AGREEMENT AND PLAN OF MERGER Dated as of August 16, 2007
EXHIBIT
4.10
AGREEMENT
AND PLAN OF MERGER
Dated
as of August 16, 2007
The
parties to this agreement and plan of merger are BluePhoenix Solutions Ltd.
(the
“Parent”), an Israeli corporation, ASNA Transitory Sub, Inc. (the “Sub”), a
Texas corporation, Amalgamated Software of North America, Inc. (the “Company”),
a Texas corporation, a committee comprised of each of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (collectively, the “Representative”) and the
shareholders of the Company named at the end of this agreement (the “Principal
Shareholders”).
The
board
of directors of each of the Parent, the Sub, and the Company have approved
the
merger (the “Merger”) of the Sub with and into the Company on the terms set
forth in this agreement.
Accordingly,
the parties agree as follows:
ARTICLE
I
THE
MERGER
Section
1.1 The
Merger. At
the
Effective Time (as defined in section 1.2, the Sub shall be merged with and
into
the Company, in accordance with the Texas Business Corporation Act (the “TBCL”),
at which time the separate existence of the Sub shall cease, and the name of
the
Company, as the surviving corporation in the Merger (the “Surviving
Corporation”), shall by virtue of the Merger remain “Amalgamated Software of
North America, Inc.”
The
Merger will have the effects set forth in Article V of the TBCL.
Section
1.2 Effective
Time of the Merger.
The
Merger will become effective upon the filing of a properly executed articles
of
merger complying with section 5.04 of the TBCL (the “Articles of Merger”) with
the Department of State of the State of Texas (the “Department of State”) (the
“Effective Time”).
ARTICLE
II
THE
SURVIVING CORPORATION
Section
2.1 Certificate
of Incorporation.
The
articles of incorporation of the Sub in effect at the Effective Time will be
the
articles of incorporation of the Surviving Corporation, until thereafter amended
in accordance with its terms and as provided in the TBCL.
Section
2.2 Bylaws.
The
bylaws of the Sub in effect at the Effective Time will be the bylaws of the
Surviving Corporation, until thereafter amended in accordance with its terms
and
as provided in the certificate of incorporation and the TBCL.
Section
2.3 Directors
and Officers of Surviving Corporation
(a) The
directors of the Sub at the Effective Time will be the initial directors of
the
Surviving Corporation and will hold office from the Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the certificate of incorporation and bylaws of the Surviving
Corporation or as otherwise provided by law.
(b) The
officers of the Company at the Effective Time will be the initial officers
of
the Surviving Corporation and will hold office from the Effective Time until
their respective successors are duly elected or appointed and qualify in the
manner provided in the certificate of incorporation and bylaws of the Surviving
Corporation or as otherwise provided by law.
ARTICLE
III
CONVERSION
OF SHARES; ESCROW;
ADJUSTMENT
OF MERGER CONSIDERATION
Section
3.1 Exchange
Ratio.
(a) Subject
to sections 3.2 and 3.3, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder of shares of common stock of the
Company (collectively, the “Shares”), each Share issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares (as
defined in section 3.3 )) (the “Outstanding Shares”) will be converted into the
right to receive (i) the Initial Merger Consideration (as defined below), (ii)
the Indemnity Merger Consideration (as defined below), if any, (iii) the
Contingent Merger Consideration (as defined below), if any, and (iv) the
Representative Escrow Consideration (as defined below), if any. The Initial
Merger Consideration in respect of particular Shares will be paid in cash and
without interest upon surrender of the certificate formerly evidencing such
Shares. The Indemnity Merger Consideration, if any, will be paid in cash and
with interest as and when specified in section 3.5. The Contingent Merger
Consideration, if any, will be paid in cash without interest as and when
specified in sections 3.6 and 3.7. The Representative will pay the
Representative Escrow Consideration in cash and with interest as and when
specified in section 10.7. The Initial Merger Consideration, the Indemnity
Merger Consideration, the Contingent Merger Consideration, and the
Representative Escrow Consideration are collectively referred to as the “Merger
Consideration.” From and after the Effective Time, all converted Shares shall no
longer be outstanding and shall be deemed to be cancelled and retired and shall
cease to exist, and each holder of a certificate evidencing converted Shares
shall cease to have any rights with respect to such Shares, except the right
to
receive the Merger Consideration in respect of those Shares, without interest
(other than as specified in sections 3.5 and 10.7), upon the surrender of such
certificate in accordance with section 3.2 or as otherwise provided by law.
