STOCK PURCHASE AGREEMENT BY AND AMONG INX INC., DANA ZAHKA, AND ALL OTHER SHAREHOLDERS OF SELECT, INC. dated August 31, 2007
Exhibit
10.1
BY
AND AMONG
INX
INC.,
▇▇▇▇
▇▇▇▇▇,
AND ALL
OTHER SHAREHOLDERS
OF
SELECT,
INC.
dated
August 31, 2007
This
STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as
of August 31, 2007 (the “Effective Date”), by and among INX Inc., a
Delaware corporation with offices at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ (“Acquiror”), ▇▇▇▇ ▇▇▇▇▇ (the “Major Shareholder”) and
the remaining shareholders as set forth on Schedule 1.0 (together with
the Major Shareholder, the “Shareholders”).
RECITALS
A. Select,
Inc., is a Massachusetts corporation with offices at ▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇ (the “Target”).
B. Target
has issued and outstanding 112,990 shares, no par value per share, of its common
stock (the “Shares”) which constitute all of the outstanding capital
stock and voting securities of Target and are all owned by the
Shareholders.
C. Acquiror
wishes to acquire Target and wishes to purchase from the Shareholders, and
the
Shareholders wish to sell to Acquiror, all of the Shares, upon the terms and
subject to the conditions set forth herein.
D. The
Board
of Directors of Target has determined that it is in the best interests of the
Shareholders and Target that the Shareholders sell the Shares to
Acquiror.
NOW,
THEREFORE, in consideration of the covenants and representations set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties hereto
hereby agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF SHARES
1.1 Purchase
and Sale of the
Shares. Upon the terms and subject to the
conditions set forth in this Agreement, Acquiror agrees to purchase from each
Shareholder, and each Shareholder agrees to sell, assign, transfer and deliver
to Acquiror, all of the Shares set forth opposite such Shareholder’s name on
Schedule 1.1 hereto, in each case free and clear of all liens, pledges,
claims, charges, restrictions or other encumbrances, for the aggregate purchase
price of $8,500,000 (the “Initial Purchase
Consideration”). The Initial Purchase Consideration shall be
allocated among the Shareholders, pro rata, based on each Shareholder’s
ownership of the Shares and the Acquiror shall pay each Shareholder the portion
of the Initial Purchase Consideration set forth opposite such Shareholder’s name
on Schedule 1.1 hereto. Each Shareholder’s portion of the Initial
Purchase Consideration set forth opposite their respective name on Schedule
1.1 hereto shall be paid by Acquiror to such Shareholder on the Closing Date
as follows:
(a) $6,250,000
of the Initial Purchase Consideration (the “Cash Portion”) shall be
paid in cash, by wire transfer, less the Escrow Amount provided for in Section
1.1(b) below), to the Shareholders and each Shareholder will receive the pro
rata portion of the Cash Portion of the Initial Purchase Consideration set
forth
opposite such Shareholder’s name on Schedule 1.1;
(b) $1,000,000
of the Cash Portion of Initial Purchase Consideration (the “Escrow
Amount”) shall be placed in escrow by wire transfer of immediately
available funds as provided in Section 1.5 below in order to assure the
satisfaction of any obligations of the Shareholders arising under Article VI
hereof; and
(c) 236,843
shares of common stock, $0.001 par value per share of Acquiror, or such lesser
number of shares as determined in accordance with this Section 1.1(c), (the
“Stock Consideration”), shall be issued to the Shareholders in full
satisfaction of the remaining portion of the Initial Purchase Consideration
and
each Shareholder will receive the number of shares of Stock Consideration set
forth opposite such Shareholder’s name on Schedule 1.1.
The
aggregate number of shares of Stock Consideration shall be determined on the
Closing Date and shall be calculated based upon the greater of (A) the average
of the closing price per share for the common stock, $0.001 par value per share
of Acquiror, as reported by the Nasdaq Stock Exchange (the “NASDAQ”)
for the five (5) consecutive trading days ending prior to the second day before
the Closing Date and (B) $9.50 per share.
1.2 Contingent
Purchase Consideration. As further consideration for
the Shares, the Shareholders shall be entitled to receive the following
additional amounts of consideration (the “Contingent Purchase Price”)
based upon the financial performance of the Acquiror’s business unit that is
comprised, after the Closing Date, solely of the Target’s business acquired in
pursuant to this Agreement (the “Company Business”):
(a) If
beginning on the Closing Date and ending on the date twelve calendar months
thereafter (the “First Measurement Period”) Revenue for such period is
greater than $44,000,000 and Operating Profit Contribution for such period
is
greater than or equal to $1,760,000, then Acquiror shall pay the Shareholders
additional Contingent Purchase Consideration equal to $600,000 and will pay
the
Shareholders an additional $50,000 for each $145,000 of Operating Profit
Contribution in excess of $1,760,000 of Operating Profit Contribution for such
period up to a maximum of $600,000 with aggregate maximum of $1,200,000 in
additional Contingent Purchase Consideration for the First Measurement
Period.
(b) If
beginning on the one year anniversary of the Closing Date and ending on the
date
twelve calendar months thereafter (the “Second Measurement Period”),
Revenue for such period is greater than $53,000,000 and Operating Profit
Contribution for such period is greater than or equal to $3,710,000, then
Acquiror shall pay the Shareholders additional Contingent Purchase Consideration
equal to $600,000 and will pay an additional $50,000 for each $150,000 of
Operating Profit Contribution in excess of $3,710,000 of Operating Profit
Contribution for such period up to a maximum of $600,000 with an aggregate
maximum of $1,200,000 in additional Contingent Purchase Consideration for the
Second Measurement Period.
(c) All
Contingent Purchase Consideration shall be calculated and paid to the
Shareholders within ninety (90) days of the end of the First Measurement Period
and the Second Measurement Period, respectively, in each case in proportion
to
each Shareholder’s respective pro rata ownership interest of the Shares. In
addition, fifty percent (50%) of all Contingent Purchase Consideration shall
be
paid by the Acquiror to the Shareholders in cash and the remainder shall be
paid
by the Acquiror to the Shareholders, at the Acquiror’s option, by either cash or
the issuance to each Shareholder of such number of shares of Acquiror’s common
stock, $0.001 par value per share (the “Contingent Stock
Consideration”), determined by dividing fifty percent (50%) of the portion
of the Contingent Purchase Consideration payable to such Shareholder by the
price of Acquiror’s common stock, $0.001 par value per share (the “Acquiror
Common Stock”), using the average closing price per share for the Acquiror
Common Stock as reported by the NASDAQ for the five (5) consecutive trading
days
ending prior to the second day before the date of funding such payment of
Contingent Stock Consideration.
1.3 Closing. The
closing of the purchase and sale of the Shares shall take place at the offices
of the Acquiror located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ on
August 31, 2007 (the “Closing Date”), irrespective of where this Agreement is
executed by the various parties to the Agreement, and shall be effective as
of
midnight on August 31, 2007 so long as all of the conditions to closing have
been met (the “Closing”).
1.4 Deliveries
at the Closing. At the Closing, each of the
Shareholders and Acquiror shall take such actions and execute and deliver such
agreements and other instruments and documents as necessary or appropriate
to
effect the transactions contemplated by this Agreement in accordance with its
terms, including, without limitation, those provided for in Article V
hereof.
1.5 Escrow. Notwithstanding
any investigation of the business of Target made by or on behalf of Acquiror
and
in order to assure further satisfaction of any obligations of the Shareholders
arising under Article VI hereof, the Escrow Amount shall be delivered by
Acquiror directly to Amegy Bank N.A. (the “Escrow Agent”), for deposit
in accordance with the terms of the Escrow Agreement to be entered into by
and
among Acquiror, the Select Shareholders Nominee Trust and the Escrow Agent
substantially in the form attached hereto as Exhibit A (the “Escrow
Agreement”).
1.6 No
Further Ownership Rights in Shares. Payment of the
Initial Purchase Consideration in respect of the surrender for exchange of
the
Shares in accordance with the terms of this Agreement shall be deemed to be
full
satisfaction of the Shareholders’ rights pertaining to such Shares.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES
OF
THE SHAREHOLDERS
Except
as
set forth on the Disclosure Schedule attached to this Agreement as Exhibit
B (the “Disclosure Schedule”), the Shareholders, jointly and
severally, represent and warrant to Acquiror as of the date hereof as
follows:
2.1 Organization,
Standing and Power. Target is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts. Target has no subsidiaries and does not own any
equity interest or other voting securities of any other
entity. Target has the corporate power to own its properties and to
carry on its business as now being conducted and as proposed to be conducted
and
is duly qualified to do business and is in good standing in each jurisdiction
in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered to Acquiror a true and
correct copy of Target’s Articles of Organization and Bylaws or other comparable
governing documents, as amended to date. Target is not in violation
of any of the provisions of its Articles of Organization or Bylaws (or other
comparable governing documents).
