EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
dated October 15, 2007
by and among
BEACON ENTERPRISE SOLUTIONS GROUP, INC.,
CETCON INCORPORATED
and
all of the Shareholders of CETCON Incorporated
TABLE OF CONTENTS
Page
ARTICLE I THE ASSET PURCHASE......................................1
1.1 Purchase and Sale of Assets.................................1
1.2 Assumption of Liabilities...................................1
1.3 Purchase Price..............................................2
1.4 Escrow......................................................2
1.5 The Closing.................................................2
1.6 Allocation..................................................3
1.7 Further Assurances..........................................3
1.8 Withholding.................................................4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER............4
2.1 Organization, Qualification and Corporate Power.............4
2.2 Capitalization..............................................4
2.3 Authorization of Transaction.................................
2.4 Noncontravention............................................5
2.5 Subsidiaries................................................5
2.6 Financial Statements........................................5
2.7 Absence of Certain Changes..................................6
2.8 Undisclosed Liabilities.....................................6
2.9 Tax Matters.................................................6
2.10 Ownership and Condition of Assets...........................8
2.11 Owned Real Property.........................................8
2.12 Real Property Leases........................................8
2.13 Intellectual Property.......................................9
2.14 Contracts..................................................12
2.15 Accounts Receivable........................................13
2.16 Insurance..................................................14
2.17 Litigation.................................................14
2.18 Warranties.................................................14
2.19 Employees..................................................14
2.20 Employee Benefits..........................................15
2.21 Environmental Matters......................................16
2.22 Legal Compliance...........................................17
2.23 Customers and Suppliers....................................17
2.24 Permits....................................................17
2.25 Certain Business Relationships With Affiliates.............17
2.26 Brokers' Fees..............................................18
2.27 Books and Records..........................................18
2.28 Disclosure.................................................18
2.29 Projections................................................18
2.30 Government Contracts.......................................18
2.31 Securities Representations.................................19
(i)
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER............20
3.1 Organization and Corporate Power...........................20
3.2 Authorization of the Transaction...........................20
3.3 Noncontravention...........................................20
3.4 Capitalization.............................................20
3.5 No Prior Activities........................................21
3.6 Litigation.................................................21
ARTICLE IV PRE-CLOSING COVENANTS..................................21
4.1 Closing Efforts............................................21
4.2 Governmental and Third-Party Notices and Consents..........21
4.3 Exclusivity................................................22
4.4 Operation of Business......................................22
4.5 Access to Information......................................24
4.6 Notice of Breaches.........................................24
4.7 FIRPTA Tax Certificate.....................................25
ARTICLE V CONDITIONS TO CLOSING..................................25
5.1 Conditions to Obligations of the Buyer.....................25
5.2 Conditions to Obligations of the Seller....................27
ARTICLE VI POST-CLOSING COVENANTS.................................28
6.1 Proprietary Information....................................28
6.2 Solicitation and Hiring....................................28
6.3 Non-Competition............................................28
6.4 Tax Matters................................................29
6.5 Sharing of Data............................................30
6.6 Use of Name................................................30
6.7 Cooperation in Litigation..................................30
6.8 Collection of Accounts Receivable..........................31
6.9 Employees..................................................31
6.10 Enforcement of Insurance Claims............................31
6.11 Maintenance of Corporate Existence;
Distribution of Shares.....................................32
ARTICLE VII INDEMNIFICATION........................................32
7.1 Indemnification by the Seller..............................32
7.2 Indemnification by the Buyer...............................33
7.3 Indemnification Claims.....................................33
7.4 Survival of Representations and Warranties.................36
7.5 Treatment of Indemnity Payments............................37
7.6 Limitations................................................37
ARTICLE VIII TERMINATION............................................38
8.1 Termination of Agreement...................................38
8.2 Effect of Termination......................................39
ARTICLE IX DEFINITIONS............................................39
(ii)
ARTICLE X MISCELLANEOUS..........................................50
10.1 Press Releases and Announcements...........................50
10.2 No Third Party Beneficiaries...............................50
10.3 Entire Agreement...........................................50
10.4 Succession and Assignment..................................51
10.5 Counterparts and Facsimile Signature.......................51
10.6 Headings...................................................51
10.7 Notices....................................................51
10.8 Governing Law..............................................52
10.9 Amendments and Waivers.....................................52
10.10 Severability...............................................52
10.11 Expenses...................................................52
10.12 Submission to Jurisdiction.................................52
10.13 Specific Performance.......................................53
10.14 Construction...............................................53
Exhibits
Exhibit A - Secured Promissory Note
Exhibit B - Security Agreement
Exhibit C - ▇▇▇▇ of Sale
Exhibit D - Instrument of Assumption
Exhibit E - Opinion of Seller's counsel
Exhibit F - Escrow Agreement
Schedules
Schedule 1.1(b) -Specified Excluded Assets
Schedule 1.2(b) - Specified Retained Liabilities
Schedule 1.6 -Allocation of Purchase Price
Schedule 6.9 -Employees To Be Offered Employment By Buyer
Disclosure Schedule
(iii)
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of October __, 2007 by
and among BEACON ENTERPRISE SOLUTIONS GROUP, INC., an Indiana corporation (the
"Buyer"), CETCON INCORPORATED, an Ohio corporation (the "Seller") and the
shareholders of Seller (the "Shareholders").
This Agreement contemplates a transaction in which the Buyer will purchase
substantially all of the assets and assume certain of the liabilities of the
Seller.
Contemporaneously with the execution and delivery of this Agreement,
certain employees of the Seller have entered into employment agreements with the
Buyer, to become effective upon the Closing (the "Employment Agreements").
Capitalized terms used in this Agreement shall have the meanings ascribed
to them in Article IX.
In consideration of the representations, warranties and covenants herein
contained, the Parties agree as follows.
ARTICLE I
THE ASSET PURCHASE
1.1 Purchase and Sale of Assets.
(a) Upon and subject to the terms and conditions of this Agreement,
the Buyer shall purchase from the Seller, and the Seller shall sell, transfer,
convey, assign and deliver to the Buyer, at the Closing, for the consideration
specified below in this Article I, all right, title and interest in, to and
under the Acquired Assets.
(b) Notwithstanding the provisions of Section 1.1(a), the Acquired
Assets shall not include the Excluded Assets, including without limitation those
listed on Schedule 1.1(b).
1.2 Assumption of Liabilities.
(a) Upon and subject to the terms and conditions of this Agreement,
the Buyer shall assume and become responsible for, from and after the Closing,
the Assumed Liabilities.
(b) Notwithstanding the terms of Section 1.2(a) or any other
provision of this Agreement to the contrary, the Buyer shall not assume or
become responsible for, and the Seller shall remain liable for, the Retained
Liabilities, including without limitation those listed on Schedule 1.2(b).
(c) Immediately prior to the Closing, Seller shall pay and satisfy
in full all of the Retained Liabilities of Seller including those shown on the
Most Recent Balance Sheet, provided that the amounts paid shall be the amounts
of such liabilities as of the date of payment,
or shall have made, in the reasonable determination of the Buyer, adequate
provision for such Retained Liabilities.
1.3 Purchase Price. The Purchase Price to be paid by the Buyer for the
Acquired Assets shall be (a) $700,000.00 in cash (the "Cash Consideration"), (b)
900,000 shares (the "Shares") of Buyer Common Stock; and (c) a Secured
Promissory Note in the principal amount of $600,000.00, with a maturity date of
sixty (60) months from the date of Closing, and in the form attached hereto as
Exhibit A.
1.4 Escrow. At the Closing, the Buyer shall deliver to the Escrow Agent a
stock certificate registered in the name of the Escrow Agent or its nominee
representing the Escrow Fund for the purpose of securing the indemnification
obligations of the Seller and the Shareholders set forth in this Agreement. The
Escrow Fund shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Fund shall be held as a trust fund and
shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes of and in accordance with the terms of the Escrow
Agreement. Until the termination of the escrow in accordance with the terms of
the Escrow Agreement, the Seller shall have the right, in its sole discretion to
direct the sale for cash of all or any portion of the Escrow Shares (if any then
make-up a portion of the Escrow Fund) in one or more transactions provided that
(i) the price per share for the sale of the Escrow Shares is not less than
$1.00, (ii) the proceeds from any such sale(s) shall be held in escrow by the
Escrow Agent pursuant to the terms of the Escrow Agreement, and (iii) Seller may
not direct any such sale during any blackout period under any ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
policy or blackout policy of Buyer, and the Buyer shall promptly execute any and
all required joint instructions to the Escrow Agent to facilitate any and all
such sales of the Escrow Shares. Further, Seller shall have the sole discretion
to direct the investment of amounts held in the Escrow Fund pursuant to the
investment options specified in, and in accordance with the restrictions of, the
Escrow Agreement, and Buyer agrees to promptly execute any and all joint
instructions to the Escrow Agent to facilitate any and all such investments.
1.5 The Closing.
(a) The Closing shall take place at the offices of ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
LLC in Louisville, Kentucky commencing at 9:00 a.m. local time on the Closing
Date, or at such other place as the parties may mutually agree. All transactions
at the Closing shall be deemed to take place simultaneously, and no transaction
shall be deemed to have been completed and no documents or certificates shall be
deemed to have been delivered until all other transactions are completed and all
other documents and certificates are delivered.
(b) At the Closing:
(i) the Seller shall deliver to the Buyer the various
certificates, instruments and documents referred to in Section 5.1;
(ii) the Buyer shall deliver to the Seller the various
certificates, instruments and documents referred to in Section 5.2;
-2-
(iii) the Buyer shall execute and deliver to the Seller the
Secured Promissory Note in substantially the form attached hereto as Exhibit A
(iv) the Buyer and the Seller shall execute and deliver to
each other the Security Agreement in substantially the form attached hereto as
Exhibit B;
(v) the Seller shall execute and deliver to the Buyer a ▇▇▇▇
of sale in substantially the form attached hereto as Exhibit C and such other
instruments of conveyance as the Buyer may reasonably request in order to effect
the sale, transfer, conveyance and assignment to the Buyer of valid ownership of
the Acquired Assets;
(vi) the Buyer shall execute and deliver to the Seller an
instrument of assumption in substantially the form attached hereto as Exhibit D
and such other instruments as the Seller may reasonably request in order to
effect the assumption by the Buyer of the Assumed Liabilities;
(vii) the Buyer shall pay to the Seller, payable by wire
transfer or other delivery of immediately available U.S. funds to an account
designated by the Seller, the Cash Consideration;
(viii) the Buyer shall deliver to the Seller a stock
certificate registered in the name of the Seller representing a number of shares
of Buyer Common Stock as is equal to the number of Shares minus the number of
Escrow Shares;
(ix) the Buyer, the Seller and the Escrow Agent shall execute
and deliver the Escrow Agreement in substantially the form attached hereto as
Exhibit F and the Buyer shall deposit a stock certificate representing the
Escrow Shares with the Escrow Agent in accordance with Section 1.4;
(x) the Seller shall deliver to the Buyer, or otherwise put
the Buyer in possession and control of, all of the Acquired Assets of a tangible
nature; and
(xi) the Buyer and the Seller shall execute and deliver to
each other a cross-receipt evidencing the transactions referred to above.
1.6 Allocation. The Buyer and the Seller agree to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets and the
non-solicitation and non-competition covenants set forth in Sections 6.2 and 6.3
for all purposes (including financial accounting and tax purposes) in accordance
with the allocation schedule attached hereto as Schedule 1.6. Seller and Buyer
agree to use the allocations determined pursuant to this Section 1.6 for all tax
purposes, including without limitation, those matters subject to Section 1060 of
the Code, and the Treasury regulations promulgated thereunder. Buyer and Seller
shall prepare and submit to the other for review their IRS Forms 8594 within
ninety (90) days after Closing. Each party shall have thirty (30) days to
complete its review.
1.7 Further Assurances. At any time and from time to time after the
Closing, at the request of the Buyer and without further consideration, the
Seller shall execute and deliver such other instruments of sale, transfer,
conveyance and assignment and take such actions as the
-3-
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's rights to, title in and ownership of, the
Acquired Assets and to place the Buyer in actual possession and operating
control thereof.
1.8 Withholding. Notwithstanding any other provision of this Agreement,
each of the Buyer and the Escrow Agent shall be entitled to deduct and withhold
from the payments to be made pursuant to this Agreement and/or the Escrow
Agreement such amounts as it reasonably determines after consultation with its
Tax advisors that it is required to deduct and withhold with respect to the
making of such payments under the Code or any other applicable provision of law
and to collect Forms W-8 or W-9, as applicable, or similar information from the
Seller, the Shareholders and any other recipients of payments hereunder or
thereunder. To the extent that amounts are so withheld by the Buyer, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the recipient in respect of which such deduction and withholding
was made by the Buyer or Escrow Agent.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that, except as set forth
in the Disclosure Schedule, the statements contained in this Article II are true
and correct as of the date of this Agreement and will be true and correct as of
the Closing as though made as of the Closing, except to the extent such
representations and warranties are specifically made as of a particular date (in
which case such representations and warranties will be true and correct as of
such date). The Disclosure Schedule shall be arranged in sections and
subsections corresponding to the numbered and lettered sections and subsections
contained in this Article II. Disclosures in any section or subsection of the
Disclosure Schedule shall qualify such other sections or subsections of the
Disclosure Schedule to the extent it is reasonably apparent from the content of
such disclosure that such disclosure is relevant to such other sections or
subsections.
2.1 Organization, Qualification and Corporate Power. The Seller is a
corporation validly existing and in good standing under the laws of the State of
Ohio. The Seller is duly qualified to conduct business and is in good standing
under the laws of each jurisdiction listed in Section 2.1 of the Disclosure
Schedule, which jurisdictions constitute the only jurisdictions in which the
nature of the Seller's business or the ownership or leasing of its properties
requires such qualification. The Seller has all requisite power and authority to
carry on the business in which it is engaged and to own and use the properties
owned and used by it. The Seller has furnished to the Buyer complete and
accurate copies of its Articles of Incorporation and Bylaws. The Seller is not
in default under or in violation of any provision of its Articles of
Incorporation or Bylaws. There are no other agreements or instruments setting
forth (i) rights, preferences and privileges of the Shareholders with respect to
the Seller and/or among the Shareholders, or (ii) matters relating to the
operation and governance of the Seller.
2.2 Capitalization. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list, as of the date of this Agreement, of (i) all
Shareholders, indicating the number of shares of the Seller held by each
Shareholder and (ii) all outstanding options, warrants or other instruments
giving any party the right to acquire any shares or equity securities of the
Seller.
-4-
There are no outstanding agreements or commitments to which the Seller is a
party or which are binding upon the Seller for the redemption of any of its
equity. The Seller has only one class of shares outstanding. There are no
outstanding options, warrants or similar rights relating to the Seller or its
equity securities.
2.3 Authorization of Transaction. The Seller has all requisite power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform its obligations hereunder and thereunder. The performance by the
Seller of this Agreement and the Ancillary Agreements and the consummation by
the Seller of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary actions on the part of the Seller.
This Agreement has been duly and validly executed and delivered by the
Seller and constitutes, and each of the Ancillary Agreements, upon its execution
and delivery by the Seller, will constitute, a valid and binding obligation of
the Seller, enforceable against the Seller in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, arrangement or other similar laws from time to time in effect and
except as to the remedy of specific performance which may not be available under
the laws of various jurisdictions.