2
(b) The
Initial Merger Consideration will be an amount determined by dividing (i) an
amount equal to $4,750,000 (four million seven hundred and fifty thousand US
dollars), reduced by the amount of the Fees and Expenses (as defined in section
5.20), by (ii) the number of Outstanding Shares.
(c) The
Indemnity Merger Consideration will be an amount determined by dividing (i)
an
amount equal to the sum of (A) the amount delivered by the Escrow Agent to
the
Company pursuant to section 3.5(b), plus (B) the amount delivered by the Escrow
Agent to the Company pursuant to section 3.5(c), by (ii) the number of
Outstanding Shares.
(d) The
Contingent Merger Consideration will be an amount determined and payable
pursuant to sections 3.6 and 3.7.
(e) The
Representative Escrow Consideration will be an amount determined and payable
by
the Representative pursuant to section 10.7.
3
(f) Each
Share held in the treasury of the Company immediately prior to the Effective
Time will be cancelled and retired and cease to exist.
(g) Each
share of common stock, par value $0.01 per share, of the Sub issued and
outstanding immediately prior to the Effective Time will be converted into
one
share of common stock of the Surviving Corporation.
Section
3.2 Exchange
of Certificates
(a) Exchange
Procedures.
As soon
as reasonably practicable, but in no event more than two business days, after
the Effective Time, the Parent shall mail or otherwise deliver to each holder
of
record of Shares immediately prior to the Effective Time listed in schedule
3.2(a), at the respective holder’s address set forth in schedule 3.2(a), (i) a
letter of transmittal (which will specify that delivery of the certificates
evidencing the holder’s Shares (the “Certificates”) will be effected, and risk
of loss and title to the Certificates will pass, only upon delivery of the
Certificates to the Parent) in such form and with such provisions not
inconsistent with this agreement as the Parent may specify (including a
provision to the effect that payment of the Merger Consideration shall be made,
from time to time, by wire transfer to the bank account specified by the holder
or by check mailed by first class mail to the address specified by the holder,
as the holder may elect) (ii) instructions for use in effecting the surrender
of
Certificates in exchange for payment of the Merger Consideration, (iii) a copy
of the provisions of the TCBL relevant to dissenter’s rights, and (iv) IRS Form
W-9 or W-8, as applicable, which shall be forwarded to the Escrow Agent. Upon
surrender of a Certificate for cancellation to the Parent or to such other
agent
or agents as may be appointed by the Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate will be entitled,
not
later than two business days following such surrender, to receive in exchange
therefor the Merger Consideration for each Share formerly represented by such
Certificate. The Certificate so surrendered shall forthwith be cancelled. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered, it will be
a
condition of payment that the Certificate so surrendered be properly endorsed
or
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of
the
payment of the Merger Consideration to a person other than the registered holder
of the Shares evidenced by the Certificate surrendered or shall have established
to the satisfaction of the Surviving Corporation that such tax either has been
paid or is not applicable. After the Effective Time, each Certificate shall
entitle the holder thereof only to the right to receive, upon surrender of
the
Certificate, the Merger Consideration in cash as contemplated by this section
3.2 and no more.
(b) Transfer
Books; No Further Ownership Rights in the Shares.
At the
Effective Time, the stock transfer books of the Company will be closed, and
thereafter there will be no further registration of transfers of the Shares
on
the records of the Company. From and after the Effective Time, the holders
of
Certificates evidencing Outstanding Shares shall cease to have any rights with
respect to such Shares, except as otherwise provided in this agreement or by
applicable law.
4
(c) Withholding.
The
Parent may deduct and withhold from the Merger Consideration otherwise payable
pursuant to this agreement to any holder of Shares such amount of Taxes (as
defined in section 5.19) as the Parent is required to deduct and withhold under
applicable law with respect to the making of such payment. To the extent that
amounts are so withheld by the Parent, such withheld amounts shall be treated
for all purposes of this agreement as having been paid to the holder of Shares
in respect of whom such deduction and withholding was made by the Parent.
Section
3.3 Dissenting
Shares.