2.2 Authority;
No Violations and No Consents.
(a) Target
has all requisite corporate power and authority to enter into this Agreement
and
each of the other agreements contemplated hereby (the “Ancillary
Agreements”) to which Target is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Agreements to which Target is a party and the
consummation of the transactions contemplated hereby and thereby have been
duly
authorized by all necessary corporate action on the part of Target.
(b) Each
Shareholder owns, beneficially and of record all of the Shares set forth
opposite such Shareholder’s name on Schedule 1.1 hereto.
(c) This
Agreement and each of the Ancillary Agreements to which a Shareholder is a
party
have been duly executed and delivered by each Shareholder and constitute the
legal, valid and binding obligations of each Shareholder, enforceable against
each in accordance with their respective terms. The execution and
delivery of this Agreement and each of the Ancillary Agreements to which they
are a party by each Shareholder does not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (i) any provision of
Target’s Articles of Organization or Bylaws (or other comparable governing
documents) or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to any
Shareholder, Target or any of their respective properties or
assets.
(d) No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”) is
required by or with respect to Target or any Shareholder in connection with
the
execution and delivery of this Agreement or any other Ancillary Agreement or
the
consummation of the transactions contemplated hereby or thereby.
2.3 Capitalization;
Subsidiaries; Title to the Shares.
(a) The
authorized capital stock of Target consists of 150,000 shares of common stock,
no par value per share. The issued and outstanding capital stock of
Target consists solely of the Shares. All outstanding shares of
capital stock of Target are duly authorized, validly issued, fully paid and
non-assessable and are owned by the Shareholders free and clear of any liens
or
encumbrances and are not subject to preemptive rights or rights of first
refusal. All outstanding shares of capital stock and other securities
of Target were issued in compliance with all applicable laws.
(b) Except
as
set forth on Schedule 2.3 of the Disclosure Schedule, there are no options,
warrants, calls, rights, commitments or agreements of any character
(i) obligating Target to issue, deliver, sell, repurchase or redeem any
shares of capital stock or any other securities of Target; or
(ii) obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement, there are
no contracts, commitments or agreements of any nature relating to voting,
purchase or sale of any of Target’s capital stock, including, without
limitation, any commitments to issue voting securities, and no agreements to
participate in any income of Target.
(c) The
sale
and delivery of the Shares as contemplated by this Agreement are not subject
to
any preemptive right, right of first refusal or other right or restriction,
except for restrictions pursuant to federal securities laws and state “Blue Sky”
laws. Upon delivery of the certificate(s) representing the Shares in
accordance with this Agreement, Acquiror will acquire good and marketable title
to the Shares, free and clear of all liens, pledges, claims, charges,
restrictions or other encumbrances and with no title defects, and will be
entitled to all the rights of a holder of such Shares.
2.4 Financial
Statements. Target has delivered to Acquiror its
consolidated audited financial statements for the fiscal years ended June 30,
2006 and June 24, 2005 and a draft of the audited financial statement for the
fiscal year ended June 29, 2007 (collectively, the “Financial
Statements”). The Financial Statements have been prepared in
accordance with generally accepted accounting principles (“GAAP”)
applied on a consistent basis throughout the periods indicated and with each
other. The Financial Statements fairly present the financial
condition and operating results of Target as of the dates, and for the periods,
indicated therein, subject to normal and recurring year-end audit
adjustments.
2.5 Absence
of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in
the balance sheet included in the latest audited Financial Statements (the
“Target Balance Sheet”), (ii) those identified in the footnotes to
the Financial Statements, (iii) those incurred in the ordinary course of
business and not required to be set forth in the Target Balance Sheet under
GAAP, (iv) those incurred in the ordinary course of business since the
Target Balance Sheet Date (defined below) and consistent with past practice
and
(v) those incurred in connection with the execution of this
Agreement.
2.6 Accounts
Receivable. All Accounts Receivable shown on the Target
Balance Sheet (net of reserves indicated on the Target Balance Sheet) or
thereafter acquired until the date hereof (net of reserves accrued in the normal
course of business and consistent with past practice) represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business consistent with past
practices. The net values at which the Accounts Receivable are
carried as a whole reflect the accounts receivable valuation policies of Target,
which are consistent with its past practice and in accordance with GAAP applied
on a consistent basis. None of the Accounts Receivable is subject to
any claim of offset, recoupment, set off, or counterclaim (other than as implied
under applicable law or such claims for which Target has accrued reserves in
the
normal course of business and consistent with past practice), and there are
not
facts or circumstances (whether asserted or unasserted) that would give rise
to
any such claim (other than as implied under applicable law or such claims for
which Target has accrued reserves in the normal course of business and
consistent with past practice). No person or entity has any lien,
charge, pledge, security interest, or other encumbrance on any such Accounts
Receivable, and no agreement for deduction or discount has been made with
respect to any of such Accounts Receivable.
2.7 Absence
of Certain Changes. Except as set forth on Schedule 2.7
of the Disclosure Schedule, since the date of the latest unaudited Financial
Statements (the “Target Balance Sheet Date”), Target has conducted its
business in the ordinary course consistent with past practice and there has
not
occurred: (i) any change, event or condition (whether or not
covered by insurance) that has resulted in, or might reasonably be expected
to
result in, a Material Adverse Effect on Target; (ii) any acquisition, sale
or transfer of any material asset of Target; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) or any revaluation of any of Target’s assets; (iv) any
declaration, setting aside or payment of a dividend or other distribution with
respect to any shares of Target, or any direct or indirect redemption, purchase
or other acquisition by Target of any of its capital stock; (v) any
material contract entered into by Target or any material amendment or
termination of, or default under, any material contract to which Target is
a
party or by which it, they or any of its or their respective properties is
bound; (vi) any amendment or change to the Articles of Organization or
Bylaws (or other comparable governing documents) of Target; (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Target to its respective directors or employees; (viii) labor trouble
or claim or wrongful discharge or other unlawful labor practice or action;
(ix)
any commencement or notice or, to Target’s knowledge or any Shareholder’s
knowledge, threat of commencement of any lawsuit or proceeding against Target;
(x) any acceleration, termination, material modification to, or cancellation
of
any material agreement, contract, lease, or license to which the Target is
a
party or by which it is bound; (xi) any grant or imposition of any claim, lien
or other encumbrance upon any of Target’s assets, tangible or intangible, (xii)
any material damage, destruction, or loss (whether or not covered by insurance)
to Target’s assets, tangible or intangible, (xiii) any grant by Target of any
license or sublicense of any material rights under or with respect to any of
Target’s Intellectual Property; (xiv) notice to the Target of any claim of
ownership by a third party of Target’s Intellectual Property or of infringement
by Target of any third party’s Intellectual Property rights; or (xv) any
negotiation or agreement by Target to do, cause or permit any of the things
described in the preceding clauses (i) through (xiv) (other than negotiations
with Acquiror and its representatives regarding the transactions contemplated
by
this Agreement).
2.8 Title
to Property. Target has good and marketable title to all
of its respective properties, interests in properties and assets, real and
personal, tangible and intangible, reflected in the Target Balance Sheet or
acquired after the Target Balance Sheet Date (except properties, interests
in
properties and assets sold or otherwise disposed of since the Target Balance
Sheet Date in the ordinary course of business), or, with respect to leased
properties and assets, valid leasehold interests therein, free and clear of
all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties, (iii) liens securing debt which is reflected on the Target
Balance Sheet and (iv) liens set forth on Schedule 2.8 of the Disclosure
Schedule. The offices, property and equipment of Target that are used
in the operation of its business are in good operating condition and repair,
ordinary wear and tear excepted. All properties used in the
operations of Target reflected in the Target Balance Sheet to the extent GAAP
requires the same to be reflected. Schedule 2.8 of the
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by Target, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and other
fees
payable under such lease. Such leases are in good standing, are valid
and effective in accordance with their respective terms, and there is not under
any such leases any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) by Target or,
to
the best knowledge of each Shareholder, the other parties
thereto. All facilities leased or subleased under such leases have
received all approvals, to its best knowledge and belief, of governmental
authorities (including material licenses and permits) required in connection
with the operation thereof, and have been operated and maintained in accordance
with applicable laws, rules, and regulations in all material
respects.