2.4 Noncontravention. Neither the execution and delivery by the Seller of
this Agreement or the Ancillary Agreements, nor the consummation by the Seller
of the transactions contemplated hereby or thereby, will (a) conflict with or
violate any provision of the Articles of Incorporation or Bylaws of the Seller,
(b) require on the part of the Seller any notice to or filing with, or any
permit, authorization, consent or approval of, any Governmental Entity, (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party the right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument to
which the Seller is a party or by which the Seller is bound or to which any of
its assets is subject, except with respect to contracts that are not customer
contracts listed on Section 2.4 of the Disclosure Schedules, for any such
conflict, breach, default, acceleration, or right to terminate, modify or
cancel, or failure to notify or obtain consent or waiver that would not have a
Seller Material Adverse Effect, (d) result in the imposition of any Security
Interest upon any asset or assets of the Seller or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Seller or any
of its properties or assets.
2.5 Subsidiaries. The Seller has no Subsidiaries. The Seller does not
control directly or indirectly or have any direct or indirect equity
participation or similar interest in any corporation, partnership, limited
liability company, joint venture, trust or other business association or entity.
2.6 Financial Statements. The Seller has provided to the Buyer the
Financial Statements. The Financial Statements (i) were prepared on a consistent
basis throughout the periods covered thereby (except as may be indicated in the
notes to such financial statements) and, in the case of the balance sheet and
statement of income, changes in shareholder's equity and cash flows of the
Seller as of the end of and for the year ended December 31, 2006, in accordance
with reasonable accounting practices, and (ii) fairly present the financial
position of the Seller as of the dates thereof and the results of its operations
and cash flows for the periods
-5-
indicated, consistent with the books and records of the Seller, except that the
unaudited interim financial statements are subject to normal and recurring
year-end adjustments which will not be material in amount or effect and do not
include footnotes.
2.7 Absence of Certain Changes. Except as set forth in Section 2.7 of the
Disclosure Schedules, since the Most Recent Balance Sheet Date, (a) there has
occurred no event or development which, individually or in the aggregate, has
had, or could reasonably be expected to have in the future, a Seller Material
Adverse Effect, and (b) the Seller has not taken any of the actions set forth in
paragraphs (a) through (n) of Section 4.4.
2.8 Undisclosed Liabilities. The Seller has no knowledge of any liability
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a) liabilities shown
on the Most Recent Balance Sheet, (b) contractual and other liabilities incurred
in the Ordinary Course of Business which are not required by GAAP to be
reflected on a balance sheet and which are not material, and (c) liabilities
which have arisen since the Most Recent Balance Sheet Date in the Ordinary
Course of Business and which are listed on Schedule 2.8.
2.9 Tax Matters.
(a) The Seller has properly filed on a timely basis all material Tax
Returns that it is and was required to file, and all such Tax Returns were true,
correct and complete in all material respects. The Seller has properly paid on a
timely basis all material Taxes, whether or not shown on its Tax Returns, that
were due and payable. All material Taxes that the Seller is or was required by
law to withhold or collect have been withheld or collected and, to the extent
required, have been properly paid on a timely basis to the appropriate
Governmental Entity. The Seller has complied with all information reporting and
back-up withholding requirements in all material respects, including maintenance
of the required records with respect thereto, in connection with amounts paid to
any employee, independent contractor, creditor or other third party.
(b) The unpaid Taxes of the Seller for periods through the date of
the Most Recent Balance Sheet Date do not materially exceed the accruals and
reserves for Taxes (excluding accruals and reserves for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the Most Recent Balance Sheet. All Taxes attributable to the period from and
after the Most Recent Balance Sheet Date and continuing through the Closing Date
are, or will be, attributable to the conduct by the Seller of its operations in
the Ordinary Course of Business.
(c) No examination or audit of any Tax Return of the Seller by any
Governmental Entity is currently in progress or, to the knowledge of the Seller,
threatened or contemplated. Section 2.9(c) of the Disclosure Schedule sets forth
each jurisdiction (other than United States federal) in which the Seller files,
or is required to file or has been required to file a material Tax Return or is
or has been liable for material Taxes on a "nexus" basis. The Seller has not
been informed by any jurisdiction that the jurisdiction believes that the Seller
was required to file any Tax Return that was not filed.
-6-
(d) The Seller is, and has been since its inception, validly
classified and treated as an "S corporation," having made a valid election under
Section 1362 of the Internal Revenue Code and has been validly treated in a
similar manner for purposes of the income Tax laws of all states in which it has
been subject to taxation.
(e) Except as set forth in Section 2.9(e) of the Disclosure
Schedules, the Seller has delivered or made available to the Buyer (i) complete
and correct copies of all Tax Returns of the Seller relating to Taxes for all
Taxable periods for which the applicable statute of limitations has not yet
expired and (ii) complete and correct copies of all private letter rulings,
revenue agent reports, information document requests, notices of assessment,
notices of proposed deficiencies, deficiency notices, protests, petitions,
closing agreements, settlement agreements, pending ruling requests and any
similar documents submitted by, received by or agreed to by or on behalf of the
Seller relating to Taxes for all Taxable periods for which the applicable
statute of limitations has not yet expired.
(f) The Seller has not (i) waived any statute of limitations with
respect to Taxes or agreed to extend the period for assessment or collection of
any Taxes, (ii) requested any extension of time within which to file any Tax
Return, which Tax Return has not yet been filed, or (iii) executed or filed any
power of attorney relating to Taxes with any Governmental Entity.
(g) The Seller is not a party to any litigation regarding Taxes.
(h) There are no Security Interests with respect to Taxes upon any
of the Acquired Assets, other than with respect to Taxes not yet due and
payable. To the Seller's and Shareholders' knowledge, there is no basis for the
assertion of any claim relating or attributable to Taxes, which, if adversely
determined, would result in any Security Interest on the Acquired Assets, or
would reasonably be expected to have, individually or in the aggregate, a Seller
Material Adverse Effect.
(i) None of the Acquired Assets (i) is property that is required to
be treated as being owned by any other person pursuant to the provisions of
former Section 168(f)(8) of the Internal Revenue Code of 1954, or (ii) is "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(j) The Seller has maintained complete and accurate records,
including all applicable exemption, resale or other certificates, of (i) all
sales to purchasers claiming to be exempt from sale and use Taxes based on the
exempt status of the purchaser, and (ii) all other sales for which sales Tax or
use Tax was not collected by the Seller and as to which the seller is required
to receive and retain resale certificates or other certificates relating to the
exempt nature of the sale or use or non-applicability of the sale and use Taxes.
(k) The Seller is not bound by any Tax indemnity, Tax sharing or Tax
allocation agreement.
(l) The Seller is not a "foreign person" within the meaning of
Section 1445 of the Code.
-7-
2.10 Ownership and Condition of Assets.
(a) The Seller is the true and lawful owner, and has good title to,
all of the Acquired Assets, free and clear of all Security Interests. Upon
execution and delivery by the Seller to the Buyer of the instruments of
conveyance referred to in Section 1.5(b)(iii), the Buyer will become the true
and lawful owner of, and will receive good title to, the Acquired Assets, free
and clear of all Security Interests, except for Security Interests created by
Buyer.
(b) The Acquired Assets are sufficient for the conduct of the
Seller's business as presently conducted and as presently proposed to be
conducted and constitute all assets used by the Seller in such business. Each
tangible Acquired Asset is free from material defects, has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
(c) Section 2.10(c) of the Disclosure Schedule lists individually
(i) all Acquired Assets which are fixed assets (within the meaning of GAAP)
having a book value greater than $1,000, indicating the cost, accumulated book
depreciation (if any) and the net book value of each such fixed asset as of the
Most Recent Balance Sheet Date, (ii) all other Acquired Assets of a tangible
nature (other than inventories) whose book value exceeds $5,000; and (iii) all
Acquired Assets that are Assigned Contracts and specifically identifying all
customer contracts.
(d) Except as set forth on Section 2.10(d) of the Disclosure
Schedule, each item of equipment, motor vehicle and other asset that is being
transferred to the Buyer as part of the Acquired Assets and that the Seller has
possession of pursuant to a lease agreement or other contractual arrangement is
in such condition that, if returned to its lessor or owner under the applicable
lease or contract on the Closing Date, the obligations of the Seller to such
lessor or owner would have been discharged in full.
2.11 Owned Real Property. The Seller does not own, and has never owned,
any real property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists
all Leases and lists the term of such Lease, any extension and expansion
options, and the rent payable thereunder. The Seller has delivered to the Buyer
complete and accurate copies of the Leases. With respect to each Lease and
except as set forth in Section 2.12 of the Disclosure Schedule:
(a) such Lease is legal, valid, binding, enforceable and in full
force and effect;
(b) such Lease is assignable by the Seller to the Buyer without the
consent or approval of any party and such Lease will continue to be legal,
valid, binding, enforceable and in full force and effect immediately following
the Closing in accordance with the terms thereof as in effect immediately prior
to the Closing;
(c) neither the Seller nor, to the knowledge of the Seller, any
other party, is in breach or violation of, or default under, any such Lease, and
no event has occurred, is pending or, to the knowledge of the Seller, is
threatened, which, after the giving of notice, with lapse of time,
-8-
or otherwise, would constitute a material breach or default by the Seller or, to
the knowledge of the Seller, any other party under such Lease;
(d) the Seller is not a party to any dispute, oral agreement or
forbearance program as to such Lease, and to Seller's knowledge no other person
is party to such dispute, oral agreement or forbearance program relating to or
affecting the Lease;
(e) the Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
(f) to the knowledge of the Seller, all facilities leased or
subleased thereunder are supplied with utilities and other services adequate for
the operation of said facilities; and
(g) the Seller is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
Lease which would reasonably be expected to materially impair the current uses
or the occupancy by the Seller of the property subject thereto.
2.13 Intellectual Property.
(a) Seller Registrations. There are no Seller Registrations.
(b) Prosecution Matters. Seller has no Patent Rights.
(c) Ownership; Sufficiency. Except as otherwise identified in
Section 2.13 of the Disclosure Schedule, each item of Seller Intellectual
Property will be owned or available for use by the Buyer immediately following
the Closing on substantially identical terms and conditions as it was
immediately prior to the Closing. The Seller is the sole and exclusive owner of
all Seller Owned Intellectual Property, free and clear of any Security Interests
and all joint owners of the Seller Owned Intellectual Property are listed in
Section 2.13(c) of the Disclosure Schedule. Except as otherwise identified in
Section 2.13 of the Disclosure Schedule, the Seller Intellectual Property
constitutes all Intellectual Property necessary (i) to Exploit the Customer
Offerings in the manner so done currently by the Seller, (ii) to Exploit the
Internal Systems as they are currently used by the Seller, and (iii) otherwise
to conduct the Seller's business in all material respects in the manner
currently conducted by the Seller. Seller has not licensed the Software included
in the Customer Offerings, or any portion thereof, to any third party. Seller
has Exploited the Software solely in connection with Seller's internal use and
makes no representation and warranty that the Software can be made available to
third parties (whether by license or otherwise), except in the manner so done
currently by the Seller.
(d) Protection Measures. The Seller has taken reasonable measures to
protect the proprietary nature of each item of Seller Owned Intellectual
Property, and to maintain in confidence all trade secrets and confidential
information comprising a part thereof. The Seller has complied with all
applicable contractual and legal requirements pertaining to information privacy
and security. No complaint relating to an improper use or disclosure of, or a
breach in the security of, any such information has been made or, to the
knowledge of the Seller, threatened against the Seller. To the knowledge of the
Seller, there has been no: (i) unauthorized disclosure of any third party
proprietary or confidential information in the possession, custody or
-9-
control of the Seller or (ii) breach of the Seller's security procedures wherein
confidential information has been disclosed to a third person. The Seller has
actively policed the quality of all goods and services sold, distributed or
marketed under each of its Trademarks and has enforced adequate quality control
measures to ensure that no Trademarks that it has licensed to others shall be
deemed to be abandoned.
(e) Infringement by Seller. None of the Customer Offerings, or the
Exploitation thereof by the Seller or by any reseller, distributor, customer or
user thereof, or any other activity of the Seller, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any third
party. None of the Internal Systems, or the Seller's past, current or currently
contemplated Exploitation thereof, or any other activity undertaken by them in
connection with the Business, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any third party. The
Seller has not received any complaint, claim or notice, or threat of any of the
foregoing (including any notification that a license under any patent is or may
be required), alleging any such infringement, violation or misappropriation and
any request or demand for indemnification or defense received by the Seller from
any reseller, distributor, customer, user or any other third party; and the
Seller has not received any legal opinions, studies, market surveys and analyses
relating to any alleged or potential infringement, violation or
misappropriation.
(f) Infringement of Rights. To Seller's knowledge, no person
(including, without limitation, any current or former employee or consultant of
Seller) is infringing, violating or misappropriating any of the Seller Owned
Intellectual Property or any Seller Licensed Intellectual Property.
(g) Outbound IP Agreements. Seller has not assigned, transferred,
licensed, distributed or otherwise granted any right or access to any person
(except for access to customers necessary to Exploit the Customer Offerings), or
covenanted not to assert any right, with respect to any past, existing or future
Seller Intellectual Property. The Seller has not agreed to indemnify any person
against any infringement, violation or misappropriation of any Intellectual
Property rights with respect to any Customer Offerings or any third party
Intellectual Property rights. The Seller is not a member of or party to any
patent pool, industry standards body, trade association or other organization
pursuant to the rules of which it is obligated to license any existing or future
Intellectual Property to any person.
(h) Inbound IP Agreements. Section 2.13(h) of the Disclosure
Schedule identifies (i) each item of Seller Licensed Intellectual Property and
the license or agreement pursuant to which the Seller Exploits it (excluding
currently-available, off the shelf software programs that are part of the
Internal Systems and are licensed by the Seller pursuant to "shrink wrap"
licenses, the total fees associated with which are less than $2,500). There is
no agreement, contract, assignment or other instrument pursuant to which the
Seller has obtained any joint or sole ownership interest in or to any item of
Seller Owned Intellectual Property. No third party inventions, methods,
services, materials, processes or Software are included in or required to
Exploit the Customer Offerings or Internal Systems in the manner so done
currently by Seller. None of the Customer Offerings or Internal Systems includes
"shareware," "freeware" or other Software or other material that was obtained by
the Seller from third parties other than pursuant to the license agreements
listed in Section 2.13(h) of the Disclosure Schedule.
-10-
(i) Source Code. The Seller has not licensed, distributed or
disclosed, and knows of no distribution or disclosure by others (including its
employees and contractors) of, the Seller Source Code to any person, and the
Seller has taken all reasonable physical and electronic security measures to
prevent disclosure of such Seller Source Code. No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time,
or both) will, or would reasonably be expected to, nor will the consummation of
the transactions contemplated hereby, result in the disclosure or release of
such Seller Source Code by the Seller, or escrow agent(s) or any other person to
any third party.
(j) Authorship. All of the Software and Documentation comprising,
incorporated in or bundled with the Customer Offerings or Internal Systems have
been designed, authored, tested and debugged by regular employees of the Seller
within the scope of their employment or by independent contractors of the Seller
who have executed valid and binding agreements expressly assigning all right,
title and interest in such copyrightable materials to the Seller, waiving their
non-assignable rights (including moral rights) in favor of the Seller and its
permitted assigns and licensees, and have no residual claim to such materials.