Notwithstanding anything in this agreement to the contrary, no Outstanding
Shares the holder of which has complied with the provisions of sections 5.11
through 5.14 of the TBCL as to dissenter’s rights (“Dissenting Shares”) shall be
deemed converted into and to represent the right to receive the Merger
Consideration, and the holders of Dissenting Shares, if any, will be entitled
to
payment, solely from the Surviving Corporation, of the appraised value of such
Dissenting Shares, to the extent permitted by and in accordance with the
provisions of sections 5.11 through 5.14 of the TBCL; provided,
however,
that
(a) if any holder of Dissenting Shares shall, under the circumstances permitted
by the TBCL, subsequently deliver a written withdrawal of that holder’s demand
for appraisal of such Dissenting Shares, or (b) if any holder fails to establish
that holder’s entitlement to rights to payment as provided in the TCBL, or (c)
if neither any holder of Dissenting Shares nor the Surviving Corporation has
filed a petition demanding a determination of the value of all Dissenting Shares
within the time provided in the TBCL, such holder or holders shall forfeit
such
right to payment for such Dissenting Shares pursuant to the TBCL, and each
such
Share will not be considered a Dissenting Share but will thereupon be converted
into the right to receive the Merger Consideration. The Company shall give
the
Representative (as defined in Article 10) and the Parent (x) prompt notice
of
any written demands for appraisal of any Shares, attempted withdrawals of such
demands, and any other instruments received by the Company relating to
shareholders’ rights of appraisal and (y) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under the
TBCL.
Section
3.4 Closing.
Subject
to the satisfaction or waiver of the conditions set forth in Article VII, the
parties shall consummate the closing of the transactions contemplated by this
agreement (the “Closing”) as promptly as practicable on the date of this
agreement. At the Closing, the parties shall take all action and execute and
deliver all documents and instruments (including, without limitation, the
Articles of Merger) required to effect the Merger as promptly as
possible.
Section
3.5 Indemnity
Merger Consideration
(a) At
the
Effective Time, pursuant to the escrow agreement dated the date of this
agreement among the parties to this agreement and JPMorgan Chase Bank, N.A.
(the
“Escrow Agent”) (the “Escrow Agreement”), the Parent shall deposit $2,000,000 in
cash in the Escrow Fund (as defined in the Escrow Agreement).
5
(b) On
the
earlier of February 16, 2008 or the date on which the Parent delivers to the
Representative the 2007 Stub-Period Income Statement (as defined in section
3.6(a)), the parties shall cause the Escrow Agent to transfer to the Company
an
amount equal to (i) the sum of (A) $1,000,000 plus (B) interest earned thereon
under the Escrow Agreement, reduced by (ii) the sum of (A) the amount the Parent
in its commercially reasonable discretion determines is necessary to meet any
payments required to be made for Dissenting Shares under section 3.3 and any
related attorneys’ fees and expenses, plus (B) the Estimated Claim Amount (as
defined below), plus (C) 50% of the aggregate amount of any fees theretofore
payable to the Escrow Agent pursuant to section 7 of the Escrow Agreement (the
amount of such fees paid during a particular period, the “Shareholders’ Portion
of the Escrow Fees”), plus (D) the aggregate amount of all Claims (as defined in
section 8.4(a)) theretofore paid pursuant to the Escrow Agreement (such sum
to
be distributed from the Escrow Fund pursuant to this section 3.5(b) constitutes
the “2007 Distribution”). Within five (5) business days after the Company’s
receipt of the 2007 Distribution from the Escrow Agent, the Company shall pay
each former holder of Outstanding Shares who shall have surrendered a
Certificate evidencing Outstanding Shares an amount per Share determined by
dividing (i) the 2007 Distribution, by (ii) the number of Outstanding Shares
(the “Per Share 2007 Distribution”). Thereafter, the Company shall pay the
respective former holders of Outstanding Shares so surrendering Certificates
an
amount in cash, without interest after the date of the 2007 Distribution, equal
to the Per Share 2007 Distribution in respect of each Outstanding Share
evidenced by the Certificates so surrendered within five (5) business days
after
the respective Certificates are so surrendered. For purposes of this agreement,
the term “Estimated Claim Amount” at any time means the amount the Parent in its
commercially reasonable discretion determines is reasonably necessary to meet
Claims, if any, made by the Parent Indemnified Parties under Article VIII prior
to that time.