2.9 Intellectual
Property.
(a) Target
is
the sole owner of, and of all rights of any nature with respect to the software
products set forth on Schedule 2.9(a) of the Disclosure Schedule
(including, without limitation, any and all translations or derivatives thereof,
the “Software Products”), and is the sole owner of or is
licensed or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in source code and/or object code form), and tangible or
intangible proprietary information or material (all of the foregoing,
collectively, “Intellectual Property”) that are used or proposed to be
used in the business of Target as currently conducted or as proposed to be
conducted by Target. Without limiting the foregoing and except as set
forth on Schedule 2.9(a) of the Disclosure Schedule, Target has not
(i) licensed any of its Intellectual Property in source code form to any
third party or (ii) entered into any exclusive agreements relating to its
Intellectual Property with any party.
(b) Schedule
2.9(b) of the Disclosure Schedule lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and maskworks included
in
the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been acquired, issued or registered or in which
any application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements to which Target is a party and
pursuant to which any person is authorized to use any Intellectual Property
and
(iii) all licenses, sublicenses and other agreements as to which Target is
a
party and pursuant to which Target is authorized to use any third party patents,
trademarks, tradenames, service marks or copyrights, including software
(“Third Party Intellectual Property Rights”) which are incorporated in,
are, or form a part of any product or service of Target.
(c) Except
as
set forth on Schedule 2.9(c) of the Disclosure Schedule, there is no
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of Target or any Intellectual Property right of
any
third party to the extent licensed by or through Target by any third party,
including any employee or former employee of Target. Target has not
entered into any agreement to indemnify any person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in purchase orders, contracts, consulting agreements and licenses
arising in the ordinary course of business, copies of which have been provided
to Acquiror.
(d) Target
shall not be, as a result of the execution and delivery of this Agreement or
any
of the Ancillary Agreements by any Shareholder, or the performance of
Shareholders’ obligations hereunder or thereunder, in breach of any license,
sublicense or other agreement relating to the Intellectual Property or Third
Party Intellectual Property Rights.
(e) All
patents, registered trademarks, service marks and copyrights held by Target
are
valid and subsisting. Target (i) has not been sued or named in any
suit, action or proceeding which involves a claim of infringement of any patent,
trademark, service ▇▇▇▇ or copyright or violation of any trade secret or other
proprietary right of any third party, (ii) has no knowledge that the
manufacturing, marketing, licensing or sale of its products infringes any
patent, trademark, service ▇▇▇▇, copyright, trade secret or other proprietary
right of any third party or (iii) has not brought any action, suit or proceeding
for infringement of Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third party.
(f) Target
has secured valid written assignments from all consultants and employees who
contributed to the creation or development of Intellectual Property of any
and
all the rights to such contributions that Target does not already own by
operation of law.
(g) Target
has taken all necessary and appropriate steps to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by patents,
patent applications or copyright (“Confidential
Information”). All use, disclosure or appropriation of
Confidential Information owned by Target by or to a third party has been
pursuant to the terms of a written agreement between Target, on the one hand,
and such third party, on the other hand. All use, disclosure or
appropriation of Confidential Information not owned by Target has been pursuant
to the terms of a written agreement between Target, on the one hand, and the
owner of such Confidential Information, on the other hand, or is otherwise
lawful.
2.10 Interested
Party Transactions. Except as set forth on Schedule
2.10 of the Disclosure Schedule, Target is not indebted to any director,
officer, employee or agent of Target (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses, in each case in the
ordinary course of business consistent with past practice), or any Shareholder,
and no such person is indebted to Target.
2.11 Taxes. Target
has properly completed and timely filed all Tax Returns required to be filed
by
Target and has paid all Taxes shown thereon to be due. Target has
provided adequate accruals in accordance with GAAP in its Financial Statements
for any Taxes that have not been paid, whether or not shown as being due on
any
Tax Returns. There is (i) no material claim for Taxes that is a lien
against the property of Target or is being asserted against Target, other than
liens for current Taxes not yet due and payable and (ii) no audit of any Tax
Return of Target is being conducted by a Tax Authority. Target is not a party
to
any tax sharing or tax allocation agreement. Target is in full compliance with
all terms and conditions of any Tax exemptions or other Tax-sparing
agreement or order of any foreign government and the consummation of the
transactions contemplated hereby and by the Ancillary Agreements will not have
any adverse effect on the continued validity and effectiveness of any such
Tax
exemptions or other Tax-sparing agreement or order. Target has in its
possession receipts for all Taxes paid to Tax
Authorities.
2.12 Employment
Matters.
(a) Schedule
2.12 of the Disclosure Schedule lists all the employees of Target and, with
respect to each, his/her date of hire, position, duties, salary and all major
employment benefits. No salary, pension or other major employment
benefits have been granted to any such person on terms or conditions which
are
more favorable than those indicated in Schedule 2.12 of the Disclosure
Schedule. Except as set forth on Schedule 2.12 of the Disclosure
Schedule, Target has no employee benefit plans, programs, policies or
agreements, including but not limited to any pension plans, multiemployer plans
or 401(k) plans.
(b) No
payments have been made or authorized by Target to its respective employees,
officers or directors not dealing at arm’s length. Target has not entered into
any agreement, undertaking or commitment with any of the foregoing which is
not
made in the ordinary course of business, which is not consistent with past
practice or which is not normal and usual in the trade.
(c) Target
is
in compliance with all laws, regulations, agreements and other commitments
of
Target, as applicable, with respect to employment practice terms and conditions
of employment. Target is not liable for any damages to any employee,
officer or director of Target resulting from the violation of any applicable
employment law or agreement.
(d) Except
as
set forth on Schedule 2.12(d) of the Disclosure Schedule, there are no
outstanding, pending or, to the knowledge of any Shareholder, threatened:
(i) claims, disputes or other controversies between Target and any of their
respective employees, officers and directors or (ii) unfair labor practice
complaints or other complaint or grievances against Target by such
persons.
2.13 Inventory;
Contracts. The inventory of Target (i) consists of items
which are in all material respects free of any defect, fault, imperfection,
impurity or dangerous propensity of any kind, (ii) is of a quality and quantity
usable and salable in the ordinary and usual course of business and (iii) is
owned by Target.
2.14 Certain
Agreements Affected by the Purchase. Except as set forth
on Schedule 2.14 of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the other Ancillary Agreements by Target nor
the
consummation of the transactions contemplated hereby and thereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
director, officer or employee of Target, (ii) materially increase any
benefits otherwise payable by Target or (iii) result in the acceleration of
the time of payment or vesting of any such benefits. No payment or
benefit which will or may be made by Target to any employee will be
characterized as an “excess parachute payment” within the meaning of
Section 280G(b)(1) of the Internal Revenue Code of 1986, as
amended.
2.15 Insurance. Target
has policies of insurance and bonds listed on Schedule 2.15 of the
Disclosure Schedule. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters or issuers of such policies or
bonds. All premiums due and payable under all such policies and bonds
have been timely paid and Target is otherwise in compliance with the terms
of
such policies and bonds. Target has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.16 Litigation. Except
as set forth on Schedule 2.16 of the Disclosure Schedule, there is no
private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or threatened against Target (whether instituted by or on behalf of any
customer, employee, vendor, reseller of Target or any other Person), or any
of
their respective properties or their respective officers or directors (in their
capacities as such). There is no judgment, decree or order against
Target or any of their respective properties or directors or officers (in their
capacities as such) or any of Target’s customers, that could prevent, enjoin or
materially alter or delay any of the transactions contemplated by this Agreement
or any Ancillary Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Target. Schedule 2.16 of the
Disclosure Schedule lists and describes in reasonable detail all litigation,
proceedings and investigations that Target has instituted or that are pending
against or with respect to any other person or entity.