(k) Open Source Code. Section 2.13(k) of the Disclosure Schedule
lists all Open Source Materials that the Seller has either incorporated into the
Customer Offering or Internal Systems, and/or those Customer Offerings and/or
Internal Systems (or portions thereof) that are derivative works of Open Source
Materials. Except as identified in Section 2.13(k) of the Disclosure Schedules,
the Seller has not (i) incorporated Open Source Materials into, or combined Open
Source Materials with, the Customer Offerings; or (ii) used Open Source
Materials that create, or purport to create, obligations for the Seller with
respect to the Customer Offerings or grant, or purport to grant, to any third
party, any rights or immunities under Intellectual Property rights (including,
but not limited to, using any Open Source Materials that require, as a condition
of Exploitation of such Open Source Materials, that other Software incorporated
into, derived from or distributed with such Open Source Materials be (x)
disclosed or distributed in source code form, (y) licensed for the purpose of
making derivative works, or (z) redistributable at no charge or minimal charge).
Seller has no distributed Open Source Materials in conjunction with any other
software developed or distributed by the Seller.
(l) Employee and Contractor Assignments. [Intentionally deleted.]
(m) Quality. The Customer Offerings and the Internal Systems are
free from significant defects in design, workmanship and materials and conform
in all material respects to the written Documentation and specifications
therefor. The Customer Offerings and the Internal Systems do not contain any
disabling device, virus, worm, back door, Trojan horse or other disruptive or
malicious code that may or are intended to impair their intended performance or
otherwise permit unauthorized access to, hamper, delete or damage any computer
system, software, network or data. The Seller has not received any warranty
claims, contractual terminations or requests for settlement or refund due to the
failure of the Customer Offerings to meet their specifications or otherwise to
satisfy end user needs or for harm or damage to any third party.
(n) Support and Funding. The Seller has neither sought, applied for
nor received any support, funding, resources or assistance from any federal,
state, local or foreign
-11-
governmental or quasi-governmental agency or funding source in connection with
the Exploitation of the Customer Offerings, the Internal Systems or any
facilities or equipment used in connection therewith.
(o) Certifications. Section 2.13(o) of the Disclosure Schedule
identifies all channel partner authorizations, accreditations or similar
qualifications with third party technology providers held by the Seller or its
employees. Except as disclosed on Section 2.13(o), all such certifications,
accreditations and similar qualifications may be transferred or assigned to the
Buyer without the consent of such third parties.
2.14 Contracts.
(a) Section 2.14 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Seller is a party as of the date of
this Agreement (other than this Agreement and the Ancillary Agreements):
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties providing for lease payments
in excess of $5,000 per annum or having a remaining term longer than three
months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one year, (B) which
involves more than the sum of $5,000, or (C) in which the Seller has granted
manufacturing rights, "most favored nation" pricing provisions or marketing or
distribution rights relating to any products or territory or has agreed to
purchase a minimum quantity of goods or services or has agreed to purchase goods
or services exclusively from a certain party;
(iii) any agreement concerning the establishment or operation
of a partnership, joint venture or limited liability company;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness (including capitalized lease obligations)
involving more than $5,000 or under which it has imposed (or may impose) a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement for the disposition of any significant
portion of the assets or business of the Seller (other than sales of products in
the Ordinary Course of Business) or any agreement for the acquisition of the
assets or business of any other entity (other than purchases of inventory or
components in the Ordinary Course of Business);
(vi) any agreement concerning exclusivity or confidentiality;
(vii) any employment or consulting agreement;
(viii) any agreement involving any current or former officer,
manager or Shareholder or an Affiliate thereof;
-12-
(ix) any agreement under which the consequences of a default
or termination would reasonably be expected to have a Seller Material Adverse
Effect;
(x) any agreement which contains any provisions requiring the
Seller to indemnify any other party (excluding indemnities contained in
agreements for the purchase, sale or license of products entered into in the
Ordinary Course of Business);
(xi) any agreement that could reasonably be expected to have
the effect of prohibiting or impairing the conduct of the business of the Seller
or of the Buyer or any of its subsidiaries as currently conducted and as
currently proposed to be conducted;
(xii) any agreement under which the Seller is restricted from
selling, licensing or otherwise distributing any of its technology or products,
or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or any segment of
the market or line of business;
(xiii) any agreement which would entitle any third party to
receive a license or any other right to intellectual property of the Buyer or
any of the Buyer's Affiliates following the Closing; and
(xiv) any other agreement (or group of related agreements)
either involving more than $10,000 or not entered into in the Ordinary Course of
Business.
(b) The Seller has delivered to the Buyer a complete and accurate
copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure
Schedule. With respect to each agreement so listed and except as disclosed in
Section 2.14 of the Disclosure Schedules: (i) the agreement is legal, valid,
binding and enforceable and in full force and effect; (ii) for those agreements
to which the Seller is a party, the agreement is assignable by the Seller to the
Buyer without the consent or approval of any party and will continue to be
legal, valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing; and (iii) neither the Seller nor, to the
knowledge of the Seller, any other party, is in breach or violation of, or
default under, any such agreement, and no event has occurred, is pending or, to
the knowledge of the Seller, is threatened, which, after the giving of notice,
with lapse of time, or otherwise, would constitute a breach or default by the
Seller or, to the knowledge of the Seller, any other party under such agreement.
2.15 Accounts Receivable. All accounts receivable of the Seller reflected
on the Most Recent Balance Sheet (other than those paid since such date) are
valid receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts on the Most Recent Balance
Sheet. A complete and accurate list of the accounts receivable reflected on the
Most Recent Balance Sheet, showing the aging thereof, is included in Section
2.15 of the Disclosure Schedule. All accounts receivable of the Seller that have
arisen since the Most Recent Balance Sheet Date are valid receivables subject to
no setoffs or counterclaims and are current and collectible (within 90 days
after the date on which it first became due and payable), net of a reserve for
bad debts in an amount proportionate to the reserve shown on the Most Recent
-13-
Balance Sheet. The Seller has not received any written notice from an account
debtor stating that any account receivable in an amount in excess of $5,000 is
subject to any contest, claim or setoff by such account debtor.
2.16 Insurance. Section 2.16 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, comprehensive general
liability, workers compensation, business interruption, environmental, product
liability, errors and omissions, professional liability, and automobile
insurance policies and bond and surety arrangements) to which the Seller is a
party, all of which are in full force and effect. There is no material claim
pending under any such policy as to which coverage has been questioned, denied
or disputed by the underwriter of such policy. All premiums due and payable
under all such policies have been paid, the Seller may not be liable for
retroactive premiums or similar payments, and the Seller is otherwise in
compliance in all material respects with the terms of such policies. The Seller
has no knowledge of any threatened termination of, or premium increase with
respect to, any such policy. Upon payment of amounts required to obtain tail
coverage on Seller's professional liability (errors and omissions) insurance
policy, such policy will be in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure
Schedule, there is no Legal Proceeding which is pending or has been threatened
in writing against the Seller. There are no judgments, orders or decrees
outstanding against the Seller.
2.18 Warranties. No service or product delivered, made, sold, leased or
licensed by the Seller is subject to any guaranty, warranty, right of return,
right of credit or other indemnity.
2.19 Employees.
(a) Section 2.19 of the Disclosure Schedule contains a list of all
employees of the Seller, their position with Seller and their annual rate of
compensation. Except as set forth on Section 2.19 of the Disclosure Schedule,
each current employee of the Seller and each past employee of the Seller has
entered into a confidentiality and assignment of inventions agreement with the
Seller, a copy or form of which has previously been delivered to the Buyer.
Section 2.19 of the Disclosure Schedule contains a list of all employees of the
Seller who are a party to a non-competition agreement with the Seller; copies of
such agreements have previously been delivered to the Buyer. Each such agreement
referenced in the two preceding sentences to which the Seller is a party is
assignable by the Seller to the Buyer without the consent or approval of any
party and will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing. Section 2.19 of the
Disclosure Schedule contains a list of all employees of the Seller who are not
citizens of the United States. To the knowledge of the Seller, no key employee
or group of employees has any plans to terminate employment with the Seller
(other than for the purpose of accepting employment with the Buyer following the
Closing) or not to accept employment with the Buyer. The Seller is in compliance
with all applicable laws relating to the hiring and employment of employees.
(b) The Seller is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strikes, grievances, claims of
unfair labor practices or
-14-
other collective bargaining disputes. The Seller has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Seller.
2.20 Employee Benefits.
(a) Section 2.20(a) of the Disclosure Schedule contains a complete
and accurate list of all Seller Plans. Complete and accurate copies of (i) all
Seller Plans which have been reduced to writing, (ii) written summaries of all
unwritten Seller Plans, (iii) all related trust agreements, insurance contracts
and summary plan descriptions, and (iv) all annual reports filed on IRS Form
5500, 5500C or 5500R and (for all funded plans) all plan financial statements
for the last five plan years for each Seller Plan, have been delivered to the
Buyer.
(b) Each Seller Plan being assumed by Buyer under this Agreement has
been administered in all material respects in accordance with its terms and each
of the Seller and the ERISA Affiliates has in all material respects met its
obligations with respect to each such Seller Plan and has made all required
contributions thereto. The Seller, each ERISA Affiliate and each such Seller
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
Section 4980B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601
through 608 and Section 701 et seq. of ERISA). All filings and reports as to
each Seller Plan being assumed by Buyer under this Agreement required to have
been submitted to the Internal Revenue Service or to the United States
Department of Labor have been duly submitted. No Seller Plan being assumed by
Buyer under this Agreement has assets that include securities issued by the
Seller or any ERISA Affiliate.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Seller Plans being assumed by Buyer under
this Agreement and proceedings with respect to qualified domestic relations
orders) against or involving any Seller Plan or asserting any rights or claims
to benefits under any Seller Plan that could give rise to any material
liability.
(d) Neither the Seller nor any ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At no time has the Seller or any ERISA Affiliate been obligated
to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Seller Plan being
assumed by Buyer providing benefits after termination of employment to any
employee of the Seller (or to any beneficiary of any such employee), including
but not limited to retiree health coverage and deferred compensation, but
excluding continuation of health coverage required to be continued under Section
4980B of the Code or other applicable law and insurance conversion privileges
under state law.
(g) No act or omission has occurred and no condition exists with
respect to any Seller Plan that would subject the Buyer or any Affiliate of
Buyer to (i) any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code or (ii) any contractual
-15-
indemnification or contribution obligation protecting any fiduciary, insurer or
service provider with respect to any Seller Plan.
(h) No Seller Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(i) Each Seller Plan being assumed by Buyer is amendable and
terminable unilaterally by the Seller at any time without liability or expense
to the Seller or such Seller Plan as a result thereof (other than for benefits
accrued through the date of termination or amendment and reasonable
administrative expenses related thereto) and no Seller Plan, plan documentation
or agreement, summary plan description or other written communication
distributed generally to employees by its terms prohibits the Seller from
amending or terminating any such Seller Plan.
(j) Section 2.20 of the Disclosure Schedule discloses each: (i)
agreement with any Shareholder, manager, executive officer or other key employee
of the Seller (A) the benefits of which are contingent, or the terms of which
are altered, upon the occurrence of a transaction involving the Seller of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee or (C) providing severance
benefits or other benefits after the termination of employment of such manager,
executive officer or key employee; (ii) agreement, plan or arrangement under
which any person may receive payments from the Seller that may be subject to the
tax imposed by Section 4999 of the Code or included in the determination of such
person's "parachute payment" under Section 280G of the Code; and (iii) agreement
or plan binding the Seller, including any stock option plan, stock appreciation
right plan, restricted stock plan, stock purchase plan, severance benefit plan
or Seller Plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(k) Section 2.20 of the Disclosure Schedule sets forth the policy of
the Seller with respect to accrued vacation, accrued sick time and earned time
off and the amount of such liabilities as of August 31, 2007.
(l) No insurance policy that provides medical or dental benefits
under a Seller Plan provides for any retrospective premium increases.
(m) No Seller Plan that provides medical or dental benefits is
providing to any individual any continuation coverage mandated by Section 4980B
of the Code (or any similar law).
2.21 Environmental Matters.
(a) To its knowledge, the Seller has complied with all applicable
Environmental Laws except where failure to do so would not have a Seller
Material Adverse Effect. There is no pending or, to the knowledge of the Seller,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request by
any Governmental Entity, relating to any Environmental Law involving the Seller.
-16-
(b) To its knowledge, the Seller does not have any liabilities or
obligations arising from the release of any Materials of Environmental Concern
into the environment.
(c) The Seller is not a party to or bound by any court order,
administrative order, consent order or other agreement with any Governmental
Entity entered into in connection with any legal obligation or liability arising
under any Environmental Law.
(d) The Seller does not have possession of, or access to, or
knowledge of, any documents (whether in hard copy or electronic form) that
contain any environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Seller (whether
conducted by or on behalf of the Seller or a third party, and whether done at
the initiative of the Seller or directed by a Governmental Entity or other third
party).
(e) The Seller is not aware of any material environmental liability
of any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Seller.
2.22 Legal Compliance. Except as set forth in Section 2.22 of the
Disclosure Schedule, the Seller is currently conducting, and has at all times
conducted, its business in material compliance with each applicable law
(including rules and regulations thereunder) of any federal, state, local or
foreign government, or any Governmental Entity, and Seller has had valid Permits
to conduct such business with respect to each jurisdiction (and at such times)
for which it has been required to have such Permits except where the lack of any
such Permit would not have a Seller Material Adverse Effect. The Seller has not
received any notice or communication from any Governmental Entity alleging
noncompliance with any applicable law, rule or regulation.
2.23 Customers and Suppliers. Section 2.23 of the Disclosure Schedule sets
forth a list of (a) each customer or supplier arrangement that accounted for
more than 1% of the revenues of the Seller during the last full fiscal year or
the interim period through the Most Recent Balance Sheet Date and the amount of
revenues accounted for by such customer or supplier arrangement during each such
period and (b) each other supplier of services or goods that is a critical or
sole supplier of any significant aspect of Seller's business. No person
identified in the foregoing sentence has provided written or verbal notice to
Seller within the past year that it will stop, or materially reduce its activity
below historic levels in connection with any contract or arrangement on which
Seller currently derives revenue.
2.24 Permits. Section 2.24 of the Disclosure Schedule sets forth a list of
all Permits issued to or held by the Seller. Such listed Permits are the only
Permits that are required for the Seller to conduct its business as presently
conducted or as proposed to be conducted. Each such Permit is in full force and
effect; the Seller is in material compliance with the terms of each such Permit;
and, to the knowledge of the Seller, no suspension or cancellation of such
Permit is threatened.
2.25 Certain Business Relationships With Affiliates. No Affiliate of the
Seller (a) owns any property or right, tangible or intangible, which is used in
the business of the Seller, (b) has any claim or cause of action against the
Seller, or (c) owes any money to, or is owed any money by, the Seller. Section
2.25 of the Disclosure Schedule describes any transactions or
-17-
relationships between the Seller and any Affiliate thereof which occurred or
have existed since the beginning of the time period covered by the Financial
Statements.
2.26 Brokers' Fees. The Seller does not have any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement, except Great Western Business
Services, which commission will be paid by the Seller.
2.27 Books and Records. The minute books and other similar records of the
Seller contain complete and accurate records of all actions taken at any
meetings of the Seller's Shareholders, managers or any committee thereof and of
all written consents executed in lieu of the holding of any such meeting. The
books and records of the Seller accurately reflect, in all material respects,
the assets, liabilities, business, financial condition and results of operations
of the Seller. Section 2.27 of the Disclosure Schedule contains a list of all
bank accounts and safe deposit boxes of the Seller and the names of persons
having signature authority with respect thereto or access thereto.