(c) If,
at
any time after November
16, 2008, there are no unresolved Claims by the Parent Indemnified Parties
under
Article VIII, the parties shall cause the Escrow Agent immediately to transfer
to the Company the balance, if any, then in the Escrow Fund (including interest
earned thereon under the Escrow Agreement), reduced by the Shareholders’ Portion
of the Escrow Fees during the period from the date of the transfer by the Escrow
Agent under section 3.5(b) to the date of the transfer by the Escrow Agent
under
this section 3.5(c) (such final balance to be transferred from the Escrow Fund
pursuant to this Section 3.5(c) constitutes the “Final Distribution”). Within
five (5) business days after the Company’s receipt of the Final Distribution
from the Escrow Agent, the Company shall pay each former holder of Outstanding
Shares who shall have surrendered a Certificate evidencing Outstanding Shares
an
amount per Share determined by dividing (i) the Final Distribution, by (ii)
the
number of Outstanding Shares (the “Per Share Final Distribution”). Thereafter,
the Company shall pay the respective former holders of Outstanding Shares so
surrendering Certificates an amount in cash, without interest after the date
of
the Final Distribution, equal to the Per Share Final Distribution in respect
of
each Outstanding Share evidenced by the Certificates so surrendered within
five
(5) business days after the respective Certificates are so
surrendered.
6
Section
3.6 2007
Contingent Merger Consideration
(a) Not
later
than April 30, 2008, the Parent shall prepare and deliver to the Representative
(i) a consolidated income statement for the Company and its consolidated
subsidiaries for the period (the “Stub-Period”) commencing on August 15, 2007
and ending on December 31, 2007 (the “2007 Stub-Period Income Statement”), and
(ii) a report of the Parent’s chief financial officer setting forth the 2007
Stub-Period EBIT and the 2007 Stub-Period Revenue, and, in reasonable detail,
the calculation of the 2007 Stub-Period EBIT and 2007 Stub-Period Revenue (the
“Preliminary 2007 Stub-Period EBIT Statement”). The 2007 Stub-Period Income
Statement shall be prepared on a basis consistent with the basis on which the
income statements included in the Financial Statements (as defined in section
5.5) were prepared, except that maintenance revenue in respect of the
Stub-Period shall not be included, except to the extent actually collected
by
the earlier of (i) January 31, 2008, or (ii) the date the 2007 Stub-Period
Income Statement shall have been prepared. (b) As
used
in this agreement, (i) the term “2007 Stub-Period EBIT” means the Net Profit, if
any, in the Stub-Period, increased by the sum of the net income tax expense
plus
the interest expense (net of the interest income) reflected in the 2007
Stub-Period Income Statement, (ii) the term “Net Profit” for a particular period
means (A) the Company’s consolidated net earnings for that period, determined by
the Parent on the basis of the 2007 Stub-Period Income Statement, and (iii)
the
term “2007 Stub-Period Revenue” means the consolidated revenue of the Company
and its consolidated subsidiaries reflected in the 2007 Stub-Period Income
Statement.
(c)
The
Representative shall have 60 days after receipt of the 2007 Stub-Period Income
Statement and Preliminary 2007 Stub-Period EBIT Statement (the “Objection
Period”) to object to any item or items shown on the Preliminary 2007
Stub-Period EBIT Statement. During the Objection Period, the Representative
shall have access to all work papers used in the preparation of the Preliminary
2007 Stub-Period EBIT Statement. The Representative may, during the Objection
Period, notify the Parent in writing of any good faith objections to the
Preliminary 2007 Stub-Period EBIT Statement, setting forth a detailed
description of such objections and the dollar amount of each objection. If
the
Representative does not so object during the Objection Period, the Preliminary
2007 Stub-Period EBIT Statement shall be final, binding, and conclusive on
the
parties. If the Representative so objects during the Objection Period, the
Representative and the Parent shall attempt to resolve any such objections
within 30 days following the Parent’s receipt of the Representative’s
objections. If the Parent and the Representative are able to resolve all such
objections, such resolution shall be final, binding, and conclusive on the
parties. If the Parent and the Representative are unable to resolve all such
objections within that 30-day period, the Parent and the Representative shall
select and retain within five days following the end of that 30-day period
an
accounting firm mutually agreeable to the Parent and the Representative (or,
if
they cannot agree on a firm, either may request that JAMS select such firm)
(such accounting firm, the “Arbitrator”) to resolve the disagreement. The
Arbitrator shall be directed to resolve any items in dispute between the
parties. The Arbitrator also shall determine how much of his fees and expenses
shall be paid by each party. The Representative and the Parent shall (and shall
cause the Surviving Corporation to) provide the Arbitrator full cooperation,
and
the Arbitrator shall perform such procedures and examine such books and records
of the Company as it deems relevant. The Arbitrator shall be instructed to
reach
a conclusion regarding the disputed items within 30 days following the
submission to him of any disagreements and, in any case, as soon as practicable
after such submission. The Arbitrator’s resolution of the disputed items shall
be final, binding, and conclusive on the parties. As used in this agreement,
(i)
the term “Final 2007 Stub-Period EBIT Statement” means the Preliminary 2007
Stub-Period EBIT Statement, after the acceptance of it by the Representative
or
after its adjustment to reflect the resolution of all objections pursuant to
this section 3.6(c), as the case may be, (ii) the term “Final 2007 Stub-Period
EBIT” means the 2007 Stub-Period EBIT reflected in the Final 2007 Stub-Period
EBIT Statement, and (iii) the term “Final 2007 Stub-Period Revenue” means the
2007 Stub-Period Revenue reflected in the Final 2007 Stub-Period Net Profit
Statement.