2.17 Material
Contracts. Except for the material contracts identified
and described in Schedule 2.17 of the Disclosure Schedule (collectively,
the “Material Contracts”), Target is not a party to or bound by any
material contract, including, without limitation:
(a)
any
agreement presently in effect relating to the sale of any securities, assets
or
business, by merger or otherwise;
(b) any
trust
indenture, mortgage, promissory note, loan agreement or other contract for
the
borrowing of money, any currency exchange, commodities or other hedging
arrangement or any leasing transaction of the type required to be capitalized
in
accordance with GAAP;
(c) any
contract with any person with whom Target does not deal at arm’s
length;
(d) any
contract limiting the freedom of Target to engage in any line of business or
to
compete with any other Person or any confidentiality, secrecy or non-disclosure
contract;
(e)
any
distributor, sales, advertising, agency or publishing contract;
(f)
any
contract that expires, or may be renewed at the option of any person other
than
Target so as to expire, more than one year after the date of this
Agreement;
(g) any
continuing contract for the purchase of materials, supplies, equipment or
services involving, in the case of any such contract, more than $50,000 over
the
life of the contract;
(h) any
contract for capital expenditures in excess of $50,000 in the
aggregate;
(i)
any
contract pursuant to which Target is a lessor of any machinery, equipment,
motor
vehicles, office furniture, fixtures or other personal property;
(j)
any
agreement of guarantee, support, indemnification, assumption or endorsement
of,
or any similar commitment with respect to, the obligations, liabilities (whether
accrued, absolute, contingent or otherwise) or indebtedness of any other person
or entity;
(k)
any
agreement to pay, discharge, settle or otherwise satisfy in an amount in the
excess of $50,000 in any one case or $100,000 in the aggregate, any claim
asserted or threatened against Target;
(l)
any
amendment, modification, or supplement to any of the foregoing; or
(m)
any
agreement to do, cause or permit any of the foregoing.
2.18 No
Breach of Material Contracts. Target has provided
Acquiror with an accurate and complete copy of each Material Contract and Target
has performed all of the obligations required to be performed by it, and is
entitled to all benefits, under each of the Material Contracts and, to the
best
knowledge of the Shareholder, Target is not alleged to be in default under
or in
respect of any Material Contract. Each of the Material Contracts is
in full force and effect and has not been amended (except as indicated on
Schedule 2.18), and there exists no material default or event of default
or event, occurrence, condition or act, with respect to Target or, to the best
knowledge and belief of Target, with respect to any other party thereto, which,
with the giving of notice, the lapse of the time or both, or the happening
of
any other event or condition, would become a material default or event of
default under any Material Contract. True, correct and complete
copies of all Material Contracts have been delivered to Acquiror.
2.19 Restrictions
on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target, or any of its properties or
assets which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Target,
any
acquisition of property by Target or the conduct of any business by Target
as
currently conducted or as proposed to be conducted by Target. Except
as set forth on Schedule 2.19, Target has not entered into any agreement
under which Target is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.20 Governmental
Authorizations. Target has obtained each governmental
consent, license, permit, grant, or other authorization of any Governmental
Entity that is required for the operation of the business of Target or the
holding of any interest in any of its respective assets (the “Target
Authorizations”). All of such Target Authorizations are in full
force and effect.
2.21 Compliance
with Laws. Target has complied with all statutes, laws,
and ordinances and all rules and regulations of all Governmental Entities,
and
is not in violation of and has not received any notice of violation with respect
to any statute, law or ordinance or any rule or regulation of any Governmental
Entity, with respect to the conduct of its business, or the ownership or
operation of its business or use of its assets, except for such violations
or
failures to comply as could not reasonably be expected to have a Material
Adverse Effect on Target.
2.22 Minute
Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of the board
of
directors and the shareholders of Target and all actions by written consent
of
the board of directors and the shareholders of Target since the time of
incorporation of Target through the date of this Agreement, and reflect all
transactions referred to in such minutes or consents accurately in all material
respects.
2.23 Brokers’
and Finders’ Fees. Except as set forth on Schedule
2.23 of the Disclosure Schedule, Target has not incurred, nor will Target
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.
2.24 Environmental
Matters.
(a) Hazardous
Material. Except as would not be reasonably likely to result in a
Material Adverse Effect on Target, Target is not aware of any underground
storage tanks or any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including PCBs, asbestos, petroleum, toxic mold, urea-formaldehyde
and all substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, compensation, and Liability Act of 1980, as amended,
or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies (a “Hazardous
Material”), that are present, as a result of the actions of Target, on any
of the properties owned or leased by Target as of the date hereof, including
the
land and the improvements, ground water and surface water thereof.
(b) Hazardous
Materials Activities. To the Target’s best knowledge and belief,
Target has not transported, stored, used, manufactured, disposed of, released,
removed or exposed its employees or others to Hazardous Materials or
manufactured any product containing a hazardous Material in violation of any
applicable law.
2.25 Representations
Complete. None of the representations or warranties made
by Target or the Shareholders herein, in any Ancillary Agreement or in any
schedule hereto, or any certificate or other document furnished by Target or
the
Shareholders pursuant to this Agreement, contains or will contain, at the date
hereof or at the Closing Date, any untrue statement of a material fact, or
omits
or will omit, at the date hereof or at the Closing Date, to state any material
fact necessary in order to make the statements contained herein or therein,
in
the light of the circumstances under which they were made, not
misleading.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
OF
ACQUIROR
Acquiror
represents and warrants to Shareholders as follows:
3.1 Organization,
Standing and Power. Acquiror is a corporation duly
organized and validly existing under the laws of Delaware. Acquiror
has the corporate power to own its properties and to carry on its business
as
now being conducted and as proposed to be conducted and is duly qualified to
do
business and is in good standing in each jurisdiction in which the failure
to be
so qualified and in good standing would have a material adverse effect on
Acquiror. Acquiror is not in violation of any of the provisions of
its Certificate of Incorporation or Bylaws.
3.2 Authority;
No Violations and No Consents.
(a) Acquiror
has all requisite corporate power and authority to enter into this Agreement
and
each of the Ancillary Agreement to which Acquiror is a party and to consummate
the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements to which Acquiror is
a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Acquiror.
(b) This
Agreement and each of the Ancillary Agreements to which it is a party have
been
duly executed and delivered by Acquiror and constitute the legal, valid and
binding obligations of Acquiror, enforceable against it in accordance with
their
respective terms. The execution and delivery of this Agreement and
each of the Ancillary Agreements to which it is a party by Acquiror does not,
and the consummation of the transactions contemplated hereby and thereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of its Certificate of Incorporation or
Bylaws or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or any of its properties or assets.
(c) No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any Governmental Entity is required by or with respect to Acquiror
or in connection with the execution and delivery of this Agreement or any other
Ancillary Agreement or the consummation of the transactions contemplated hereby
or thereby, except for such consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a material adverse
effect on Acquiror and would not prevent, or materially alter or delay, any
of
the transactions contemplated by this Agreement or any of the Ancillary
Agreements.
3.3 Purchase
Entirely for Own Account. Acquiror understands that a
purchase of the Shares involves substantial risks. Acquiror is
experienced in evaluating and participating in the purchase of securities of
companies in a similar stage of development to that of Target and acknowledges
that Acquiror is able to fend for itself. Acquiror has such knowledge
and experience in financial and business matters that Acquiror is capable of
evaluating the merits and risks of the purchase of the
Shares. Acquiror can bear the economic risk of Acquiror’s purchase of
the Shares and is able, without impairing Acquiror’s financial condition, to
hold the Shares for an indefinite period of time.
3.4 Investment
Experience; Economic Risk. This Agreement is made with Acquiror in
reliance upon Acquiror’s representation to the Shareholders, which by Acquiror’s
execution of this Agreement Acquiror hereby confirms, that the Shares will
be
acquired for Acquiror’s own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Acquiror has
no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Acquiror further
represents that Acquiror does not have any contract, undertaking, agreement
or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person with respect to any of the
Shares. Acquiror will not sell or otherwise dispose of the Shares
(whether pursuant to a liquidating dividend or otherwise) without registration
under the Securities Act of 1933, as amended (the “Securities Act”), or
an exemption therefrom, and the certificate or certificates representing the
Shares may contain a legend to the foregoing effect. Acquiror
understands that it may not sell or otherwise dispose of the Shares in the
absence of either a registration statement under the Securities Act or an
exemption from the registration provisions of the Securities Act.
ARTICLE
IV
ADDITIONAL
AGREEMENTS
4.1 Public
Disclosure. The parties hereby agree that Acquiror, upon
consultation with the Shareholders, shall issue all press releases and otherwise
make all public statements and other public (or non-confidential) disclosures
(whether or not in response to an inquiry) regarding the terms of this Agreement
and the transactions contemplated hereby, and Shareholders shall not issue
any
such press release or make any such statement or disclosure without the prior
written approval of Acquiror, except as may be required by law.