2.28 Disclosure. No representation or warranty by the Seller contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Seller pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
2.29 Projections. The projections included in Section 2.29 of the
Disclosure Schedule were prepared by the Seller in good faith using the best
information available to management of the Seller and represent Seller
management's good faith estimates of the future performance of the Seller for
the periods referred to therein. The Buyer acknowledges that the projections are
estimates and Seller makes no representation or warranty as to actual future
performance.
2.30 Government Contracts.
(a) The Seller has not been suspended or debarred from bidding on
contracts or subcontracts with any Governmental Entity; and to Seller's
knowledge no such suspension or debarment has been threatened or initiated; and
the consummation of the transactions contemplated by this Agreement will not
result in any such suspension or debarment of the Seller or the Buyer (assuming
that no such suspension or debarment will result solely from the identity of the
Buyer). The Seller has not been or is not now being audited or investigated by
the United States Government Accounting Office, the United States Department of
Defense or any of its agencies, the Defense Contract Audit Agency, the
contracting or auditing function of any Governmental Entity with which it is
contracting, the United States Department of Justice, the Inspector General of
the United States, or any prime contractor with a Governmental Entity; nor, to
the knowledge of the Seller, has any such audit or investigation been
threatened. To the knowledge of the Seller, there is no valid basis for (i) the
suspension or debarment of the Seller from bidding on contracts or subcontracts
with any Governmental Entity or (ii) any claim (including any claim for return
of funds to the Government) pursuant to an audit or investigation by any of the
entities named in the foregoing sentence. The Seller has no agreements,
contracts
-18-
or commitments which require it to obtain or maintain a security clearance with
any Governmental Entity.
(b) To the knowledge of the Seller, no basis exists for any of the
following with respect to any of its contracts or subcontracts with any
Governmental Entity: (i) a Termination for Default (as provided in 48 C.F.R.
Ch.1 ss.52.249-8, 52.249-9 or similar sections), (ii) a Termination for
Convenience (as provided in 48 C.F.R. Ch.1 ss.52.241-1, 52.249-2 or similar
sections), or a Stop Work Order (as provided in 48 C.F.R. Ch.1 ss.52.212-13 or
similar sections); and the Seller has no reason to believe that funding may not
be provided under any contract or subcontract with any Governmental Entity in
the upcoming federal fiscal year.
2.31 Securities Representations.
(a) Seller is an "accredited investor" as defined in Rule 501(a)
under the Securities Act. Seller has not been organized, reorganized or
recapitalized specifically for the purpose of acquiring the Shares.
(b) The Seller is acquiring the Shares for its own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act, or any rule or
regulation under the Securities Act.
(c) The Seller has had adequate opportunity to obtain from
representatives of the Buyer such information about the Buyer as is necessary
for the undersigned to evaluate the merits and risks of its acquisition of the
Shares.
(d) The Seller has sufficient expertise in business and financial
matters to be able to evaluate the risks involved in the acquisition of the
Shares and to make an informed investment decision with respect to such
acquisition.
(e) The Seller understands that the Shares have not been registered
under the Securities Act and are "restricted securities" within the meaning of
Rule 144 under the Securities Act; and the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available.
(f) A legend substantially in the following form will be placed on
the certificate(s) representing the Shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
-19-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the statements
contained in this Article III are true and correct as of the date of this
Agreement and will be true and correct as of the Closing as though made as of
the Closing.
3.1 Organization and Corporate Power. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana. The Buyer has all requisite corporate power and authority to carry on
the business in which it is engaged and to own and use the properties owned and
used by it.
3.2 Authorization of the Transaction. The Buyer has all requisite power
and authority to execute and deliver this Agreement, the Secured Promissory Note
and the Ancillary Agreements and to perform its obligations hereunder and
thereunder. The execution and delivery by the Buyer of this Agreement, the
Secured Promissory Note and the Ancillary Agreements and the performance by the
Buyer of this Agreement and the Ancillary Agreements and the consummation by the
Buyer of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary action on the part of the Buyer. This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes, and each of the Secured Promissory Note and the Ancillary
Agreements, upon its execution and delivery by Buyer will constitute, a valid
and binding obligation of the Buyer, enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, arrangement or other similar laws from time to time
in effect.
3.3 Noncontravention. Neither the execution and delivery by the Buyer of
this Agreement, the Secured Promissory Note or the Ancillary Agreements, nor the
consummation by the Buyer of the transactions contemplated hereby or thereby,
will (a) conflict with or violate any provision of the Articles of Incorporation
or by-laws of the Buyer, (b) require on the part of the Buyer any notice to or
filing with, or permit, authorization, consent or approval of, any Governmental
Entity, (c) conflict with, result in breach of, constitute (with or without due
notice or lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party any right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument to
which the Buyer is a party or by which it is bound or to which any of its assets
is subject, or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Buyer or any of its properties or assets.
3.4 Capitalization. The authorized capital stock of the Buyer consists of
20,000,000 shares of Buyer Common Stock, of which 3,937,500 shares were issued
and outstanding, and options, warrants or other rights (the "Equity Rights") to
acquire 865,000 shares of Buyer Common Stock were outstanding, in each case, as
of October 12, 2007. As of October 12, 2007, there are no outstanding options,
warrants or similar rights relating to the Buyer or its equity other than the
Convertible Promissory Notes of the Buyer dated July 16, 2007 convertible into
an aggregate of up to 833,333 shares of Buyer Common Stock and the Equity
Rights. The rights and privileges of each class of the Buyer's capital stock are
set forth in the Buyer's Articles of
-20-
Incorporation, a copy of which has been made available to Seller. All of the
issued and outstanding shares of Buyer Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable. The Shares will be,
when issued on the terms and conditions of this Agreement, duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the Buyer's Articles of Incorporation or Bylaws or any agreement to which the
Buyer is a party or is otherwise bound.
3.5 No Prior Activities. As of the date of this Agreement, the Buyer has
not engaged in any business operations.
3.6 Litigation. As of the date of this Agreement, there is no Legal
Proceeding which is pending or, to the Buyer's knowledge, threatened against the
Buyer or any subsidiary of the Buyer which, if determined adversely to the Buyer
or such subsidiary, could have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, capitalization, prospects,
condition (financial or other), or results of operations of the Seller.
ARTICLE IV
PRE-CLOSING COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its Reasonable Best
Efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement, including using
its Reasonable Best Efforts to cause (i) its representations and warranties to
remain true and correct in all material respects through the Closing Date and
(ii) the conditions to the obligations of the other Party to consummate the
transactions contemplated by this Agreement to be satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at
its expense, all waivers, permits, consents, approvals or other authorizations
from Governmental Entities, and to effect all registrations, filings and notices
with or to Governmental Entities, as may be required for such Party to
consummate the transactions contemplated by this Agreement and to otherwise
comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Seller shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as listed or are required to be listed
in the Disclosure Schedule. The Buyer shall reasonably cooperate with the Seller
in Seller's efforts to obtain such waivers, consents and approvals.
(c) If (i) any of the Assigned Contracts or other assets or rights
constituting Acquired Assets may not be assigned and transferred by the Seller
to the Buyer (as a result of either the provisions thereof or applicable law)
without the consent or approval of a third party, (ii) the Seller, after using
its Reasonable Best Efforts, is unable to obtain such consent or approval prior
to the Closing and (iii) the Closing occurs nevertheless, then (A) such Assigned
-21-
Contracts and/or other assets or rights shall not be assigned and transferred by
the Seller to the Buyer at the Closing and the Buyer shall not assume the
Seller's future liabilities or future obligations with respect thereto at the
Closing until such approval or consent is obtained and assignment occurs, at
which time Buyer will assume all such liabilities and obligations following the
date of such approval or consent, (B) the Seller shall continue to use its
Reasonable Best Efforts for a reasonable period of time after the Closing, and
in any case not less than nine (9) months, to obtain the necessary consent or
approval as soon as practicable after the Closing, (C) upon the obtaining of
such consent or approval, the Buyer and the Seller shall execute such further
instruments of conveyance (in substantially the form executed at the Closing) as
may be necessary to assign and transfer such Assigned Contracts and/or other
assets or rights (and the associated liabilities and obligations of the Seller)
to the Buyer, and (D) from and after the Closing until the assignment or
termination (at the end of any fixed term thereof or by the Buyer after nine (9)
months from the date hereof) of each such Assigned Contract pursuant to clause
(C) above, the Buyer shall perform and fulfill, on a subcontractor basis, the
obligations of the Seller or the applicable Subsidiary to be performed under
such Assigned Contract, and the Seller or such Subsidiary shall promptly remit
to the Buyer all payments received by it under such Assigned Contract for
services performed during such period.
4.3 Exclusivity.
(a) Neither the Seller nor the Shareholders shall, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate any
inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of shares, sale of
material assets or similar business transaction involving the Seller, (ii)
furnish any non-public information concerning the business, properties or assets
of the Seller to any party (other than the Buyer), (iii) engage in discussions
or negotiations with any party (other than the Buyer) concerning any such
transaction, (iv) vote any shares of Seller in favor of any such transaction
with any party (other than the Buyer), or (v) enter into any agreement with any
party (other than the Buyer) concerning any such transaction.
(b) The Seller and each Shareholder shall immediately notify any
party with which discussions or negotiations of the nature described in
paragraph (a) above were pending that the Seller or the Shareholder, as
applicable, is terminating such discussions or negotiations. If the Seller or a
Shareholder receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Seller or Shareholder, as applicable, shall, within one
business day after such receipt, notify the Buyer of such inquiry, proposal or
offer, including the identity of the other party and the terms of such inquiry,
proposal or offer.
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Closing, the Seller
shall conduct its operations in the Ordinary Course of Business and in material
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality
-22-
of the foregoing, prior to the Closing, the Seller shall not, without the
written consent of the Buyer:
(a) issue or sell any shares or other securities of the Seller or
any options, warrants or other rights to acquire any such shares or other
securities (except pursuant to the conversion or exercise of options, warrants
or other convertible securities outstanding on the date hereof);
(b) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its shares other than any distributions by the Seller to its Shareholders for
the payment of Taxes consistent with past practice;
(c) create, incur or assume any indebtedness (including obligations
in respect of capital leases); assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.20(k) or (except for normal increases in the Ordinary Course of
Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its managers, officers or employees, generally or individually, or pay any
bonus or other benefit to its managers, officers or employees (except for
existing payment obligations listed in Section 2.20 of the Disclosure Schedule)
or hire any new officers or (except in the Ordinary Course of Business) any new
employees;
(e) acquire, sell, lease, license or dispose of any assets or
property, other than purchases and sales of assets in the Ordinary Course of
Business;
(f) mortgage or pledge any of its property or assets or subject any
such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) amend its Articles of Incorporation, Bylaws or other
organizational documents in a manner that could have an adverse effect on the
transactions contemplated by this Agreement;
(i) change its accounting methods, principles or practices, except
insofar as may be required by law or regulatory accounting requirements or make
any new elections, or changes to any current elections, with respect to Taxes
that affect the Acquired Assets;
(j) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any contract or agreement of a nature listed or required to be listed in
Section 2.12, Section 2.13 or Section 2.14 of the Disclosure Schedule;
-23-
(k) make or commit to make any capital expenditure in excess of
$5,000 per item or $10,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Seller set forth
in this Agreement not being true and correct at the Closing or (ii) any of the
conditions to the Closing set forth in Article V not being satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Access to Information.
(a) The Seller shall permit representatives of the Buyer to have
full access (at all reasonable times, and in a manner so as not to interfere
with the normal business operations of the Seller) to all premises, properties,
financial, tax and accounting records (including the work papers of the Seller's
independent accountants), contracts, other records and documents, and personnel,
of or pertaining to the Seller, and contacts at Seller's principal suppliers and
customers, for the purpose of performing such inspections and tests as the Buyer
deems necessary or appropriate.
(b) If the Closing has not occurred by October 31, 2007, within 15
days after the end of each month ending prior to the Closing, beginning with
September 30, 2007, the Seller shall furnish to the Buyer an unaudited income
statement for such month and a balance sheet as of the end of such month,
prepared on a basis consistent with the Financial Statements. Such financial
statements shall present fairly the financial condition and results of
operations of the Seller as of the dates thereof and for the periods covered
thereby, and shall be consistent with the books and records of the Seller.
4.6 Notice of Breaches.
(a) From the date of this Agreement until the Closing, the Seller
shall promptly deliver to the Buyer supplemental information concerning events
or circumstances occurring subsequent to the date hereof which would render any
representation, warranty or statement in this Agreement or the Disclosure
Schedule inaccurate or incomplete at any time after the date of this Agreement
until the Closing. No such supplemental information shall be deemed to avoid or
cure any misrepresentation or breach of warranty or constitute an amendment of
any representation, warranty or statement in this Agreement or the Disclosure
Schedule.
(b) From the date of this Agreement until the Closing, the Buyer
shall promptly deliver to the Seller supplemental information concerning events
or circumstances occurring subsequent to the date hereof which would render any
representation or warranty in this Agreement inaccurate or incomplete at any
time after the date of this Agreement until the Closing. No such supplemental
information shall be deemed to avoid or cure any misrepresentation or breach of
warranty or constitute an amendment of any representation or warranty in this
Agreement.
-24-
4.7 FIRPTA Tax Certificate. Within 10 days prior to the Closing, the
Seller shall deliver or cause to be delivered to the Buyer a certification that
the Seller is not a foreign person within the meaning of Section 1445 of the
Code, in accordance with the Treasury Regulations under Section 1445 of the
Code.
