature (whether
written or oral and whether express or implied), whether or not legally binding.
"Contractors" shall have the meaning specified in Section 4.19(a).
"Copyrights" shall mean all copyrights, including in and to works of authorship
and all other rights corresponding thereto throughout the world, whether
published or unpublished, including rights to prepare, reproduce, perform,
display and distribute copyrighted works and copies, compilations and derivative
works thereof.
"Damages" shall mean and include any loss, damage, injury, decline in value,
lost opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including any legal fee, accounting fee, expert fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
"Defined Benefit Plan" shall mean either a plan described in Section 3(35) of
ERISA or a plan subject to the minimum funding standards set forth in Section
302 of ERISA and Section 412 of the Code.
"Deposits and Advances" shall have the meaning specified in Section 1.1(i).
"Dispute" shall have the meaning specified in Section 12.6.
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"Employee Benefit Plan" shall have the meaning specified in Section 3(3) of
ERISA.
"Employment Agreements" shall have the meaning specified in Section 3.2(f).
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, Order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
"Entity" shall mean any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust or company (including any limited liability company or
joint stock company).
"Environmental Laws" shall mean all federal, state, local or foreign Legal
Requirements relating to pollution, protection of human health or the
environment, or Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, that would be treated as a single employer with Seller under
Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Estoppel Letters" shall have the meaning specified in Section 9.1(d).
"Excluded Assets" shall have the meaning specified in Section 1.2.
"Excluded Liabilities" shall have the meaning specified in Section 1.4.
"Exercise All Rights" shall mean to exercise or practice any and all rights now
or hereafter provided by law (by treaty, statute, common law or otherwise)
anywhere in the world to inventors, authors, creators and/or owners of
intellectual or intangible property; including the right to make, use, disclose,
sell, offer to sell, distribute, import, rent, lease, lend, reproduce, prepare
derivative works of and otherwise modify, perform and display (whether publicly
or otherwise), broadcast, transmit, use and/or otherwise exploit such
intellectual or intangible property and/or any product, component or service
embodying, related to or subject to such intellectual or intangible property;
and the right to assign, transfer, license and/or sublicense (with the right to
sublicense further) any of the foregoing, and the right to have and/or authorize
others do any of the foregoing.
"Fee" shall have the meaning specified in Section 10.3.
"Final Resolution Date" shall have the meaning specified in Section 2.2(b).
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"Financial Statements" shall have the meaning specified in Section 4.7(a).
"GAAP" means U.S. generally accepted accounting principles in effect on the date
on which they are to be applied pursuant to this Agreement, applied consistently
throughout the relevant periods.
"General Assignment and ▇▇▇▇ of Sale" shall have the meaning specified in
Section 3.2(a).
"Governmental Approval" shall mean any: (a) permit, license, certificate,
concession, approval, consent, ratification, permission, clearance,
confirmation, exemption, waiver, franchise, certification, designation, rating,
registration, variance, qualification, accreditation or authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Authority or pursuant to any Legal Requirement; or (b) right under
any Contract with any Governmental Authority.
"Governmental Authority" shall mean any: (a) nation, principality, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal); (d) multinational organization or body; or (e) individual, Entity or
body exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of any
nature.
"Hazardous Materials" shall mean any substance, chemical, waste or other
material which is listed, defined or otherwise identified as hazardous, toxic or
dangerous under any applicable law; as well as any petroleum, petroleum product
or by-product, crude oil, natural gas, natural gas liquids, liquefied natural
gas, or synthetic gas useable for fuel, and "source," "special nuclear," and
"by-product" material as defined in the Atomic Energy Act of 1954, 42 U.S.C.
Sections 2011 et seq.
"Indemnification Agreements" shall have the meaning specified in Section 6.9.
"Indemnitee" shall have the meaning specified in Section 11.4.
"Indemnitor" shall have the meaning specified in Section 11.4.
"Independent Accounting Firm" shall have the meaning specified in Section
2.2(c).