4.2 Consents;
Cooperation. Acquiror and the Shareholders shall promptly
apply for or otherwise seek, and use their best efforts to obtain, all consents
and approvals required to be obtained by them for the consummation of the
transactions contemplated hereby and shall use commercially reasonable efforts
to obtain all necessary consents, waivers and approvals under any of their
Material Contracts in connection with the transactions contemplated hereby
for
the assignment thereof or otherwise. The parties hereto will consult
and cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf
of
any party hereto in connection with the foregoing. Acquiror and the
Shareholders shall use all commercially reasonable efforts to resolve such
objections, if any, as may be asserted by any Governmental Entity with respect
to the transactions contemplated by this Agreement. In connection
therewith, if any administrative or judicial action or proceeding is instituted
(or threatened to be instituted) challenging any transaction contemplated by
this Agreement as violative of any applicable law or agreement, each of parties
hereto shall cooperate and use all commercially reasonable efforts vigorously
to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed, or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent (each an “Order”), that is in
effect and that prohibits, prevents, or restricts consummation of the
acquisition of the Shares or any such other transactions, unless by mutual
agreement the parties hereto decide that litigation is not in their respective
best interests. The parties hereto shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of all applicable waiting or notice periods under any and all
applicable laws with respect to such transactions as promptly as possible after
the execution of this Agreement.
4.3 Best
Efforts and Further Assurances. Each of the parties to
this Agreement shall use such party’s best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such
other
instruments and do and perform such other acts and things as may be necessary
or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
4.4 Legal
Requirements. Each of the parties hereto will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with
and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto
in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
4.5 Employment
of Major Shareholder. Upon the Closing Date the
Acquiror, or any Affiliate of the Acquiror, and the Major Shareholder shall
enter into the employment agreement in for form attached hereto as Exhibit
C.
4.6 Non-Compete
and Non-Solicitation Covenants of the Major
Shareholder. In consideration for the non-competition,
non-solicitation and non-interference covenants of the Major Stockholder
contained in this Agreement and in order to induce the Acquiror to enter into
this Agreement with the Shareholders, Acquiror shall pay the Major Shareholder
$500,000 (the “Non-Competition Consideration”) which shall be in
addition to the Major Shareholder’s portion of the Initial Purchase
Consideration and the Contingent Purchase Consideration, if any, provided for
above. Non-Competition Consideration shall be paid to the Major Stockholder
by
the Acquiror, or any Subsidiary of the Acquiror, on a monthly basis over two
years, commencing on the first full calendar month following the Closing
Date.
(a) Coverage. Acquiror
and the Major Shareholder hereby acknowledge that Acquiror, either directly
or
indirectly through one or more of its Affiliates, conducts or will conduct
Company Activities throughout the Protected Area, and acknowledges that to
protect adequately the interest of Acquiror in the operation of each Person
through which it will engage in Company Activities after the date of this
Agreement, it is essential that any non-compete covenant with respect thereto
cover all Company Activities in the Protected Area.
(b) Non-Competition. During
the Non-Compete Period, the Major Shareholder shall not in any manner, directly
or indirectly, engage in or have an equity or profit interest in, or render
services to any business that conducts any Company Activities in the Protected
Area. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall prevent or prohibit the Major Shareholder from owning
up to
5% of a class of equity securities issued by any entity listed on any national
securities exchange or inter-dealer quotation system.
(c) Non-Solicitation. During
the Non-Solicitation Period, the Major Shareholder shall not , in any manner,
directly or indirectly:
(i) solicit
or attempt to solicit, any business from any customers or prospective customers
of Acquiror or any of its Affiliates for purposes of engaging in any Company
Activities in any Protected Area;
(ii) recruit
or hire away or attempt to recruit or hire away, on its behalf or on behalf
of
any other person, firm or corporation, any employee of Acquiror or any of its
Affiliates; or
(iii) interfere with or otherwise
attempt to affect Acquiror’s relationship with any employee, customer or vendor
of Acquiror or any of its Affiliates.
(d) Acknowledgment. The
Major Shareholder and Acquiror each acknowledge and agree that the covenants
set
forth in Article IV are reasonable as to time, scope and territory given
Acquiror’s need to protect its trade secrets, Confidential Information and its
substantial investment its business, its employees, customers and vendors,
particularly given the complexity and competitive nature of Acquiror’s and its
Affiliate’s business. The Major Shareholder and Acquiror further
acknowledge that (a) it would be difficult to calculate damages to Acquiror
and
its Affiliates from any breach of the Major Shareholder’s obligations under
Article IV; (b) that injuries to Acquiror and its Affiliates from any such
breach would be irreparable and impossible to measure; and (c) that the remedy
at law for any breach or threatened breach of the Major Shareholder’s
obligations under Article IV of this Agreement would therefore be an inadequate
remedy, and accordingly, Acquiror shall, in addition to all other available
remedies (including without limitation seeking such damages as it can show
it
and its Affiliates have sustained by reason of such breach or the exercise
of
all other rights it has under this Agreement), be entitled to injunctive and
other similar equitable remedies. The Major Shareholder also
acknowledges that she will be subject to separate non-compete and
non-solicitation provisions in connection with her employment by Acquiror,
or
one of its Affiliates, following the Closing. Accordingly, if the
duration or scope of the non-compete or non-solicitation applicable to the
Major
Shareholder under the terms of the Employment Agreement is for any reason
shorter than the duration of the Non-Compete Period or Non-Solicitation Period
or narrower in scope than as set forth in this Agreement, the Major Shareholder
hereby acknowledges that she shall be subject to the Non-Compete Period and
Non-Solicitation Period set forth in this Agreement notwithstanding any of
the
terms of the Employment Agreement.
4.7 Employees. Except
as provided in Section 4.5 above, Acquiror, and Target after consummation of
the
purchase of the Shares by Acquiror, shall have no obligation to make any offer
of employment to or otherwise engage or continue to employ any person employed
by Target. All employees of Target selected by Acquiror, in its sole
discretion, to continue to be employed by Target after the Closing Date shall
enter into Acquiror’s standard form of employment agreement with Acquiror or an
Affiliate of Acquiror upon terms satisfactory to Acquiror; which agreement
shall
provide for a minimum base salary, annual performance based bonus, fringe
benefits comparable to those of similarly-situated managers of Acquiror and
confidentiality, invention assignment, non-competition and non-solicitation
covenants.
4.8 Restricted
Stock; Lock-Up Agreement. Each Shareholder
hereby acknowledge and agree that all stock of the Acquiror issued under this
Agreement, including but not limited to the Stock Consideration and the
Contingent Stock Consideration, if any, to any Shareholder will not
be registered under the Securities Act, or under the securities laws of any
state and, therefore, cannot be resold, assigned, encumbered or otherwise
disposed of unless such shares are subsequently registered under the Securities
Act and under the applicable state securities laws or an exemption from such
registration is available. Each Shareholder further acknowledges and
agrees that the certificate representing the shares of Acquiror Common Stock
shall bear a legend in substantially the following form:
|
"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS,
SUCH
COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION
OF
COUNSEL ACCEPTABLE TO THE COMPANY, IN A FORM AND SUBSTANCE ACCEPTABLE
TO THE COMPANY, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS
WOULD
RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT";
|
Acquiror
shall be under no obligation to remove any such legend unless and until such
Shareholder or Acquiror obtains a written legal opinion in form and substance
reasonably acceptable to Acquiror from counsel acceptable to Acquiror, to the
effect that such legend may be removed. With a view to making
available the benefits of certain rules and regulations of the Securities and
Exchange Commission which may at any time permit the sale of the shares of
Stock
Consideration or Contingent Stock Consideration without registration pursuant
to
Rule 144 under the Securities Act, Acquiror hereby agrees to use reasonable
commercial efforts to (i) obtain from its counsel a written legal opinion to
the
effect that such legend may be removed, (ii) to cooperate with each Shareholder
to provide such information regarding the Acquiror that is necessary for such
opinion to be delivered and (iii) to remove such restrictive legend promptly
upon each Shareholder’s request, as the case may be, upon compliance with the
terms of this Section 4.8. Acquiror and each Shareholder shall enter
into a the lock-up agreement in the form attached hereto as Exhibit D,
pursuant to which such Shareholder agrees not to sell any of the shares of
Stock
Consideration or Contingent Stock Consideration until the date one year after
the Closing Date, in the case of the Stock Consideration or, in the case of
Contingent Stock Consideration, one year after the date of
issuance.
4.9 Confidentiality. Acquiror,
the Target and the Shareholders shall keep confidential the existence of this
Agreement, the transactions described herein and all trade secrets and
Confidential Information relating to the Acquiror or the Target; provided,
however, that the Shareholders may, upon obtaining the prior written consent
of
Acquiror, disclose the existence of this Agreement and the terms hereof, but
solely in the manner and subject to any reasonable restrictions or limitations
imposed on such disclosure by Acquiror in connection with granting such prior
written consent. The provisions of this Section 4.9 shall not apply
with respect to any information which (a) was already known by one party when
such information was received from the other party, (b) was available to the
general public at the time of such receipt, (c) subsequently becomes known
to
the general public through no fault or omission by a party hereto, (d) is
subsequently disclosed by a third party which has the bona fide right to make
such disclosure, (e) is disclosed by either party in confidence to its
professional advisors or by Acquiror to potential lenders and investors who
agree to keep such information confidential, (f) is required to be disclosed
by
law or a governmental agency, including for income tax reporting purposes,
or
(g) is required to be disclosed in order to enforce this Agreement.