4.8 Preparation of Audited Financial Statements. The Seller shall permit
the Buyer and the Buyer's independent accountants to have full access (at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Seller) to all premises, properties, financial, tax
and accounting records (including the work papers of the Seller's independent
accountants), contracts, other records and documents, and personnel, of or
pertaining to the Seller, and contacts at Seller's principal suppliers and
customers, for the purpose of preparing audited financial statements of the
Seller.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to Obligations of the Buyer. The obligation of the Buyer to
consummate the transactions contemplated by this Agreement to be consummated at
the Closing is subject to the satisfaction of the following additional
conditions:
(a) the Seller shall have obtained at its own expense (and shall
have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Seller;
(b) the representations and warranties of the Seller set forth in
the first sentence of Section 2.1 and in Sections 2.2 and 2.3 and any
representations and warranties of the Seller set forth in this Agreement that
are qualified as to materiality shall be true and correct in all respects, and
all other representations and warranties of the Seller set forth in this
Agreement shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing as though made as of the
Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties shall be true and correct as of such date);
(c) the Seller shall have performed or complied with its agreements
and covenants required to be performed or complied with under this Agreement as
of or prior to the Closing;
(d) no Legal Proceeding shall be pending or threatened; and no
judgment, order, decree, stipulation or injunction shall be in effect that would
(i) prevent consummation of the transactions contemplated by this Agreement,
(ii) cause the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) affect adversely the right of the Buyer to own,
operate or control any of the Acquired Assets, or to conduct the business of the
Seller as currently conducted, following the Closing;
(e) the Seller shall have delivered to the Buyer the Seller
Certificate;
-25-
(f) the Seller shall have delivered to the Buyer an updated list of
the Acquired Assets, as of the day prior to the Closing Date;
(g) the Seller shall have delivered to the Buyer documents
evidencing the release or termination of all Security Interests on the Acquired
Assets, and copies of filed UCC termination statements with respect to all UCC
financing statements evidencing Security Interests;
(h) the Buyer shall have received an opinion from counsel to the
Seller in substantially the form attached hereto as Exhibit E, addressed to the
Buyer and dated as of the Closing Date;
(i) each of the Key Employees shall not have taken any action which
would be prohibited thereby in any material respect if such Person's Employment
Agreement were in effect at the time of such action and the Seller shall have no
knowledge of any such Key Employee's intention not to accept employment by Buyer
following the Closing;
(j) the Buyer shall have entered into a sublease or assignment of
the Lease reasonably satisfactory to Seller, or Buyer shall have entered into a
new lease with the landlord of the property underlying the Lease;
(k) the Buyer or a successor entity thereto shall have received
aggregate gross proceeds of at least $4.0 million from the sale of its
securities;
(l) no Seller Material Adverse Effect shall have occurred;
(m) the Buyer shall be reasonably satisfied that the issuance and
sale of the Shares are exempt from the registration requirements of the
Securities Act;
(n) the Seller shall have received all necessary consents to the
assignment of any material customer contracts, as set forth in Section 2.10(c)
of the Disclosure Schedule, which consent may be conditioned on the Closing;
(o) the Buyer and its attorneys, accountants, lenders and other
representatives and agents shall have satisfactorily completed their due
diligence investigation of the Seller and the Business;
(p) the Buyer shall have received such other certificates and
instruments (including certificates of good standing of the Seller in its
jurisdiction of organization and the various foreign jurisdictions in which it
is qualified, certified charter documents, certificates as to the incumbency of
officers and the adoption of authorizing resolutions) as it shall reasonably
request in connection with the Closing;
(q) the Shareholders shall have signed such share exchange
agreements and other documents as the Buyer may reasonably request in connection
with the share exchange transaction currently contemplated by the Buyer; and
-26-
(r) the Buyer and its independent accountants have been provided
with audited financial statements of the Seller, or have obtained such
information as the Buyer deems necessary or desirable, in its sole discretion,
to prepare audited financial statements of the Seller after the Closing hereof.
5.2 Conditions to Obligations of the Seller. The obligation of the Seller
to consummate the transactions contemplated by this Agreement to be consummated
at the Closing is subject to the satisfaction of the following additional
conditions:
(a) the representations and warranties of the Buyer set forth in the
first sentence of Section 3.1 and in Section 3.2 and any representations and
warranties of the Buyer set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of the Buyer set forth in this Agreement shall be
true and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing as though made as of the Closing, except to the
extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date);
(b) the Buyer shall have performed or complied with its agreements
and covenants required to be performed or complied with under this Agreement as
of or prior to the Closing;
(c) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would (i) prevent
consummation of the transactions contemplated by this Agreement or (ii) cause
the transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(d) the Buyer shall have delivered to the Seller the Buyer
Certificate;
(e) the Buyer shall have entered into a sublease or assignment of
the Lease reasonably satisfactory to Seller, or Buyer shall have entered into a
new lease with the landlord of the property underlying the Lease;
(f) the Seller shall have received such other certificates and
instruments (including certificates of good standing of the Buyer in its
jurisdiction of organization, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing;
(g) the Seller shall be reasonably satisfied that the issuance and
sale of the Shares, and any subsequent transfers of the Shares to the
Shareholders, are exempt from the registration requirements of the Securities
Act; and
(h) the Buyer or a successor entity thereto shall have received
aggregate gross proceeds of at least $4.0 million from the sale of its
securities.
-27-
ARTICLE VI
POST-CLOSING COVENANTS
6.1 Proprietary Information. From and after the Closing, neither the
Seller nor the Shareholders shall disclose or make use of (except to pursue its
rights, under this Agreement or the Ancillary Agreements), and shall use their
best efforts to cause all of their Affiliates not to disclose or make use of,
any knowledge, information or documents of a confidential nature or not
generally known to the public with respect to Acquired Assets, the Seller's
business or the Buyer or its business (including the financial information,
technical information or data relating to the Seller's products and names of
customers of the Seller), as well as filings and testimony (if any) presented in
the course of any arbitration of a Dispute pursuant to Section 7.3 and the
arbitral award and the Arbitrator's reasons therefor relating to the same),
except to the extent that such knowledge, information or documents shall have
become public knowledge other than through improper disclosure by the Seller or
an Affiliate; provided that this Section shall not restrict any Key Employee
from performing his job function with and for the benefit of Buyer after the
Closing.
6.2 Solicitation and Hiring. During the applicable Restricted Period,
neither the Seller nor any Shareholder shall, either directly or indirectly
(including through an Affiliate), (a) solicit, hire or attempt to induce any
Restricted Employee to terminate his employment with the Buyer or any subsidiary
of the Buyer; provided that the restrictions on the Shareholder (as such) set
forth in this sentence shall not apply to any Shareholder who is a Key Employee
and whose employment is terminated by the Company without Cause (as defined in
the Key Employee's Employment Agreement) or who terminates his employment with
the Company for Good Reason (as defined in the Key Employee's Employment
Agreement).
6.3 Non-Competition.
(a) During the applicable Restricted Period, neither the Seller nor
any Shareholder shall, either directly or indirectly as a owner, partner,
officer, employee, director, investor, lender, consultant, independent
contractor or otherwise (except as the holder of not more than 1% of the
combined voting power of the outstanding stock of a publicly held company, and
excluding Seller's ownership interest in Buyer), (i) provide any service or
design, develop, manufacture, market, sell or license any product anywhere in
the world which is competitive with any service provided or product designed,
developed (or under development), manufactured, sold or licensed by the Seller
as of the Closing Date or (ii) engage anywhere in the world in any business
competitive with the Business of the Seller as conducted as of the Closing Date,
including without limitation, network design, engineering, consulting and
project management and other provision of information technology services;
provided that this sentence shall not apply to any Shareholder who is a Key
Employee and whose employment is terminated by the Company without Cause (as
defined in the Key Employee's Employment Agreement) or who terminates his
employment with the Company for Good Reason (as defined in the Key Employee's
Employment Agreement).
(b) Each of the Seller and the Shareholders agree that the duration
and geographic scope of the non-competition provision set forth in this Section
6.3 are reasonable.
-28-
In the event that any court determines that the duration or the geographic
scope, or both, are unreasonable and that such provision is to that extent
unenforceable, the Parties agree that the provision shall remain in full force
and effect for the greatest time period and in the greatest area that would not
render it unenforceable. The Parties intend that this non-competition provision
shall be deemed to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and each and
every political subdivision of each and every country outside the United States
of America where this provision is intended to be effective.
(c) After the Closing Date, the Seller shall, and shall use its best
efforts to cause its Affiliates to, refer all inquiries regarding the business,
products and services of the Seller to the Buyer.
6.4 Tax Matters.
(a) All transfer, sales, use, value added, stamp, registration
documentary, excise, real property transfer or gains, and similar Taxes related
to the sale of the Acquired Assets contemplated by this Agreement shall be paid
by the Seller.
(b) All Tax liabilities (other than Income Taxes) attributable to
the Business through the Closing Date shall be borne by Buyer to the extent that
such liabilities are, in the aggregate, included for purposes of calculating the
Closing Adjustment (collectively, the "Reserved Taxes"). Tax liabilities (other
than Income Taxes) attributable to the Business through the Closing Date in
excess of the Reserved Taxes shall be borne by the Seller.
(c) All Taxes attributable to the Business subsequent to the Closing
shall be the responsibility of the Buyer.
(d) All real property taxes, personal property taxes, and similar ad
valorem obligations levied with respect to the Acquired Assets, and all rents,
utilities and other charges against the Seller with respect to the Acquired
Assets, for a taxable period that includes (but does not end on) the Closing
Date shall be apportioned between the Buyer and the Seller as of the Closing
Date based upon (i) the number of days of such taxable period included in any
tax period (or portion thereof) ending on or before the close of business on the
Closing Date (the "Pre-Closing Tax Period") and (ii) the number of days of such
taxable period included in any tax period (or portion thereof) beginning after
the Closing Date (the "Post-Closing Tax Period"). The Seller shall be liable for
all such Taxes relating to the Pre-Closing Tax Period, and the Buyer shall be
liable for all such Taxes relating to the Post-Closing Tax Period.
(e) If either party pays any Taxes to be borne by the other party
under this Section 6.4, the other party shall promptly reimburse such paying
party for the Taxes paid. If, in preparing Tax returns or payments after the
Closing, it appears to the Buyer that the Seller will be asked to pay additional
Taxes, the Buyer shall so notify the Seller, and provide the Seller a reasonable
opportunity to review and comment upon any related Tax Returns prior to filing
them and paying the Tax. If either party receives any refunds or credits which
are the property of the other party under this Section 6.4, such party shall
promptly pay the amount of such refunds or credits to the other party.
-29-
(f) The Buyer shall make available to the Seller and its
representatives all records and materials reasonably required by the Seller to
prepare, pursue or contest any Tax matters related to taxable periods (or
portions thereof) ending on or before the Closing Date and shall provide
reasonable cooperation to the Seller in such case. The Seller shall make
available to the Buyer and its representatives all records and materials
reasonably required by the Buyer to prepare, pursue or contest any Tax matters
arising after the Closing which have factual reference to the Pre-Closing Tax
Period and shall provide reasonable cooperation to the Buyer in such case.
6.5 Sharing of Data.
(a) The Seller shall have the right for a period of seven years
following the Closing Date to have reasonable access to such books, records and
accounts, including financial and tax information, correspondence, production
records, employment records and other records that are transferred to the Buyer
pursuant to the terms of this Agreement for the limited purposes of concluding
its involvement in the business conducted by the Seller prior to the Closing
Date and for complying with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. The Buyer shall have
the right for a period of seven years following the Closing Date to have
reasonable access to those books, records and accounts, including financial and
accounting records (including the work papers of the Seller's independent
accountants), tax records, correspondence, production records, employment
records and other records that are retained by the Seller pursuant to the terms
of this Agreement to the extent that any of the foregoing is needed by the Buyer
for the purpose of conducting the business of the Seller after the Closing and
complying with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations. Neither the Buyer nor the Seller shall
destroy any such books, records or accounts retained by it without first
providing the other Party with the opportunity to obtain or copy such books,
records, or accounts at such other Party's expense.
(b) Promptly upon request by the Buyer made at any time following
the Closing Date, the Seller shall authorize the release to the Buyer of all
files pertaining to the Seller, the Acquired Assets or the business or
operations of the Seller held by any federal, state, county or local
authorities, agencies or instrumentalities.
6.6 Use of Name. The Seller shall not use, and shall not permit any
Affiliate to use, the name "CETCON Incorporated", "CETCON" or any name
reasonably similar thereto after the Closing Date, except as approved by the
Buyer in connection with obtaining any approval or consent relating to an
Assigned Contract as contemplated by Section 4.2(c), which approval is hereby
granted by Buyer for a period of nine (9) months from the date hereof, subject
to the reasonable approval of Buyer over the manner of use. Within a timely
manner after the Closing, Seller shall have amended its Articles of
Incorporation and governing documents to change its name to something not
similar to "CETCON Incorporated" or "CETCON".
6.7 Cooperation in Litigation. From and after the Closing Date, each Party
shall fully cooperate with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such other Party relating to or arising out of the conduct of the
business of the Seller or the Buyer prior to or after the Closing Date (other
than litigation among the Parties and/or their Affiliates arising out the
transactions
-30-
contemplated by this Agreement). The Party requesting such cooperation shall pay
the reasonable out-of-pocket expenses incurred in providing such cooperation
(including legal fees and disbursements) by the Party providing such cooperation
and by its officers, directors, managers, employees and agents, and shall
reimburse such Party or its officers, directors, managers, employees and agents,
at a reasonable rate, for their time spent in such cooperation in excess of
twenty-five hours in the aggregate on such matter.
6.8 Collection of Accounts Receivable. The Seller agrees that it shall
forward promptly to the Buyer any monies, checks or instruments received by the
Seller after the Closing Date with respect to the accounts receivable purchased
by the Buyer from the Seller pursuant to this Agreement. The Seller shall
provide to the Buyer such reasonable assistance as the Buyer may request with
respect to the collection of any such accounts receivable, provided the Buyer
pays the reasonable out-of-pocket expenses of the Seller and its officers,
managers and employees incurred in providing such assistance. The Seller hereby
grants to the Buyer a power of attorney to endorse and cash any checks or
instruments payable or endorsed to the Seller or its order which are received by
the Buyer and which relate to accounts receivable purchased by the Buyer from
the Seller. If, and to the extent that, Buyer is unable to collect on any
accounts receivable acquired from the Seller hereunder and Buyer obtains
indemnification from Seller under this Agreement for such accounts, Buyer shall
assign such accounts to the Seller and Seller shall be entitled to collect such
accounts for its own account and, if Seller collects such account, it shall have
no obligation to remit such amount collected to the Buyer.
6.9 Employees.
(a) Effective as of the Closing, the Seller shall terminate the
employment of each of its employees designated on Schedule 6.9 attached hereto
(which may be updated prior to the Closing by the mutual agreement of the Buyer
and the Seller). The Buyer shall be permitted to offer employment to each such
employee, terminable at the will of the Buyer except as may be set forth in any
employment agreement with a Key Employee. The Seller hereby consents to the
hiring of any such employees by the Buyer and waives, with respect to the
employment by the Buyer of such employees, any claims or rights the Seller may
have against the Buyer or any such employee under any non-competition,
confidentiality or employment agreement.
(b) Buyer and Seller shall cooperate to substitute Buyer for Seller
as the contract holder on all insurance contracts providing medical or dental
benefits for employees of Seller and their beneficiaries.
(c) Nothing in this Agreement shall prevent Buyer from amending or
terminating any plan maintained by Buyer under which a former employee of Seller
is a participant.
6.10 Enforcement of Insurance Claims. The Seller hereby assigns to the
Buyer the right to pursue and enforce, and hereby irrevocably appoints the Buyer
as its true and lawful attorney-in-fact with full power in the name of and on
behalf of the Seller for the purpose of pursuing and enforcing, any and all
rights of the Seller under any insurance policies of the Seller which are not
assigned to the Buyer pursuant to this Agreement with respect to any occurrence,
claim or loss (including any product liability claim) which is the subject of an
indemnity
-31-
obligation by the Seller to the Buyer under Article VII; provided that the Buyer
may not exercise such right or power unless the Seller fails to promptly and
expeditiously pursue and enforce its rights under its insurance policies with
respect to such occurrence, claim or loss. The power of attorney conferred upon
the Buyer by the Seller pursuant to this Section 6.10 is an agency coupled with
an interest and all authority conferred hereby shall be irrevocable, and shall
not be terminated by the dissolution or the liquidation of the Seller or any
other act of the Seller.
6.11 Maintenance of Corporate Existence; Distribution of Shares. For a
period of at least one year following the Closing Date, the Seller shall not
distribute the Shares or dissolve, or adopt any resolutions or a plan therefor.