"Intellectual Property Rights" shall mean any or all rights in and to
intellectual property and intangible industrial property rights, including,
without limitation, Patents, Trade Secrets, Copyrights, Mask Works, Trademarks,
and any and all rights similar, corresponding or equivalent to any of the
foregoing anywhere in the world, together with (i) all registrations and
applications for registrations therefor and (ii) all rights to any of the
foregoing (including: (a) all rights received under any license or other
arrangement with respect to the foregoing, (b) all rights or causes of action
for infringement or misappropriation (past, present or future) of any of the
foregoing and (c) all rights to apply for or register any of the foregoing).
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"Interim Balance Sheet" shall have the meaning specified in Section 4.7(a).
"Interim Balance Sheet Date" shall have the meaning specified in Section 4.7(a).
"Inventory" shall have the meaning specified in Section 1.1(b).
"IRS" means the Internal Revenue Service.
"Knowledge" An individual shall be deemed to have "Knowledge" of a particular
fact or other matter if: (i) such individual is actually aware of such fact or
other matter or (ii) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of his normal
duties. Seller's Knowledge shall mean the Knowledge of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Purchaser's Knowledge shall mean the
Knowledge of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
"Leased Real Property" shall have the meaning set forth in Section 1.1(f).
"Legal Requirement" shall mean any federal, state, local, municipal, foreign or
other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, Order, edict, decree, proclamation, treaty,
convention, rule, regulation, permit, ruling, directive, pronouncement,
requirement (licensing or otherwise), specification, determination, decision,
opinion or interpretation that is, has been or may in the future be issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Authority.
"Liability" shall mean any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and payable.
"Lock-Up Agreement" shall have the meaning specified in Section 3.2(e).
"Machinery and Equipment" shall have the meaning specified in Section 1.1(c).
"Mask Works" shall mean all mask works, mask work registrations and applications
therefor, and any equivalent or similar rights in semiconductor masks, layouts,
architectures or topology.
"Material Adverse Effect" means (i) with respect to Purchaser, any event, change
or effect that, when taken individually or together with all other adverse
events, changes and effects, is or is reasonably likely (a) to be materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects of
Purchaser or its subsidiaries, taken as a whole or (b) to prevent or materially
delay consummation of the Transaction or otherwise to prevent Purchaser or its
subsidiaries from performing their obligations under this Agreement and (ii)
with respect to Seller, any event, change or effect that, when taken
individually or together with all other adverse events, changes and effects, is
or is reasonably likely (a) to be materially adverse to the condition (financial
or otherwise), properties,
A-5
assets (including Purchased Assets), liabilities (including Assumed
Liabilities), business, operations, results of operations or prospects of
Seller, its Subsidiaries, or the Business or (b) to prevent or materially delay
consummation of the Transaction or otherwise to prevent Seller from performing
its obligations under this Agreement; provided that in each such case it shall
exclude (w) general economic or conditions affecting the industry generally, (x)
announcement of the Transaction, and (y) changes in the reported stock price or
volume.
"Material Contracts" shall have the meaning specified in Section 4.13(a).
"Multiemployer Plan" shall mean a plan described in Section 3(37) of ERISA.
"Net Assets" shall have the meaning specified in Section 2.2(a).
"Net Asset Adjustment" shall have the meaning specified in Section 2.2(d).
"Non-Assignable Asset" shall have the meaning specified in Section 1.5(a).
"Noncompetition Period" shall have the meaning specified in Section 7.6(a).
"Note" shall have the meaning specified in Section 2.1(a)(ii).
"Opinion of Purchaser's Counsel" shall have the meaning specified in Section
9.2(e).
"Opinion of Seller's Counsel" shall have the meaning specified in Section
9.1(e).
"Order" shall mean any: (a) temporary, preliminary or permanent order, judgment,
injunction, edict, decree, ruling, pronouncement, determination, decision,
opinion, verdict, sentence, stipulation, subpoena, writ or award that is or has
been issued, made, entered, rendered or otherwise put into effect by or under
the authority of any court, administrative agency or other Governmental
Authority or any arbitrator or arbitration panel; or (b) Contract with any
Governmental Authority that is or has been entered into in connection with any
Proceeding.