ARTICLE
V
CONDITIONS
PRECEDENT
5.1 Conditions
to Obligations of Each Party. The respective obligations
of each party to this Agreement to consummate and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto (to the extent permitted by
law):
(a) No
Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued
by
any court of competent jurisdiction or other legal or regulatory restraint
or
prohibition preventing the consummation of the sale of the Shares hereunder
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic
or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or
deemed applicable to the sale of the Shares hereunder, which makes the
consummation of the sale of the Shares hereunder illegal. In the
event an injunction or other order shall have been issued, each party agrees
to
use its reasonable efforts to have such injunction or other order
lifted;
(b) Governmental
Approval. Acquiror and Target shall have timely obtained
from each Governmental Entity all approvals, waivers and consents, if any,
necessary for consummation of or required in connection with the transactions
contemplated hereby.
5.2 Additional
Conditions to Obligations of the Shareholders. The
obligations of the Shareholders to consummate and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by the Shareholders:
(a) Representations,
Warranties and Covenants. (i) The representations
and warranties of Acquiror in this Agreement shall be true and correct in all
material respects (except that those representations and warranties that are
qualified by their terms as to materiality shall be true and correct in all
respects) on and as of the Closing Date as though such representations and
warranties were made on and as of such time and (ii) Acquiror shall have
performed and complied in all material respects with all covenants, obligations
and conditions set forth in this Agreement and required to be performed or
complied with by it at or prior to the Closing. For the purposes of
this section and determining whether a provision has been breached in a material
respect, any representation or warranty of a party that is qualified by a
materiality standard shall be read without regard to any such materiality
qualification as if such qualification were not contained herein.
(b) No
Proceedings or Litigation. No material action, suit, or
proceeding before any court, governmental or regulatory authority will have
been
commenced and be continuing, and no investigation by any governmental or
regulatory authority will have been commenced and be continuing, and no action,
investigation, suit, or proceeding will be threatened at the time of Closing,
against Acquiror or any of its Subsidiaries, associates, officers, managers
or
directors, seeking to restrain, prevent, or change the transactions contemplated
hereby, questioning the validity or legality of the transactions contemplated
hereby, seeking damages in connection with the transactions contemplated
hereby;
(c) Payment
of Initial Purchase Consideration. Acquiror shall have
tendered delivery to the Shareholders of the Initial Purchase Consideration
and
shall have delivered to each Shareholder the Cash Portion of the Initial
Purchase Consideration (less the Escrow Amount) and a certificate representing
the number of shares of Stock Consideration set forth opposite such
Shareholder’s name on Schedule 1.1 hereto; and
(d) Escrow
Agreement. Acquiror shall have executed and delivered
the Escrow Agreement to the Escrow Agent; and
(e) Employment
of Major Shareholder. Acquiror, or any of its
Subsidiaries, shall have executed and delivered to the Major Shareholder the
Employment Agreement; and
(f) Employment
of Other Employees. Acquiror, or any of its
Subsidiaries, shall have executed and delivered to each employee of Target
(other than the Major Shareholder) that has been extended an offer of employment
with Acquiror or a Subsidiary of Acquiror, Acquiror’s standard form of
employment agreement, confidentiality agreement and invention assignment
agreement and
5.3 Additional
Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate and effect the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing, by
Acquiror:
(a) Representations,
Warranties and Covenants. (i) The representations
and warranties of the Shareholders in this Agreement shall be true and correct
in all material respects (except that those representations and warranties
that
are qualified by their terms as to materiality shall be true and correct in
all
respects) on and as of the Closing Date as though such representations and
warranties were made on and as of such time and (ii) the Shareholders
shall have performed and complied in all material respects with all covenants,
obligations and conditions set forth in this Agreement and required to be
performed or complied with by the Shareholders at or prior to the
Closing. For the purposes of this section and determining whether a
provision has been breached in a material respect, any representation or
warranty of a party that is qualified by a materiality standard shall be read
without regard to any such materiality qualification as if such qualification
were not contained herein.
(b) No
Proceedings or Litigation. No material action, suit, or
proceeding before any court, governmental or regulatory authority will have
been
commenced and be continuing, and no investigation by any governmental or
regulatory authority will have been commenced and be continuing, and no action,
investigation, suit, or proceeding will be threatened at the time of Closing,
against Target, any Shareholder, Acquiror or any of their subsidiaries,
associates, officers, managers or directors, seeking to restrain, prevent,
or
change the transactions contemplated hereby, questioning the validity or
legality of the transactions contemplated hereby, seeking damages in connection
with the transactions contemplated hereby or seeking to limit or restrict (i)
the conduct or operation of the business of Target or (ii) the use of its
Intellectual Property;
(c) Third
Party Consents. Acquiror shall have been furnished with
evidence of the consent or approval of those persons whose consent or approval,
if any, shall be necessary for the consummation of or required in connection
with the transactions contemplated hereby; and
(d) Employment
of Major Shareholder. The Major Shareholder shall have
executed and delivered to Acquiror, or any of its Subsidiaries, the Employment
Agreement; and
(e) Certificates
Evidencing the Shares. Each Shareholder shall have
delivered to Acquiror the certificate(s) representing all of the Shares owned
by
such Shareholder, duly endorsed in blank for transfer or accompanied by stock
powers in proper form duly endorsed in blank; and
(f) Escrow;
Escrow Agreement. The trustee of the Select Shareholders
Nominee Trust shall have executed and delivered the Escrow Agreement to the
Escrow Agent and Acquiror shall have deposited the Escrow Amount with the Escrow
Agent; and
(g) Employment
of Other Employees. Each employee of Target (other than
the Major Shareholder) that has been extended an offer of employment with
Acquiror or a Subsidiary of Acquiror shall each have executed and delivered
to
Acquiror, or any of its Subsidiaries, Acquiror’s standard form of employment
agreement, confidentiality agreement and invention assignment agreement;
and
(h) Legal
Opinion of Target’s Counsel. Acquiror shall have
received an opinion of Target’s legal counsel, Laredo & ▇▇▇▇▇, LLP, in a
form acceptable to Acquiror; and
(i) Resignation
of Directors. The directors of Target in office
immediately prior to the Closing shall have tendered their resignations as
directors of Target effective as of or prior to the Closing Date.
ARTICLE
VI
INDEMNIFICATION
6.1 Survival
of Representations and Warranties. The
representations and warranties of the Shareholders in this Agreement or in
any
Ancillary Agreement shall terminate on the second anniversary of the Closing
Date (the “Escrow Termination Date”); provided, however,
that (i) the representations and warranties relating to capitalization and
title
to the Shares set forth in Section 2.3 shall survive the date hereof and
continue until the seventh anniversary of the Closing Date; (ii) the
representations and warranties relating to Intellectual Property set forth
in
Section 2.9 shall survive the date hereof and continue until the third
anniversary of the Closing Date; (iii) the representations, warranties and
covenants relating or pertaining to any Tax set forth in Section 2.11
hereof shall survive until the expiration of all applicable statutes of
limitations, or extensions thereof, governing such Tax; and (iv) if any claims
for indemnification have been asserted with respect to any such representations
and warranties prior to the Escrow Termination Date, the representations and
warranties on which such claims are based shall continue in effect solely with
respect to such claims until final resolution of such claims. The
parties hereby agree that (A) the maximum liability of each Shareholder, other
than the Major Shareholder, pursuant to Section 6.2 below shall be limited
to
such Shareholder’s pro rata portion of the Escrowed Amount, (B) the maximum
liability of the Major Shareholder pursuant to Section 6.2 below shall be
limited to the Major Shareholder’s pro rata portion of the aggregate amount of
the Initial Purchase Consideration and (C) no Shareholder shall be
obligated to indemnify any Acquiror Indemnified Person pursuant to Section
6.2 below unless and until the amount of all Losses incurred by the Acquiror
Indemnified Persons, taken as a group, exceeds $50,000 in the aggregate, in
which event the Shareholders shall indemnify the Acquiror Indemnified Persons
for all Losses incurred by them in the aggregate from the first dollar of Losses
in accordance with Section 6.2 below.