7
(d) (i) If
the
Final 2007 Stub-Period EBIT exceeds $791,368 and the Final 2007 Stub-Period
Revenue exceeds $2,989,858, the Contingent Merger Consideration payable pursuant
to this section 3.6(d) shall be the sum of (A) an amount determined by dividing
(1) $600,000, by (2) the number of Outstanding Shares, plus (B) the Additional
Revenue Contingent Consideration (as defined in clause (d)(ii) below), plus
(C)
the Additional EBIT Contingent Consideration (as defined in clause (d)(iii)
below).
(ii) For
purposes of this agreement, the term “Additional Revenue Contingent
Consideration” means an amount determined by dividing (A) the Revenue-Based
Contingent Amount (as defined below), by (B) the number of Outstanding Shares.
As used in this agreement, the term “Revenue-Based Contingent Amount” means $400
multiplied by a fraction, the numerator of which equals the Final 2007
Stub-Period Revenue, reduced by $2,989,858, and the denominator of which equals
$3,737; provided, however, the revenue-Based Contingent Amount shall not exceed
$80,000.
(iii) For
purposes of this agreement, the term “Additional EBIT Contingent Consideration”
means an amount determined by dividing (A) the EBIT-Based Contingent Amount
(as
defined below), by (B) the number of Outstanding Shares. As used in this
agreement, the term “EBIT-Based Contingent Amount” means $400 multiplied by a
fraction, the numerator of which equals the Final 2007 Stub-Period EBIT, reduced
by $791,368, and the denominator of which equals $1,131; provided, however,
the
EBIT-Based Contingent Amount shall not exceed $120,000.
(e) Not
later
than five (5) business days after the Final 2007 Stub-Period EBIT Statement
becomes final, binding, and conclusive on the parties, the Contingent Merger
Consideration payable pursuant to section3.6(d) shall be paid in cash without
interest to each former holder of Outstanding Shares who shall have surrendered
Certificates formerly evidencing Outstanding Shares. Thereafter, as and when
Certificates formerly evidencing Outstanding Shares are surrendered, the
Contingent Merger Consideration payable pursuant to section 3.6(d) shall be
paid
promptly in cash without interest to the respective former holder of Outstanding
Shares so surrendering a Certificate in respect of the Outstanding Shares
evidenced by the Certificate. Notwithstanding the foregoing, however, (i) in
the
event that ▇▇▇▇ ▇▇▇▇▇▇▇▇ fails to perform, or delays in performing, the
Financial Reporting Provisions (as set forth in her Employment Agreement) and
the determination of the amount, if any, of Contingent Consideration payable
pursuant to section 3.6(d) and the preparation of statements pursuant to section
3.7 below are delayed, the obligation to pay any such Contingent Merger
Consideration shall be delayed, until such Financial Reporting Provisions are
fully performed, (ii) to the extent there are any unresolved Claims by the
Parent Indemnified Parties under Article VIII on the date an amount is payable
under this section 3.6(e), the amount so payable shall be reduced so that the
sum of the balance after such payment plus the balance then in the Escrow Fund
is not less than the aggregate Estimated Claim Amount in respect of such Claims
under Article VIII (including reasonably anticipated attorneys’ fees and
expenses), and (iii) as and when such Claims are resolved, additional amounts
may be paid, as long as the sum of the balance after such payment plus the
balance then in the Escrow Fund is not less than the aggregate amount of any
such then unresolved Claims under Article VIII.