"Ordinary Course of Business" shall describe any action taken by a party if (a)
such action is consistent with such party's past practices and is taken in the
ordinary course of such party's normal day to day operations; (b) such action is
taken in accordance with sound and prudent business practices; (c) such action
is not required to be authorized by such party's stockholders, board of
directors or any committee thereof and does not require any other separate or
special authorization of any nature; and (d) such action is similar in nature
and magnitude to actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal day to day operations of
other Entities that are engaged in businesses similar to such party's business.
"Outside Closing Date" shall have meaning specified in Section 10.1(c).
"Owned and Leased Vehicles" shall have the meaning specified in Section 1.1(d).
"Patents" shall mean all United States and foreign patents and utility models
and applications therefor and all reissues, divisions, re-examinations,
renewals, extensions, provisionals,
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continuations and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries, including invention
disclosures related to the Business or any Purchased Assets or Assumed
Liabilities.
"Permitted Encumbrances" shall mean any Encumbrance that (a) is clearly
reflected in the Financial Statements; (b) is a lien of a landlord, carrier,
warehouseman, mechanic, materialman, or any other lien arising in the Ordinary
Course of Business by operation of law with respect to liability that is not yet
due or delinquent; (c) is a lien for Taxes not yet due; or (d) is a purchase
money security interest arising in the Ordinary Course of Business.
"Person" shall mean any individual, Entity or Governmental Authority.
"Personal Property" shall have the meaning specified in Section 1.1(e).
"Personal Property Leases" shall have the meaning specified in Section 1.1(g).
"Post-Closing Period" shall mean any taxable period beginning after the close of
business on the day prior to Closing Date or, in the case of any tax period
which includes, but does not begin, after the close of business on the day prior
to Closing Date, the portion of such period beginning after the close of
business on the day prior to Closing Date.
"Pre-Closing Period" shall mean any taxable period ending on or before the close
of business on the day prior to Closing Date or, in the case of any taxable
period which includes, but does not end on, the day prior to Closing Date, the
portion of such period up to and including the day prior to Closing Date.
"Preliminary Closing Balance Sheet" shall have the meaning specified in Section
2.2(a).
"Proceeding" shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination
or investigation that is, has been or may in the future be commenced, brought,
conducted or heard at law or in equity or before any Governmental Authority or
any arbitrator or arbitration panel.
"PTO" shall have the meaning specified in Section 4.16(f).
"Purchase Price" shall have the meaning specified in Section 2.1(a).
"Purchased Assets" shall have the meaning specified in Section 1.1.
"Purchaser" shall mean MTI Technology Corporation, a Delaware corporation.
"Purchaser Damages" shall have the meaning specified in Section 11.2.
"Purchaser Disclosure Schedule" shall have the meaning specified in Article 5.
"Purchaser Plans" shall have the meaning specified in Section 8.3(a).
"Purchaser's Accountant" shall have the meaning specified in Section 2.2(b).
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"Purchaser's Indemnification Cap" shall have the meaning specified in Section
11.5(b).
"Purchaser's Basket" shall have the meaning specified in Section 11.5(b).
"Real Property" shall mean all real property, land, buildings, structures,
easements, appurtenances, improvements and fixtures.
"Real Property Leases" shall have the meaning specified in Section 1.1(f).
"Rebates and Credits" shall have the meaning specified in Section 1.1(j).
"Receivables" shall have the meaning specified in Section 1.1(a).
"Registered Intellectual Property Rights" shall mean all United States,
international and foreign: (a) Patents, including applications therefor; (b)
registered Trademarks, applications to register Trademarks, including
intent-to-use applications, or other registrations or applications related to
Trademarks; (c) Copyright registrations and applications to register Copyrights;
(d) Mask Work registrations and applications to register Mask Works; and (e) any
other Intellectual Property Rights 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.
"Representatives" shall mean officers, directors, employees, attorneys,
accountants, advisors, agents, distributors, licensees, shareholders,
subsidiaries and lenders of a party. In addition, all Affiliates of Seller shall
be deemed to be "Representatives" of Seller.
"Restricted Territory" shall have the meaning specified in Section 7.6(c).