6.2 Indemnification.
(a)
Subject
to the limitations set forth in Section 6.1 above, the Shareholders,
jointly and severally, hereby agree to indemnify, defend and hold harmless
Acquiror, and its employees, officers, directors and shareholders and
Subsidiaries (including Target after the Closing Date) (hereinafter referred
to
individually as an “Acquiror Indemnified Person” and
collectively as “Acquiror Indemnified Persons”) from and
against any and all losses, costs, damages, liabilities, expenses (including,
without limitation, reasonable legal fees and expenses of investigation and
defense), claims, demands, actions, judgments and causes of action (hereinafter
individually, a “Loss” and collectively “Losses”) resulting,
directly or indirectly, from or in connection with (i) any misrepresentation,
or
falsity, breach or inaccuracy, or default of or in connection with any of the
representations, warranties, covenants and agreements given or made by a
Shareholder in this Agreement or the Ancillary Agreements, (ii)
without limiting the generality of the preceding clause (i), any Losses incurred
by Target or Acquiror after the Closing Date but prior to the Escrow Termination
Date arising solely as the direct result of any intentional or grossly negligent
act or omission by a Shareholder or Target that occurred prior to the Closing
Date, or (iv) any claims for broker’s or finder’s fees arising out of the
transactions contemplated hereby.
(b)
Indemnification Procedure. Upon receipt by a Shareholder of a
certificate signed by any officer of Acquiror (an “Officer's
Certificate”): (i) stating that Acquiror or Target has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses and (ii) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
inaccuracy or breach of warranty or covenant to which such item is related,
the
Shareholders shall have thirty (30) days to object in a written statement to
the
claim made in the Officer's Certificate, and such statement shall have been
delivered to Acquiror prior to the expiration of such thirty (30) day
period.
(c)
Resolution
of Conflicts; Arbitration.
(i) In the
event that the Shareholders shall object in writing to any claim or claims
made
in any Officer's Certificate within thirty (30) days after delivery of such
Officer's Certificate, the parties shall attempt in good faith to agree upon
the
rights of the respective parties with respect to each of such
claims.
(ii) If
no such agreement can be reached after good faith negotiation, either party
may
demand arbitration of the matter unless the amount of Loss is at issue in
pending litigation with a third party, in which event arbitration shall not
be
commenced until such amount is ascertained or both parties agree to arbitration,
and in either such event the matter shall be settled by arbitration conducted
by
one arbitrator mutually agreeable to both parties. In the event that
within thirty (30) days after submission of any dispute to arbitration, the
parties cannot mutually agree on one arbitrator, the Shareholders and Acquiror
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The arbitrator or arbitrators, as the case
may be, shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or majority of
the
three arbitrators, as the case may be, to discover relevant information from
the
opposing parties about the subject matter of the dispute. The
arbitrator or a majority of the three arbitrators, as the case may be, shall
rule upon motions to compel or limit discovery and shall have the authority
to
impose sanctions, including attorneys' fees and costs, to the extent as a
competent court of law or equity, should the arbitrators or a majority of the
three arbitrators, as the case may be, determine that discovery was sought
without substantial justification or that discovery was refused or objected
to
without substantial justification. The decision of the arbitrator or
a majority of the three arbitrators, as the case may be, as to the validity
and
amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions
which
shall set forth the award, judgment, decree or order awarded by the
arbitrator(s). Notwithstanding anything in this Section 6.2(c)
to the contrary, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments from the Escrow Fund in accordance
therewith.
(iii) Judgment
upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. Any such arbitration shall be held in Houston, Texas,
under the rules then in effect of the American Arbitration Association for
commercial disputes. For purposes of this Section 6.2(c), in
any arbitration hereunder in which any claim or the amount thereof stated in
the
Officer’s Certificate is at issue, Acquiror shall be deemed to be the
nonprevailing party in the event that the arbitrators award less than the sum
of
one-half of the disputed amount plus any amounts not in dispute. The
nonprevailing party to an arbitration shall pay its own expenses, the fees
of
each arbitrator, the administrative costs of the arbitration and the expenses,
including, without limitation, the reasonable attorneys’ fees and costs,
incurred by the other party to the arbitration.
(d) Third-Party
Claims.
(i) If any
third party shall notify Acquiror with respect to any matter (hereinafter
referred to as a “Third Party Claim”), which may result in Losses, then
Acquiror shall give prompt notice to the Shareholders (and in any event within
thirty (30) days) of Acquiror becoming aware of any such Third Party Claim
or of
facts upon which any such Third Party Claim will be based setting forth such
material information with respect to the Third Party Claim as is reasonably
available to Acquiror; provided, however, that no delay or failure
on the part of Acquiror in notifying the Shareholders shall relieve any
Shareholder from any obligation hereunder unless the Shareholder is thereby
materially prejudiced (and then solely to the extent of such
prejudice). The Shareholders shall not be liable for any attorneys
fees or expenses incurred by any Acquiror Indemnified Person prior to Acquiror
and its officers, directors and affiliates giving notice to the Shareholders
of
a Third Party Claim.
(ii) In
case any Third Party Claim is asserted against Acquiror or Target, and Acquiror
notifies the Shareholders thereof pursuant to Section 6.2(d)(i) above,
the Shareholders will be entitled, if a majority of such Shareholders so elect
by written notice delivered to Acquiror within thirty (30) days after receiving
Acquiror’s notice, to assume the sole defense thereof, at the expense of the
Shareholders (independent of the Escrow Fund); provided, that (A) the Third
Party Claim involves only money damages and does not seek an injunction or
other
equitable relief and (B) counsel selected by the Shareholders is reasonably
acceptable to Acquiror. If the Shareholders so assume any such
defense, the Shareholders shall conduct the defense of the Third Party Claim
actively and diligently. The Shareholders shall not compromise or settle such
Third Party Claim or consent to entry of any judgment in respect thereof without
the prior written consent of Acquiror (which shall not be unreasonably withheld
or delayed).
(iii) In the
event that the Shareholders assumes the defense of the Third Party Claim in
accordance with Section 6.2(d)(ii) above, Acquiror may retain separate
outside legal counsel and participate in the defense of the Third Party Claim,
but the fees and expenses of such outside legal counsel shall be at the expense
of Acquiror. Each Acquiror Indemnified Person will cooperate in the
Shareholders’ defense of the Third Party Claim and will provide full access to
documents, assets, properties, books and records reasonably requested by the
Shareholders and material to the claim and will make available all officers,
directors and employees reasonably requested by the Shareholders for
investigation, depositions and trial.
(iv) In the
event that the Shareholders fail or elect not to assume the defense of Acquiror
against such Third Party Claim, which the Shareholders had the right to assume
under Section 6.2(d)(ii) above, (a) Acquiror shall have the right to
undertake the defense, (b) no Acquiror Indemnified Person shall compromise
or
settle such Third Party Claim or consent to entry of any judgment in respect
thereof without the prior written consent of a majority of the Shareholders
(which shall not be unreasonably withheld or delayed) and (c) the Shareholders
may retain separate outside legal counsel and participate in the defense of
the
Third Party Claim, but the fees and expenses of such outside legal counsel
shall
be at the expense of the Shareholders. In the event that the Shareholders are
not entitled to assume the defense of the Acquiror Indemnified Persons against
such Third Party Claim pursuant to Section 6.2(d)(ii) above, Acquiror
shall have the right to undertake the defense; provided, however, that no
Acquiror Indemnified Person shall consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the written
consent of a majority of the Shareholders (which shall not be unreasonably
withheld or delayed). In each case, Acquiror shall conduct the
defense of the Third Party Claim actively and diligently, and the Shareholders
will cooperate with Acquiror in the defense of that claim and will provide
full
access to documents, assets, properties, books and records reasonably requested
by Acquiror and material to the claim and will make available all individuals
reasonably requested by Acquiror for investigation, depositions and
trial.
ARTICLE
VII
GENERAL
PROVISIONS
7.1 Notices. All
notices and other communications required or permitted hereunder shall be in
writing and shall be given and will be deemed received (i) if delivered by
a
nationally recognized overnight delivery service, one business day after being
deposited with such service, (ii) if mailed (postage prepaid) by registered
or
certified mail (return receipt requested), three business days after being
so
mailed or (iii) if sent via facsimile upon confirmation of receipt, to the
parties at the following address (or at such other address as a party as shall
specify by notice):
(a) if
to
Acquiror, to:
Attn: ▇▇▇▇▇
▇. ▇▇▇▇, Chairman & Chief Executive Officer
▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇.▇▇▇▇@▇-▇▇▇▇▇▇.▇▇▇
With
a
copy to:
Mayer,
Brown, ▇▇▇▇ & Maw LLP
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇)
▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
(b) if
to the
Shareholders to:
Select,
Inc.