6.12 Sales of Shares under Rule 144. The Buyer shall utilize its
Reasonable Best Efforts to ensure that the provisions of Rule 144 promulgated
under the Securities Act of 1933 are available for the resale of the Shares for
Shareholders and other persons complying with all of the holding period, volume
of sale, manner of sale, broker's transaction, notice of sale and other
requirements of Rule 144 Specifically, the Buyer shall make available adequate
current public information by filing all reports required under the Securities
Exchange Act of 1934 or otherwise making publicly available the information
concerning the issuer specified in paragraphs (a)(5)(i) to (xiv), inclusive, and
paragraph (a)(5)(xvi) of Rule 15c2-11 (Sec. 240.15c2-11 of this chapter) under
that Act.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by the Seller. The Shareholders, severally and not
jointly, and the Seller, shall indemnify the Buyer (and its officers, directors
and affiliates) in respect of, and hold the Buyer (and its officers, directors
and affiliates) harmless against, Damages incurred or suffered by the Buyer or
any Affiliate thereof resulting from, relating to or constituting:
(a) any breach, as of the date of this Agreement or as of the
Closing Date, of any representation or warranty of the Seller or Shareholders
contained in this Agreement, any Ancillary Agreement or any other agreement or
instrument furnished by the Seller or the Shareholders to the Buyer pursuant to
this Agreement;
(b) any failure to perform any covenant or agreement of the Seller
or the Shareholders contained in this Agreement, any Ancillary Agreement or any
agreement or instrument furnished by the Seller to the Buyer pursuant to this
Agreement; it being agreed and understood that if Seller fails to obtain as of
Closing one or more consents to the assignment of customer contracts and
provides notice to the Buyer of such failure (in writing) and Buyer elects to
effect the Closing notwithstanding the absence of such consents, then, so long
as Seller is not in violation of Section 4.2, Seller shall not be liable
following the Closing for the failure to obtain the consent to assignment of
such customer contracts.
(c) any Retained Liabilities;
-32-
(d) any error, inaccuracy or omission in the financial statements
used to compute the Closing Adjustment, and for which the Buyer submits a Claim
Notice within 120 days of the Closing Date; or
(e) the failure of the Buyer and the Seller, in connection with the
sale of the Acquired Assets by the Seller to the Buyer pursuant to this
Agreement, to comply with, and obtain for the Buyer the benefits afforded by
compliance with, any applicable bulk transfers laws.
7.2 Indemnification by the Buyer. The Buyer shall indemnify the Seller
(and its officers, directors and affiliates) in respect of, and hold Seller (and
its officers, directors and affiliates) harmless against, any and all Damages
incurred or suffered by the Seller resulting from, relating to or constituting:
(a) any breach, as of the date of this Agreement or as of the
Closing Date, of any representation or warranty of the Buyer contained in this
Agreement, any Ancillary Agreement or any other agreement or instrument
furnished by the Buyer to the Seller pursuant to this Agreement;
(b) any failure to perform any covenant or agreement of the Buyer
contained in this Agreement, any Ancillary Agreement or any other agreement or
instrument furnished by the Buyer to the Seller pursuant to this Agreement; or
(c) any Assumed Liabilities.
7.3 Indemnification Claims.
(a) An Indemnified Party shall give written notification to the
Indemnifying Party of the commencement of any Third Party Action. Such
notification shall be given within 20 days after receipt by the Indemnified
Party of notice of such Third Party Action, and shall describe in reasonable
detail (to the extent known by the Indemnified Party) the facts constituting the
basis for such Third Party Action and the amount of the claimed damages;
provided, however, that no delay or failure on the part of the Indemnified Party
in so notifying the Indemnifying Party shall relieve the Indemnifying Party of
any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such Third
Party Action with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if (A) it acknowledges in writing to the Indemnified Party that any Damages that
may be assessed against the Indemnified Party in connection with such Third
Party Action constitute Damages for which the Indemnified Party shall be
indemnified pursuant to this Article VII and (B) the amount of damages claimed
is less than or equal to the amount of Damages for which the Indemnifying Party
is liable under this Article VII and (ii) the Indemnifying Party may not assume
control of the defense of Third Party Action involving criminal liability or in
which equitable relief is sought against the Indemnified Party. If the
Indemnifying Party does not, or is not permitted under the terms hereof to, so
assume control of the defense of a Third Party Action, the Indemnified Party
shall control such defense. The Non-controlling Party may participate in such
defense at its own expense. The Controlling Party shall
-33-
keep the Non-controlling Party advised of the status of such Third Party Action
and the defense thereof and shall consider in good faith recommendations made by
the Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such Third Party Action (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of such
Third Party Action. Notwithstanding any other provision of this Agreement, the
reasonable fees and expenses of counsel to the Indemnified Party with respect to
a Third Party Action shall be considered Damages for purposes of this Agreement
if (i) the Indemnified Party controls the defense of such Third Party Action
pursuant to the terms of this Section 7.3(a) or (ii) the Indemnifying Party
assumes control of such defense and the Indemnified Party reasonably concludes
that the Indemnifying Party and the Indemnified Party have conflicting interests
or different defenses available with respect to such Third Party Action. The
Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any Third Party Action without the prior written consent
of the Indemnified Party, which shall not be unreasonably withheld, conditioned
or delayed. If the Indemnified Party withholds its consent to any such
settlement or entry of judgment which settlement or entry of judgment relates to
cash Damages only, then the liability of the Indemnifying Party to the
Indemnified Party with respect to the matter which would have been concluded or
settled shall be limited to the amount for which such matters could have been
concluded or settled but for the fact the Indemnified Party withheld its
consent. The Indemnified Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such Third Party Action without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld, conditioned or delayed.
(b) In order to seek indemnification under this Article VII, an
Indemnified Party shall deliver a Claim Notice to the Indemnifying Party. If the
Indemnified Party is the Buyer, the Indemnifying Party shall deliver a copy of
the Claim Notice to both the Seller and the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a Response, in which
the Indemnifying Party shall: (i) agree that the Indemnified Party is entitled
to receive all of the Claimed Amount (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Claimed Amount, by check or by wire transfer; provided that if the
Indemnified Party is the Buyer, the Indemnifying Party and the Indemnified Party
shall deliver to the Escrow Agent, within three days following the delivery of
the Response, a written notice executed by both parties instructing the Escrow
Agent to disburse to the Buyer an amount from the Escrow Fund equal to the
Claimed Amount), (ii) agree that the Indemnified Party is entitled to receive
the Agreed Amount (in which case the Response shall be accompanied by a payment
by the Indemnifying Party to the Indemnified Party of the Agreed Amount, by
check or by wire transfer; provided that if the Indemnified Party is the Buyer,
the Indemnifying Party and the Indemnified Party shall deliver to the Escrow
Agent, within three days following the delivery of the Response, a written
notice executed by both parties instructing the Escrow Agent to disburse to the
Buyer from the Escrow Fund an amount equal to the Agreed Amount) or (iii)
dispute that the Indemnified Party is entitled to receive any of the Claimed
Amount.
-34-
(d) During the 30-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 30-day period, the Indemnifying Party and the Indemnified Party
shall discuss in good faith the submission of the Dispute to binding
arbitration, and if the Indemnifying Party and the Indemnified Party agree in
writing to submit the Dispute to such arbitration, then the provisions of
Section 7.3(e) shall become effective with respect to such Dispute. The
provisions of this Section 7.3(d) shall not obligate the Indemnifying Party and
the Indemnified Party to submit to arbitration or any other alternative dispute
resolution procedure with respect to any Dispute, and in the absence of an
agreement by the Indemnifying Party and the Indemnified Party to arbitrate any
Dispute, such Dispute shall be resolved in a state or federal court sitting in
the Commonwealth of Kentucky, in accordance with Section 10.12. If the
Indemnified Party is the Buyer, the Indemnifying Party and the Indemnified Party
shall deliver to the Escrow Agent, promptly following the resolution of the
Dispute (whether by mutual agreement, arbitration, judicial decision or
otherwise), a written notice executed by both parties instructing the Escrow
Agent as to what (if any) portion of the Escrow Fund shall be disbursed to the
Buyer (which notice shall be consistent with the terms of the resolution of the
Dispute).
(e) If, as set forth in Section 7.3(d), the Indemnified Party and
the Indemnifying Party agree to submit any Dispute to binding arbitration, the
arbitration shall be conducted by the Arbitrator in accordance with the
Commercial Rules in effect from time to time and the following provisions:
(i) In the event of any conflict between the Commercial Rules
in effect from time to time and the provisions of this Agreement, the provisions
of this Agreement shall prevail and be controlling.
(ii) The parties shall commence the arbitration by jointly
filing a written submission with the office of the AAA having responsibility for
matters to be arbitrated in Louisville, Kentucky, in accordance with Commercial
Rule 5 (or any successor provision).
(iii) No depositions or other discovery shall be conducted in
connection with the arbitration.
(iv) Not later than 30 days after the conclusion of the
arbitration hearing, the Arbitrator shall prepare and distribute to the parties
a writing setting forth the arbitral award and the Arbitrator's reasons
therefor. Any award rendered by the Arbitrator shall be final, conclusive and
binding upon the parties, and judgment thereon may be entered and enforced in
any court of competent jurisdiction (subject to Section 10.12), provided that
the Arbitrator shall have no power or authority to grant injunctive relief,
specific performance or other equitable relief.
(v) The Arbitrator shall have no power or authority, under the
Commercial Rules or otherwise, to (x) modify or disregard any provision of this
Agreement, including the provisions of this Section 7.3(e), or (y) address or
resolve any issue not submitted by the parties.
-35-
(vi) In connection with any arbitration proceeding pursuant to
this Agreement, each party shall bear its own costs and expenses, except that
the fees and costs of the AAA and the Arbitrator, the costs and expenses of
obtaining the facility where the arbitration hearing is held, and such other
costs and expenses as the Arbitrator may determine to be directly related to the
conduct of the arbitration and appropriately borne jointly by the parties (which
shall not include any party's attorneys' fees or costs, witness fees (if any),
costs of investigation and similar expenses) shall be shared equally by the
Indemnified Party and the Indemnifying Party.
(f) Notwithstanding the other provisions of this Section 7.3, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VII, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, and
(ii) such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VII, and shall be reimbursed, in
accordance with the provisions of this Article VII, for any such Damages for
which it is entitled to indemnification pursuant to this Article VII (subject to
the right of the Indemnifying Party to dispute the Indemnified Party's
entitlement to indemnification, or the amount for which it is entitled to
indemnification, under the terms of this Article VII).
(g) Any amounts to be disbursed by the Escrow Agent hereunder shall
first be satisfied against the Value of the Escrow Shares and second against any
other assets held in the Escrow Fund.
7.4 Survival of Representations and Warranties. All representations and
warranties that are covered by the indemnification agreements in Section 7.1(a)
and Section 7.2(a) shall (a) survive the Closing and (b) shall expire on the
date that is eighteen (18) months following the Closing Date, except that (i)
the representations and warranties set forth in Sections 2.1, 2.2, 2.3, 3.1 and
3.2 shall survive the Closing without limitation and (ii) the representations
and warranties set forth in Sections 2.9, 2.20 and 2.21 shall survive until 30
days following expiration of all statutes of limitation applicable to the
matters referred to therein. If an Indemnified Party delivers to an Indemnifying
Party, before expiration of a representation or warranty, either a Claim Notice
based upon a breach of such representation or warranty, or an Expected Claim
Notice based upon a breach of such representation or warranty, then the
applicable representation or warranty shall survive until, but only for purposes
of, the resolution of the matter covered by such notice. If the legal proceeding
or written claim with respect to which an Expected Claim Notice has been given
is definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and Escrow Funds have been retained in escrow after the Termination
Date (as defined in the Escrow Agreement) with respect to such Expected Claim
Notice, the Indemnifying Party and the Indemnified Party shall promptly deliver
to the Escrow Agent a written notice executed by both parties instructing the
Escrow Agent to disburse such retained Escrow Fund in accordance with such
withdrawal or resolution and the terms of the Escrow Agreement. The rights to
indemnification set forth in this Article VII shall not be affected by (i) any
investigation
-36-
conducted by or on behalf of an Indemnified Party or any knowledge acquired (or
capable of being acquired) by an Indemnified Party, whether before or after the
date of this Agreement or the Closing Date (including through supplemental
information provided pursuant to by Section 4.6), with respect to the inaccuracy
or noncompliance with any representation, warranty, covenant or obligation which
is the subject of indemnification hereunder or (ii) any waiver by an Indemnified
Party of any closing condition relating to the accuracy of any representations
and warranties or the performance of or compliance with agreements and
covenants.
7.5 Treatment of Indemnity Payments. Any payments made to an Indemnified
Party pursuant to this Article VII or pursuant to the Escrow Agreement shall be
treated as an adjustment to the Purchase Price for tax purposes.
7.6 Limitations.
(a) For purposes solely of this Article VII, all representations and
warranties of the Parties (other than Sections 2.7 and 2.28) shall be construed
as if the term "material" and any reference to "Material Adverse Effect" (and
variations thereof) were omitted from such representations and warranties.
(b) The Parties agree that their exclusive remedy at law for a
breach of this Agreement by any other Party shall be this Article VII.
(c) Notwithstanding any other provisions of this Agreement, the
Buyer agrees that the Seller's and the Shareholders' obligations under Section
7.1(a) shall be limited solely to the principal amount of the Secured Promissory
Note and the Escrow Fund held by the Escrow Agent, and any indemnification
payments under Section 7.1(a) shall be limited to the Escrow Fund (based on the
Value of the Escrow Shares plus any other cash or property then held in the
Escrow Fund) in satisfaction of such indemnification claim; provided that the
limitations set forth in this sentence shall not apply to a claim pursuant to
Section 7.1(a) relating to a breach of the representations and warranties set
forth in Sections 2.1, 2.3, 2.9, 2.20 or 2.21.
(d) Notwithstanding any other provisions of this Agreement, the
Seller agrees that the Buyer's obligations under Section 7.2(a) shall be limited
solely to an amount equal to the value of the Escrow Shares based on an assumed
value of $1.00 per share calculated as of, the date of Closing; provided that
the limitations set forth in this sentence shall not apply to a claim pursuant
to Section 7.2 relating to a breach of the representations and warranties set
forth in Sections 3.1 or 3.2.
(e) The Seller and the Shareholders shall have no liability (for
indemnification or otherwise) with respect to claims under Section 7.1(a) until
the total of all Damages with respect to such matters exceeds $50,000 at which
point the Seller and the Shareholders shall be liable for any and all Damages.
However, the restrictions of this paragraph will not apply to any claim pursuant
to Section 7.1(a) relating to a breach of the representations and warranties set
forth in Sections 2.1, 2.3, 2.6 (last sentence only), 2.9, 2.20 or 2.21.
(f) The Buyer shall have no liability (for indemnification or
otherwise) with respect to claims under Section 7.2(a) until the total of all
Damages with respect to such matters exceeds $50,000, at which point the Buyer
shall be liable for any and all Damages. However,
-37-
the restrictions of this paragraph will not apply to any claim pursuant to
Section 7.2(a) relating to a breach of the representations and warranties set
forth in Sections 3.1 or 3.2.
(g) No Shareholder shall have any personal liability or
indemnification obligation under this Article VII for (i) any breach or
violation of Section 6.1, 6.2 or 6.3 by a person other than the Shareholder
(provided that this Section 7.6(g) does not limit the availability of the Escrow
Fund to the Buyer for breaches or violations of such section(s)), and (ii) any
amount (including such Shareholder's pro rata share of the Escrow Fund) greater
than the product of (x) (A) $1,300,000.00 plus (B) $900,000.00 or, if less, the
value of 900,000 Shares as of the date payment for indemnification is made,
times (y) such Shareholder's ownership percentage of Seller as of the date of
Closing.