"SEC Reports" shall have the meaning specified in Section 5.5(a).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean Collective Technologies, LLC, a Delaware limited liability
company.
"Seller Benefit Plans" shall mean any "employee benefit plan," as defined in
Section 3(3) of ERISA, any employment, severance or similar contract or
arrangement, or any plan, policy, fund, program or contract or arrangement
providing for compensation, bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangements), health
or medical benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
is maintained, administered, or contributed to by any ERISA Affiliate.
"Seller Claims" shall have the meaning specified in Section 1.1(m).
"Seller Contracts" shall have the meaning specified in Section 1.1(k).
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"Seller Damages" shall have the meaning specified in Section 11.3.
"Seller Disclosure Schedule" shall have the meaning specified in Article 4.
"Seller Intellectual Property" shall mean all Intellectual Property Rights
related to the Business, the Purchased Assets or the Assumed liabilities and
held by Seller, whether owned or controlled, licensed, owned or controlled by or
for, licensed to, or otherwise held by or for the benefit of Seller including
the Seller Registered Intellectual Property Rights.
"Seller Options" shall mean all outstanding options, whether vested or unvested,
granted, awarded or issued from or under the Seller Stock Option Plan.
"Seller Registered Intellectual Property Rights" shall have the meaning
specified in Section 4.16(a).
"Seller Stock Option Plan" means the 1997 Stock Option/Stock Issue and Plan of
Seller, as amended and restated as of March 1, 2002.
"Seller's Accountant" shall have the meaning specified in Section 2.2(b).
"Seller's Basket" shall have the meaning specified in Section 11.5(a).
"Seller's Indemnification Cap" shall have the meaning specified in Section
11.5(a).
"Seller's Indemnified Person" shall have the meaning specified in Section 11.3.
"Shares" shall have the meaning specified in Section 2.1(a)(iii).
"Subsidiary" means another Person, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its board of directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by such first Person
"Survival Date" shall have the meaning specified in Section 11.1.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount and any interest
on such penalty, addition to tax or additional amount, imposed by any Tax
Authority.
"Tax Authority" means Governmental Authority responsible for the imposition,
assessment or collection of any Tax (domestic or foreign).
"Tax Return" shall mean any return, statement, declaration, notice, certificate
or other document that is or has been filed with or submitted to, or required to
be filed with or submitted to, any
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Governmental Authority in connection with the determination, assessment,
collection or payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance with any Legal Requirement
related to any Tax.
"Trade Secrets" shall mean all trade secrets under applicable law and other
rights in know-how and confidential or proprietary information, processing,
manufacturing or marketing information, including new developments, inventions,
processes, ideas or other proprietary information that provide Seller with
advantages over competitors who do not know or use it and documentation thereof
(including related papers, blueprints, drawings, chemical compositions,
formulae, diaries, notebooks, specifications, designs, methods of manufacture
and data processing software, compilations of information) and all claims and
rights related thereto.
"Trademarks" shall mean any and all trademarks, service marks, logos, trade
names, corporate names, Internet domain names and addresses and general-use
e-mail addresses, and all goodwill associated therewith throughout the world.
"Transaction" shall mean, collectively, the transactions contemplated by this
Agreement.
"Transaction Agreements" shall mean this Agreement and all other agreements,
certificates, instruments, documents and writings delivered by Purchaser and/or
Seller in connection with the Transaction.
"Transferred Employees" shall have the meaning specified in Section 8.1.
"Transfer Taxes" shall mean all federal, state, local or foreign sales, use,
transfer, real property transfer, mortgage recording, stamp duty, value-added or
similar Taxes that may be imposed in connection with the transfer of Purchased
Assets or assumption of Assumed Liabilities, together with any interest,
additions to Tax or penalties with respect thereto and any interest in respect
of such additions to Tax or penalties.
"Vacation Accrual" shall have the meaning specified in Section 1.3(c).
"WARN Act" shall have the meaning specified in Section 4.19(e).
"Warrant" shall have the meaning specified in Section 2.1(a)(iv).
"▇▇▇▇▇ Fargo Agreement" shall have the meaning specified in Section 2.1(b).
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