Attn:
▇▇.
▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Telecopy:
339-502-6650
Email:
▇▇▇▇.▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
with
a
copy to:
GML
Associates, P.C.
Attn:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Telecopy:
▇▇▇-▇▇▇-▇▇▇▇
Email:
▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
7.2 Expenses. Whether
or not the transactions contemplated by this Agreement are consummated, all
fees
and expenses incurred by the Shareholders or Target in connection with the
negotiation and effectuation of the terms and conditions of this Agreement
and
the transactions contemplated hereby, including, without limitation, all legal,
accounting, financial, advisory, consulting and all other fees and expenses
of
third parties engaged by the Shareholders or Target (collectively, the
“Transaction Expenses”) shall be borne by the Shareholders and shall
not be the responsibility of Acquiror or Target, except as otherwise
set forth on Schedule 7.2 of the Disclosure Schedule.
7.3 Remedies. The
Shareholders agree that, in addition to all other remedies to which Acquiror
is
entitled, Acquiror shall have the right to enforce the terms of this Agreement
by a decree of specific performance, provided Acquiror is not in material
default hereunder. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon
such party, and the exercise by a party of any one remedy will not preclude
the
exercise of any other remedy.
7.4 Assignment. This
Agreement shall not be assigned by operation of law or otherwise except by
merger of Acquiror with and into another person or entity, by transfer by
Acquiror to any affiliate or as otherwise specifically provided herein. No
assignment of this Agreement will relieve the non-assigning parties of their
obligations, responsibilities or liabilities hereunder.
7.5 Amendment;
Waiver. This Agreement may not be amended, modified, supplemented
or terminated nor shall any waiver be effected except by a writing executed
by
the parties hereto. No failure or delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof,
nor
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof. In addition, no waiver on
the part of any party of any right, power or privilege hereunder shall operate
as a waiver of any other right, power or privilege.
7.6 Entire
Agreement. This Agreement and the documents and
instruments and other agreements specifically referred to herein or delivered
pursuant hereto, including the Ancillary Agreements and the exhibits and
schedules hereto and thereto, constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements
and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
7.7 Parties
in Interest. This Agreement is binding upon and is for the benefit
of the parties hereto. This Agreement is not made for the benefit of
any person not a party hereto, and no other person will acquire or have any
benefit, right, remedy or claim under or by reason of this Agreement.
7.8 Headings. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of
this Agreement.
7.9 Adverse
Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution
of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement
or
other document will be construed against the party drafting such agreement
or
document.
7.10
Governing
Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF TEXAS WITHOUT REFERENCE TO SUCH STATE’S
PRINCIPLES OF CONFLICT OF LAWS.
7.11 Consent
to Jurisdiction; Service of Process. The parties
hereby irrevocably submit to the exclusive jurisdiction of the federal courts
of
the United states of America located in Houston, Texas or the courts of the
State of Texas located in the City of Houston for the purposes of any action,
suit or proceeding arising out of or relating to this Agreement, any Ancillary
Agreement or any transaction contemplated hereby or thereby (any agrees not
to
commence any action relating hereto or thereto except in such courts). Each
party agrees not to assert, by way of motion, as a defense or otherwise, in
any
such action, suit or proceeding, any claim it may now or hereafter have that
it
is not subject personally to the jurisdiction of such courts, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such courts. Any and all
service of process and any other notice in any such action, suit or proceeding
shall be effective against any party if given personally or by registered or
certified mail, postage prepaid and return receipt requested, or by personal
service on such party.
7.12 Severability. In
the event that any provision of this Agreement, or the application thereof,
becomes or is declared by a court of competent jurisdiction to be illegal,
void
or unenforceable, the remainder of this Agreement will continue in full force
and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of
the
parties hereto.
7.13 Counterparts. This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument, each of which may be delivered via facsimile.
ARTICLE
VIII
DEFINITIONS
For
the
purposes of this Agreement, the following terms shall have the following
meanings:
“Accounts
Receivable” shall mean the accounts receivable of Target, net of reserves,
as reflected on the Financial Statements or on the books and records of Target
as of the Closing Date.
“Affiliate”
shall mean, with respect to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or
is under common control with, such first-named Person.
“Business
Day” means any day except a Saturday, Sunday or a day on which banking
institutions in the State of Texas are obligated or permitted by law, regulation
or governmental order to close.
“Company
Activities” shall mean either (i) designing, installing, servicing or
supporting computer data networks and / or IP based live communications systems,
including systems such as IP telephony systems, video communications systems
or
instant messaging systems, and / or data storage systems and / or data security
systems, (ii) promoting, marketing or selling computer data network equipment
and / or IP based live communications systems such as IP telephony systems,
video communications systems or instant messaging systems and / or data storage
systems and / or data security systems, (iii) designing, implementing,
promoting, marketing or selling software applications for IP telephony and
/ or
computer telephony applications and / or data storage systems and / or data
security systems, or (iv) engaging in any other business activities which are
conducted, offered or provided by Acquiror or any Affiliate of Acquiror at
any
time during the 12-month period prior to the date of this
Agreement.
“GAAP”
shall mean United States generally accepted accounting principles, as in effect
from time to time.
“knowledge”
means (i) with respect to any natural person, the actual knowledge, after
due and diligent inquiry, of such person or (ii) with respect to any
corporation or other entity, the actual knowledge of such party’s officers,
directors and other managers (and in the case of Target, the actual knowledge
of
Target’s officers and directors), provided that such persons shall have made due
and diligent inquiry of those employees of such party whom such officers,
directors and managers reasonably believe would have actual knowledge of the
matters represented.
“material”
with respect to any entity or group of entities means any event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of such entity and its
subsidiaries, taken as a whole.
“Material
Adverse Effect” shall mean any event, change or effect that is materially
adverse to the current business, financial condition or assets of the Target
and
its Subsidiaries taken as a whole.
“Non-Compete
Period” shall mean a period of five (5) years following the Closing
Date.
“Non-Solicitation
Period” shall mean a period of five (5) years following the Closing
Date.
“Operating
Profit Contribution” means the operating profit contribution attributable
to the Company Business (as defined in Section 1.2) before any allocation of
the
Acquiror’s corporate-level operations and administrative expenses, all as
determined by the Acquiror using its normal accounting methodologies and
processes, and in accordance with GAAP.
“Person”
shall mean any individual, corporation, association, partnership, joint
ventures, trust, estate, limited liability company, limited liability
partnership, Governmental Authority or other entity or
organization.
“Protected
Area” shall mean any state in the United States in which Acquiror or
Target, or any Affiliate of either of them, conducted Company Activities at
any
time during the 12-month period immediately preceding the Closing
Date.
“Revenue”
shall mean the net revenue, calculated in accordance with GAAP, attributable
to
the Target’s Company Business (as defined in Section 1.2).
“Select
Shareholders Nominee Trust” means the trust created for the benefit of the
Shareholders pursuant to that certain Declaration of Trust, dated August 14,
2007, among ▇▇▇▇ ▇▇▇▇▇, as Trustee, and each of the Shareholders.
“Tax”
(and, with correlative meaning, “Taxes” and “Taxable”) means
(i) any net income, gross income, gross receipts, sales, use, ad valorem,
transfer, profits, license, withholding, payroll, employment, excise, severance,
stamp, premium, property, or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental entity (a “Tax Authority”) responsible for
the imposition of any such tax (domestic or foreign), (ii) any liability for
the
payment of any amounts of the type described in Section 2.11(i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in Sections 2.11(i) and (ii) as a
result of any express or implied obligation to indemnify any other person or
as
a result of being a successor or transferee of any person.
“Tax
Return” shall mean any return, statement, report or form (including,
without limitation, estimated Tax Returns and reports, withholding Tax Returns
and reports and information reports and returns) required to be filed with
respect to Taxes.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, Acquiror and each Shareholder have caused this Agreement to
be
executed and delivered all as of the date first above written.
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/s/
▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇
▇. ▇▇▇▇
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Chairman
and Chief Executive Officer
|
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SHAREHOLDERS:
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/s/
▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇
▇▇▇▇▇, individually
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▇. ▇▇▇▇▇▇
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▇. ▇▇▇▇▇▇, Executrix of the Estate of ▇▇▇▇▇▇ ▇.
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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/s/
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/s/
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/s/
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/s/
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