(h) Buyer must first seek to satisfy any claim by the Buyer against
the Seller or any Shareholder under this Article VII by the right of setoff set
forth in Section 7.6(i), or, with respect to any claim by the Buyer against a
given Shareholder under this Article VII, against any of the Shares (at the
Value thereof) then held by such Shareholder (or, if such Shares have not been
distributed to such Shareholder by the Seller, by such Shareholder's (and only
such Shareholder's) pro-rata portion of the total number of Shares issued to the
Seller on the Closing Date, based on such Shareholder's ownership percentage of
Seller as of the date of Closing less any Shares that have been sold by the
Seller at the direction of such Shareholder), and with respect to matters
exceeding such Value and the amount of any setoff, Buyer may seek cash to
satisfy such claim (subject to the aggregate limitation set forth in Section
7.6(g)(ii) above).
(i) Upon notice to Seller and Shareholders specifying in reasonable
detail the basis therefor, Buyer may set off any amount to which it may be
entitled under this Article VII against amounts otherwise payable under the
Secured Promissory Note or may give notice of a claim in such amount under the
Escrow Agreement. The exercise of such right of setoff by Buyer in good faith,
whether or not ultimately determined to be justified, will not constitute an
event of default under the Secured Promissory Note or any instrument securing
the Secured Promissory Note. Neither the exercise of nor the failure to exercise
such right of setoff or to give a notice of a claim under the Escrow Agreement
will constitute an election of remedies or limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Closing, as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written notice
to the Seller in the event the Seller or any Shareholder is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach (i) individually or in combination with any other such breach, would
cause the conditions set forth in clauses (b) or (c) of Section 5.1
-38-
not to be satisfied and (ii) is not cured within 20 days following delivery by
the Buyer to the Seller of written notice of such breach;
(c) the Seller may terminate this Agreement by giving written notice
to the Buyer in the event the Buyer is in breach of any representation, warranty
or covenant contained in this Agreement, and such breach (i) individually or in
combination with any other such breach, would cause the conditions set forth in
clauses (a) or (b) of Section 5.2 not to be satisfied and (ii) is not cured
within 20 days following delivery by the Seller to the Buyer of written notice
of such breach;
(d) the Buyer may terminate this Agreement by giving written notice
to the Seller if the Closing shall not have occurred on or before December 31,
2007 by reason of the failure of any condition precedent under Section 5.1
(unless the failure results primarily from a breach by the Buyer of any
representation, warranty or covenant contained in this Agreement); or
(e) the Seller may terminate this Agreement by giving written notice
to the Buyer if the Closing shall not have occurred on or before December 31,
2007 by reason of the failure of any condition precedent under Section 5.2
(unless the failure results primarily from a breach by the Seller or a
Shareholder of any representation, warranty or covenant contained in this
Agreement).
8.2 Effect of Termination. If either Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate without any liability of either Party to the other Party (except for
any liability of a Party for breaches of this Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following terms shall have the
meaning set forth below.
"AAA" shall mean the American Arbitration Association.
"Acquired Assets" shall mean all of the assets, properties and
rights of the Seller existing as of the Closing, including:
(a) all cash, short-term investments, deposits, bank accounts and
other similar assets;
(b) all trade and other accounts receivable and notes and loans
receivable that are payable to the Seller, and all rights to unbilled amounts
for products delivered or services provided, together with any security held by
the Seller for the payment thereof;
(c) all computers, machinery, equipment, tools and tooling, furniture, fixtures,
supplies, leasehold improvements, motor vehicles and other tangible personal
property;
-39-
(d) all leaseholds and subleaseholds in real property, and
easements, rights-of-way and other appurtenants thereto;
(e) all Intellectual Property;
(f) all rights under Assigned Contracts;
(g) all claims, prepayments, deposits, refunds, causes of action,
chooses in action, rights of recovery, rights of setoff and rights of
recoupment;
(h) all books, records, accounts, ledgers, files, documents,
correspondence, lists (including customer and prospect lists), employment
records, manufacturing and procedural manuals, Intellectual Property records,
sales and promotional materials, studies, reports and other printed or written
materials; and
(i) all rights of the Seller in and with respect to the assets
associated with its medical and dental Employee Benefit Plans.
"Affiliate" shall mean any affiliate, as defined in Rule 12b-2 under the
Exchange Act.
"Agreed Amount" shall mean an amount agreed upon by the Indemnifying Party
and the Indemnified Party.
"Ancillary Agreements" shall mean the Security Agreement, the Escrow
Agreement, the ▇▇▇▇ of sale and other instruments of conveyance referred to in
Section 1.5(b)(iii), and the instrument of assumption and other instruments
referred to in Section 1.5(b)(iv).
"Arbitrator" shall mean a single arbitrator selected by the Buyer and the
Seller in accordance with the Commercial Rules.
"Assigned Contracts" shall mean the customer contracts, supplier contracts
and vendor contracts listed on Section 2.14 of the Disclosure Schedule (except
for those vendor contracts that are specifically indicated as excluded), and the
Lease described in Section 2.12 of the Disclosure Schedules.
"Assumed Liabilities" shall mean (a) all current and long term liabilities
on the Seller's Balance Sheet at the time of closing except those identified on
Schedule 1.2(b) (Specified Retained Liabilities), (b) all obligations of the
Seller arising after the Closing under the Assigned Contracts, other than any
liabilities for any breach, act or omission by the Seller prior to the Closing
under any Assigned Contract, (c) vacation accrued by employees, customer
retention bonus and non-owner discretionary profit sharing plan, in each case
based on a bi-weekly accrual from January 1, 2007 to the Closing Date as
accepted by Buyer and (d) any liability for Taxes in accordance with Sections
6.4(a), (b), (c) and (d).
"Business" means any of the following, to the extent actually conducted by
the Seller: (i) computer systems management (sales, service and support); (ii)
computer telephony integration; (iii) telephone systems management (sales,
service and support); (iv) cabling; (v) software
-40-
development; (vi) network engineering, design and project management; and (vii)
provision or resale of LAN/WAN services.
"Buyer" shall have the meaning set forth in the first paragraph of this
Agreement.
"Buyer Certificate" shall mean a certificate to the effect that each of
the conditions specified in clauses (a) through (c) (insofar as clause (c)
relates to Legal Proceedings involving the Buyer) of Section 5.2 is satisfied in
all respects.
"Buyer Common Stock" shall mean the common shares of the Buyer or
following the Closing, the common stock, $0.0001 par value, of any successor
entity to the Buyer.
"Cash Consideration" has the meaning set forth in Section 1.3 of this
Agreement.
"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Claim Notice" shall mean written notification which contains (i) a
description of the Damages incurred or reasonably expected to be incurred by the
Indemnified Party and the Claimed Amount of such Damages, to the extent then
known, (ii) a statement that the Indemnified Party is entitled to
indemnification under Article VII for such Damages and a reasonable explanation
of the basis therefor, and (iii) a demand for payment in the amount of such
Damages.
"Claimed Amount" shall mean the amount of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement.
"Closing Date" shall mean the date two business days after the
satisfaction or waiver of all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (excluding the
delivery at the Closing of any of the documents set forth in Article V), or such
other date as may be mutually agreeable to the Parties.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Rules" shall mean the Commercial Arbitration Rules of the AAA.
"Controlling Party" shall mean the party controlling the defense of any
Third Party Action.
"Customer Offerings" shall mean (a) the services that the Seller (i)
currently provides or makes available to third parties, or (ii) has provided or
made available to third parties within the previous four years, or (iii)
currently plans to provide or make available to third parties in the future and
(b) the products (including Software and Documentation) that the Seller (i)
currently develops, manufactures, markets, distributes, makes available, sells
or licenses to or for third parties, or (ii) has developed, manufactured,
marketed, distributed, made available, sold or licensed to or for third parties
within the previous four years, or (iii) currently plans to develop,
-41-
manufacture, market, distribute, make available, sell or license to or for third
parties in the future. A true and complete list of all Customer Offerings is set
forth in Section 2.13(c) of the Disclosure Schedule.
"Damages" shall mean any and all debts, obligations and other liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or whether known or
unknown, or due or to become due or otherwise), diminution in value, monetary
damages, fines, fees, penalties, interest obligations, deficiencies, losses and
expenses (including amounts paid in settlement, interest, court costs, costs of
investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation), other than those
costs and expenses of arbitration of a Dispute which are to be shared equally by
the Indemnified Party and the Indemnifying Party as set forth in Section
7.3(e)(vi).
"Disclosure Schedule" shall mean the disclosure schedule provided by the
Seller to the Buyer on the date hereof and accepted in writing by the Buyer.
"Dispute" shall mean the dispute resulting if the Indemnifying Party in a
Response disputes its liability for all or part of the Claimed Amount.
"Documentation" shall mean printed, visual or electronic materials,
reports, white papers, documentation, specifications, designs, flow charts, code
listings, instructions, user manuals, frequently asked questions, release notes,
recall notices, error logs, diagnostic reports, marketing materials, packaging,
labeling, service manuals and other information describing the use, operation,
installation, configuration, features, functionality, pricing, marketing or
correction of a product, whether or not provided to end user.
"Earnout" has the meaning set forth in Section 1.3 of this Agreement.
"Employee Benefit Plan" shall mean any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), any "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA), and any other written or oral plan, agreement
or arrangement involving direct or indirect compensation, including insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation.
"Employment Agreements" shall have the meaning set forth in the recitals.
"Environmental Law" shall mean any federal, state or local law, statute,
rule, order, directive, judgment, Permit or regulation or the common law
relating to the environment, occupational health and safety, or exposure of
persons or property to Materials of Environmental Concern, including any
statute, regulation, administrative decision or order pertaining to: (i) the
presence of or the treatment, storage, disposal, generation, transportation,
handling, distribution, manufacture, processing, use, import, export, labeling,
recycling, registration, investigation or remediation of Materials of
Environmental Concern or documentation related to the foregoing; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release,
threatened release, or accidental release into the environment, the workplace or
other areas of Materials of Environmental Concern, including emissions,
discharges, injections, spills, escapes or dumping of Materials of Environmental
Concern; (v) transfer of interests in or control of real
-42-
property which may be contaminated; (vi) community or worker right-to-know
disclosures with respect to Materials of Environmental Concern; (vii) the
protection of wild life, marine life and wetlands, and endangered and threatened
species; (viii) storage tanks, vessels, containers, abandoned or discarded
barrels and other closed receptacles; and (ix) health and safety of employees
and other persons. As used above, the term "release" shall have the meaning set
forth in CERCLA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity which is, or at any applicable
time was, a member of (1) a controlled group of corporations (as defined in
Section 414(b) of the Code), (2) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the Seller.
"Escrow Agent" shall mean [ ].
"Escrow Agreement" shall mean an escrow agreement in substantially the
form attached hereto as Exhibit F.
"Escrow Fund" shall mean the Escrow Shares or any cash, securities or
property received with respect to, in exchange for, or upon the sale of such
shares.
"Escrow Shares" shall mean 450,000 of the Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the SEC issued
under such Act, as they each may, from time to time, be in effect.
"Excluded Assets" shall mean the following assets of the Seller:
(a) the corporate charter and governing documents, qualifications to
conduct business as a foreign limited liability company or entity, arrangements
with registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, share or security transfer books
and other documents relating to the organization and existence of the Seller as
a corporation;
(b) all rights relating to refunds, recovery or recoupment of Taxes;
and
(c) any of the rights of the Seller under this Agreement or under
the Ancillary Agreements;
(d) prepayments by Seller on insurance policies not assumed; and
(e) any item identified on Schedule 1.1(b).
-43-
"Expected Claim Notice" shall mean a notice that, as a result of a legal
proceeding instituted by or written claim made by a third party, an Indemnified
Party reasonably expects to incur Damages for which it is entitled to
indemnification under Article VII.
"Exploit" shall mean develop, design, test, modify, make, use, sell, have
made, used and sold, import, reproduce, market, distribute, commercialize,
support, maintain, correct and create derivative works of.
"Financial Statements" shall mean:
(a) the unaudited balance sheets and statements of income, changes
in Shareholders' equity and cash flows of the Seller as of the end of and for
each of the years ended December 31, 2004, December 31, 2005 and December 31,
2006; and
(b) the Most Recent Balance Sheet and the unaudited statements of
income, changes in Shareholders' equity and cash flows for the three months
ended as of the Most Recent Balance Sheet Date.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Entity" shall mean any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency.
"Income Taxes" means any and all income taxes (together with any and all
interest, penalties, and additional amounts imposed with respect thereto)
imposed by any government or taxing authority.
"Indemnified Party" shall mean a party entitled, or seeking to assert
rights, to indemnification under Article VII of this Agreement.
"Indemnifying Party" shall mean the party from whom indemnification is
sought by the Indemnified Party.
"Intellectual Property" shall mean the following subsisting throughout the
world:
(a) Patent Rights;
(b) Trademarks and all goodwill in the Trademarks;
(c) copyrights, designs, data and database rights and registrations
and applications for registration thereof, including moral rights of authors;
(d) mask works and registrations and applications for registration
thereof and any other rights in semiconductor topologies under the laws of any
jurisdiction;
(e) inventions, invention disclosures, statutory invention
registrations, trade secrets and confidential business information, know-how,
manufacturing and product processes and techniques, research and development
information, financial, marketing and business data,
-44-
pricing and cost information, business and marketing plans and customer and
supplier lists and information, whether patentable or nonpatentable, whether
copyrightable or noncopyrightable and whether or not reduced to practice; and
(f) other proprietary rights relating to any of the foregoing
(including remedies against infringement thereof and rights of protection of
interest therein under the laws of all jurisdictions).
"Intellectual Property Registrations" means Patent Rights, registered
Trademarks, registered copyrights and designs, mask work registrations and
applications for each of the foregoing.
"Internal Systems" shall mean the Software and Documentation and the
computer, communications and network systems (both desktop and enterprise-wide)
used by the Seller in its business or operations or to develop, manufacture,
fabricate, assemble, provide, distribute, support, maintain or test the Customer
Offerings, whether located on the premises of the Seller or hosted at a third
party site. All Internal Systems that are material to the business of the Seller
are listed and described in Section 2.13(c) of the Disclosure Schedule.
"Key Employees" means ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and any other employee
designated as such by the Buyer at Closing.
"Lease" shall mean any lease or sublease pursuant to which the Seller
leases or subleases from another party any real property.
"Lease Agreement" means that certain Lease, dated [ ], between Seller and
[ ].
"Legal Proceeding" shall mean any action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator.
"Materials of Environmental Concern" shall mean any: pollutants,
contaminants or hazardous substances (as such terms are defined under CERCLA),
pesticides (as such term is defined under the Federal Insecticide, Fungicide and
Rodenticide Act), solid wastes and hazardous wastes (as such terms are defined
under the Resource Conservation and Recovery Act), chemicals, other hazardous,
radioactive or toxic materials, oil, petroleum and petroleum products (and
fractions thereof), or any other material (or article containing such material)
listed or subject to regulation under any law, statute, rule, regulation, order,
Permit, or directive due to its potential, directly or indirectly, to harm the
environment or the health of humans or other living beings.
"Most Recent Balance Sheet" shall mean the unaudited balance sheet of the
Seller as of the Most Recent Balance Sheet Date.
"Most Recent Balance Sheet Date" shall mean September 30, 2007.
"Non-controlling Party" shall mean the party not controlling the defense
of any Third Party Action.
-45-
"Open Source Materials" means all Software, Documentation or other
material that is distributed as "free software", "open source software" or under
a similar licensing or distribution model, including, but not limited to, the
GNU General Public License (GPL), GNU Lesser General Public License (LGPL),
Mozilla Public License (MPL), or any other license described by the Open Source
Initiative as set forth on ▇▇▇.▇▇▇▇▇▇▇▇▇▇.▇▇▇.
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount).
"Other Holders" means holders of securities of the Buyer (other than
Shareholders) who are entitled, by contract with the Buyer, to have securities
included in a Registration Statement.
"Parties" shall mean the Buyer, the Seller and the Shareholders, where
applicable. References which contrast "Party" to the other "Party" shall mean
the Buyer on the one hand and the Seller and the Shareholders, collectively, on
the other hand.
"Patent Rights" shall mean all patents, patent applications, utility
models, design registrations and certificates of invention and other
governmental grants for the protection of inventions or industrial designs
(including all related continuations, continuations-in-part, divisionals,
reissues and reexaminations).
"Permits" shall mean all permits, licenses, registrations, certificates,
orders, approvals, franchises, variances and similar rights issued by or
obtained from any Governmental Entity (including those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property).
"Post-Closing Tax Period" has the meaning set forth in Section 6.4(d) of
this Agreement.
"Pre-Closing Tax Period" has the meaning set forth in Section 6.4(d) of
this Agreement.
"Purchase Price" shall mean the purchase price to be paid by the Buyer for
the Acquired Assets.
"Reasonable Best Efforts" shall mean best efforts, to the extent
commercially reasonable.
"Reserved Taxes" shall have the meaning set forth in Section 6.4(b) of
this Agreement.
"Response" shall mean a written response containing the information
provided for in Section 7.3(c).
"Restricted Employee" shall mean any person who either (i) was an employee
of the Buyer on either the date of this Agreement or the Closing Date or (ii)
was an employee of the Seller on either the date of this Agreement or the
Closing Date; provided, however, that Restricted Employee shall not include any
person included in (i) and (ii) in the preceding clause whose employment is
terminated by Buyer, in the good faith determination of the Board of Directors
of Buyer, not for cause or not for a material failure to perform.
-46-
"Restricted Period" shall mean from the date of this Agreement until (i)
twenty-four months following his termination of employment with the Buyer with
respect to each Key Employee, and (ii) five years following the date of this
Agreement with respect to the Seller and all other Shareholders of Seller not
specifically identified in the foregoing clauses (i) or (ii).
"Retained Liabilities" shall mean any and all liabilities or obligations
(whether known or unknown, absolute or contingent, liquidated or unliquidated,
due or to become due and accrued or unaccrued, and whether claims with respect
thereto are asserted before or after the Closing) of the Seller which are not
Assumed Liabilities. The Retained Liabilities shall include, without limitation,
all liabilities and obligations of the Seller:
(a) for income, transfer, sales, use or other Taxes imposed upon the
Seller and/or the Shareholders arising in connection with the consummation of
the transactions contemplated by this Agreement (including any income Taxes
arising as a result of the transfer by the Seller to the Buyer of the Acquired
Assets), except to the extent provided in Section 6.4;
(b) for costs and expenses incurred in connection with this
Agreement or the consummation of the transactions contemplated by this
Agreement;
(c) under this Agreement or the Ancillary Agreements;
(d) except to the extent provided in Section 6.4, for (i) any Taxes
imposed upon the Seller and/or the Shareholders, including deferred Taxes or
Taxes measured by income of the Seller and/or the Shareholders earned prior to
the Closing, (ii) any liabilities for federal or state income tax and FICA taxes
of employees of the Seller and/or the Shareholders which the Seller and/or the
Shareholders are legally obligated to withhold, (iii) any liabilities of the
Seller and/or the Shareholders for employer FICA and unemployment taxes
incurred, and (iv) any liabilities of the Seller and/or the Shareholders for
sales, use or excise taxes or customs and duties;
(e) under any agreements, contracts, leases or licenses which are
associated with Excluded Assets on Schedule 1.1(b) or are specifically listed as
Retained Liabilities on Schedule 1.2(b);
(f) arising prior to the Closing under the Assigned Contracts, and
all liabilities for any breach, act or omission by the Seller prior to the
Closing under any Assigned Contract;
(g) arising out of events, conduct or conditions existing or
occurring prior to the Closing that constitute a violation of or non-compliance
with any law, rule or regulation (including Environmental Laws), any judgment,
decree or order of any Governmental Entity, or any Permit or that give rise to
liabilities or obligations with respect to Materials of Environmental Concern;
(h) to pay severance benefits to any employee of the Seller whose
employment is terminated (or treated as terminated) in connection with the
consummation of the transactions contemplated by this Agreement, and all
liabilities resulting from the termination of employment of employees of the
Seller prior to the Closing that arose under any federal or state law or under
any Employee Benefit Plan established or maintained by the Seller;
-47-
(i) to indemnify any person or entity by reason of the fact that
such person or entity was a manager, officer, employee, or agent of the Seller
or was serving at the request of the Seller as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement, or otherwise);
(j) injury to or death of persons or damage to or destruction of
property occurring prior to the Closing (including any workers compensation
claim);
(k) for medical, dental and disability (both long-term and
short-term) benefits, whether insured or self-insured, owed to employees or
former employees of the Seller based upon (A) exposure to conditions in
existence prior to the Closing or (B) disabilities existing prior to the Closing
(including any such disabilities which may have been aggravated following the
Closing);
(l) for benefits under any Seller Plan accruing prior to or on the
date of closing; and
(m) for any retrospective premium increases under any Seller Plan
assumed by Buyer that relates to periods before and including the Closing.
"SEC" means the Securities and Exchange Commission, or any other federal
agency at the time administering the Securities Act.
"Secured Promissory Note" shall mean the Secured Promissory Note referred
to in Section 1.3 hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the SEC issued under
such Act, as they each may, from time to time, be in effect.
"Security Interest" shall mean any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by operation
of law), other than (i) mechanic's, materialmen's, and similar liens, (ii) liens
arising under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, (iii) liens on goods in transit incurred
pursuant to documentary letters of credit, in each case arising in the Ordinary
Course of Business of the Seller and not material to the Seller, and (iv) liens
for Taxes which are not yet due and payable.
"Seller" shall have the meaning set forth in the first paragraph of this
Agreement.
"Seller Certificate" shall mean a certificate to the effect that each of
the conditions specified in Section 5.1 is satisfied in all respects.
"Seller Intellectual Property" shall mean shall the Seller Owned
Intellectual Property and the Seller Licensed Intellectual Property.
-48-
"Seller Licensed Intellectual Property" shall mean all Intellectual
Property that is licensed to the Seller by any third party.
"Seller Material Adverse Effect" shall mean any material adverse change,
event, circumstance or development with respect to, or material adverse effect
on, (i) the business, assets, liabilities, capitalization, prospects, condition
(financial or other), or results of operations of the Seller, or (ii) the
ability of the Buyer to operate the business of the Seller immediately after the
Closing. A material decrease in the net value of the Acquired Assets and the
Assumed Liabilities shall constitute a "Seller Material Adverse Effect" as well.
For the avoidance of doubt, the parties agree that the terms "material",
"materially" or "materiality" as used in this Agreement with an initial lower
case "m" shall have their respective customary and ordinary meanings, without
regard to the meaning ascribed to Seller Material Adverse Effect.
"Seller Owned Intellectual Property" shall mean all Intellectual Property
owned or purported to be owned by the Seller, in whole or in part.
"Seller Plan" shall mean any Employee Benefit Plan maintained, or
contributed to, by the Seller, or any ERISA Affiliate.
"Seller Registrations" shall mean Intellectual Property Registrations that
are registered or filed in the name of the Seller, alone or jointly with others.
"Seller Source Code" shall mean the source code for any Software included
in the Customer Offerings or Internal Systems or other confidential information
constituting, embodied in or pertaining to such Software.
"Shares" has the meaning set forth in Section 1.3 of this Agreement and
shall include any shares of any successor entity issued in exchange therefor.
"Software" shall mean computer software code, applications, utilities,
development tools, diagnostics, databases and embedded systems, whether in
source code, interpreted code or object code form.
"Stockholder" shall mean a stockholder of the Seller.
"Subsidiary" shall mean any corporation, partnership, trust, limited
liability company or other non-corporate business enterprise in which the Seller
holds stock or other ownership interests representing (a) more than 50% of the
voting power of all outstanding stock or ownership interests of such entity or
(b) the right to receive more than 50% of the net assets of such entity
available for distribution to the holders of outstanding stock or ownership
interests upon a liquidation or dissolution of such entity.
"Taxes" (including with correlative meaning "Tax" and "Taxable") means (x)
any and all taxes, and any and all other charges, fees, levies, duties,
deficiencies, customs or other similar assessments or liabilities in the nature
of a tax, including without limitation any income, gross receipts, ad valorem,
net worth, premium, value-added, alternative or add-on minimum, excise,
severance, stamp, occupation, windfall profits, real property, personal
property, assets, sales, use, capital stock, capital gains, documentary,
recapture, transfer, transfer gains, estimated,
-49-
withholding, employment, unemployment insurance, unemployment compensation,
social security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, gains,
franchise and other taxes imposed by any federal, state, local, or foreign
Governmental Entity, (y) any interest, fines, penalties, assessments, or
additions resulting from, attributable to, or incurred in connection with any
items described in this paragraph or any contest or dispute thereof, and (z) any
items described in this paragraph that are attributable to another person but
that the Seller is liable to pay by law, by contract, or otherwise.
"Tax Returns" means any and all reports, returns, declarations,
statements, forms, or other information required to be supplied to a
Governmental Entity or to any individual or entity in connection with Taxes and
any associated schedules, attachments, work papers or other information provided
in connection with such items, including any amendments, thereof.
"Third Party Action" shall mean any suit or proceeding by a person or
entity other than Buyer or Seller or their affiliates for which indemnification
may be sought by Buyer or Seller under Article VII.
"Trademarks" shall mean all registered trademarks and service marks,
logos, Internet domain names, corporate names and doing business designations
and all registrations and applications for registration of the foregoing, common
law trademarks and service marks and trade dress.
"Value" means, with respect to the Shares or the Escrow Shares, the
average closing price of Buyer Common Stock on any stock exchange on which such
Buyer Common Stock is listed for the 30-days on which the Common Stock of the
Buyer is traded immediately prior to the day any portion of the Shares or the
Escrow Shares are disbursed in satisfaction of a claim, or if such shares are
not then publicly traded, the value as of such date as determined by the Board
of Directors of the Buyer in good faith.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
Buyer may make any public disclosure it believes in good faith is required by
applicable law, regulation or stock market rule (in which case the Buyer shall
use Reasonable Best Efforts to advise the Seller and provide it with a copy of
the proposed disclosure prior to making the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, with respect to the
-50-
subject matter hereof, including, without limitation, that certain letter of
intent dated August 7, 2007.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Neither Party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other Parties; provided that the Buyer may assign some or all of
its rights, interests and/or obligations hereunder to entity in any merger
between the Buyer and such entity one or more Affiliates of the Buyer or such
surviving entity, including, without limitation, any successor entity to the
Buyer. Any attempted assignment in contravention of this provision shall be
void.
10.5 Counterparts and Facsimile Signature. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature or electronic delivery.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered four
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent for next
business day delivery via a reputable nationwide overnight courier service, in
each case to the intended recipient as set forth below:
If to the Seller or a Shareholder: Copy to:
CETCON Incorporated Cuni, Fergunson & ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇
If to the Buyer: Copy to:
Beacon Enterprise Solutions Group, Inc. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Attn: Chief Executive Officer
Either Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger
-51-
service, telecopy, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the party for whom it is
intended. A Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
10.8 Governing Law. This Agreement (including the validity and
applicability of the arbitration provisions of this Agreement, the conduct of
any arbitration of a Dispute, the enforcement of any arbitral award made
hereunder and any other questions of arbitration law or procedure arising
hereunder) shall be governed by and construed in accordance with the internal
laws of the Commonwealth of Kentucky, without giving effect to any choice or
conflict of law provision or rule (whether of the Commonwealth of Kentucky or
any other jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the Commonwealth of Kentucky.
10.9 Amendments and Waivers. The Buyer and the Seller may mutually amend
any provision of this Agreement at any time prior to the Closing. No amendment
of any provision of this Agreement shall be valid unless the same shall be in
writing and signed. No waiver by a Party of any right or remedy hereunder shall
be valid unless the same shall be in writing and signed by the Party giving such
waiver. No waiver by a Party with respect to any default, misrepresentation, or
breach of warranty or covenant hereunder shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
10.11 Expenses. Except as set forth in Article VII and the Escrow
Agreement, each Party shall bear its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
10.12 Submission to Jurisdiction. Each Party (a) submits to the
jurisdiction of any state or federal court sitting in the Commonwealth of
Kentucky in any action or proceeding arising out of or relating to this
Agreement or the Ancillary Agreements (including any action or proceeding for
the enforcement of any arbitral award made in connection with any arbitration of
a Dispute hereunder), (b) agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court, (c) waives any claim
of inconvenient forum or other challenge to venue in such court, (d) agrees not
to bring any action or proceeding arising out of or relating to this Agreement
or the Ancillary Agreements in any other court and (e) waives any right it may
-52-
have to a trial by jury with respect to any action or proceeding arising out of
or relating to this Agreement or the Ancillary Agreements; provided in each case
that, solely with respect to any arbitration of a Dispute, the Arbitrator shall
resolve all threshold issues relating to the validity and applicability of the
arbitration provisions of this Agreement, contract validity, applicability of
statutes of limitations and issue preclusion, and such threshold issues shall
not be heard or determined by such court. Each Party agrees to accept service of
any summons, complaint or other initial pleading made in the manner provided for
the giving of notices in Section 10.7, provided that nothing in this Section
10.12 shall affect the right of a Party to serve such summons, complaint or
other initial pleading in any other manner permitted by law.
10.13 Specific Performance. Each Party acknowledges and agrees that the
other Party would be damaged irreparably in the event any of the provisions of
this Agreement (including Sections 6.1, 6.2 and 6.3) are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each Party agrees that the other Party shall be entitled to an injunction or
other equitable relief to prevent breaches of the provisions of this Agreement
and to enforce specifically this Agreement and the terms and provisions hereof
in addition to any other remedy to which it may be entitled, at law or in
equity. Notwithstanding the foregoing, the Parties agree that if a Dispute is
submitted to arbitration in accordance with Section 7.3(d) and Section 7.3(e),
then the foregoing provisions of this Section 10.13 shall not apply to such
Dispute, and the provisions of Section 7.3(d) and Section 7.3(e) shall govern
availability of injunctive relief, specific performance or other equitable
relief with respect to such Dispute.
10.14 Construction.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against a Party.
(b) Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(c) Any reference herein to "including" shall be interpreted as
"including without limitation".
(d) Any reference to any Article, Section or paragraph shall be
deemed to refer to an Article, Section or paragraph of this Agreement, unless
the context clearly indicates otherwise.
-53-
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
BUYER: SELLER:
BEACON ENTERPRISE SOLUTIONS CETCON INCORPORATED
GROUP, INC.
By: By:
----------------------------------- -----------------------------------
Name: Name:
Title: Title:
SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
-54-