8
Section
3.7 2010
Contingent Merger Consideration.
(a) Not
later
than April 30, 2009, the Parent shall prepare and deliver to the Representative
a consolidated income statement for the Company and its consolidated
subsidiaries for the year ending December 31, 2008 (the “2008 Income
Statement”). Not later than April 30, 2010, the Parent shall prepare and deliver
to the Representative (i) consolidated income statements for the Company and
its
consolidated subsidiaries for the year ending December 31, 2009 (the “2009
Income Statement and, with the 2008 Income Statement, the “2008-2009 Income
Statements”), and (ii) a report of the Parent’s chief financial officer setting
forth the Net Annual Average Profit, and, in reasonable detail, the calculation
of the Net Annual Average Profit (the “Preliminary Net Annual Average Profit
Statement”). The 2008-2009 Income Statements shall be audited by the Parent’s
independent accountants, shall present fairly the consolidated results of
operations of the Company and its subsidiaries for each such year, and shall
be
in conformity with United States generally accepted accounting principles
consistently applied (“GAAP”).
(b) As
used
in this agreement:
(i)
the
term “Net Average Annual Profit” means 50% of the Cumulative Net Profit, if any,
in the two years ending December 31, 2009,
(ii)
“Cumulative Net Profit” in the two years ending December 31, 2009 means (A) the
sum of the Net Profit for the year or years in which there was Net Profit,
reduced by (B) the sum of the Net Loss for the year or years in which there
was
Net Loss, (C) the terms “Net Profit” and “Net Loss” for a particular period mean
(1) the Company’s consolidated net profit or net loss, respectively, for that
period, determined by the Parent on the basis of the Company’s consolidated
income statement for the Company and its consolidated subsidiaries for the
period, which shall be audited by the Parent’s independent accountants, shall
present fairly the consolidated results of operations of the Company and its
subsidiaries for the period, and shall be in conformity with GAAP consistently
applied, and (2) subject to the adjustments set forth in schedule
3.7(b).
9
(c)
The
Representative shall have 60 days after receipt of the 2008-2009 Income
Statements and Preliminary Net Annual Average Profit Statement (the “Objection
Period”) to object to any item or items shown on the Preliminary Net Annual
Average Profit Statement. During the Objection Period, the Representative shall
have access to all work papers used in the preparation of the Preliminary Net
Annual Average Profit Statement. The Representative may, during the Objection
Period, notify the Parent in writing of any good faith objections to the
Preliminary Net Annual Average Profit Statement, setting forth a detailed
description of such objections and the dollar amount of each objection. If
the
Representative does not so object during the Objection Period, the Preliminary
Net Annual Average Profit Statement shall be final, binding, and conclusive
on
the parties. If the Representative so objects during the Objection Period,
the
Representative and the Parent shall attempt to resolve any such objections
within 30 days following the Parent’s receipt of the Representative’s
objections. If the Parent and the Representative are able to resolve all such
objections, such resolution shall be final, binding, and conclusive on the
parties. If the Parent and the Representative are unable to resolve all such
objections within that 30-day period, the Parent and the Representative shall
select and retain the Arbitrator within five days following the end of that
30-day period (or, if they cannot agree on the Arbitrator, either may request
that JAMS select an accounting firm as the Arbitrator) to resolve the
disagreement. The Arbitrator shall be directed to resolve any items in dispute
between the parties. The Arbitrator also shall determine how much of his fees
and expenses shall be paid by each party. The Representative and the Parent
shall (and shall cause the Surviving Corporation to) provide the Arbitrator
full
cooperation, and the Arbitrator shall perform such procedures and examine such
books and records of the Company as it deems relevant. The Arbitrator shall
be
instructed to reach a conclusion regarding the disputed items within 30 days
following the submission to him of any disagreements and, in any case, as soon
as practicable after such submission. The Arbitrator’s resolution of the
disputed items shall be final, binding, and conclusive on the parties. As used
in this agreement, (i) the term “Final Net Annual Average Profit Statement”
means the Preliminary Net Annual Average Profit Statement, after the acceptance
of it by the Representative or after its adjustment to reflect the resolution
of
all objections pursuant to this section 3.7(c), as the case may be, and (ii)
the
term “Final Net Annual Average Profit” means the Net Annual Average Profit
reflected in the Final Net Annual Average Profit Statement.
(d) (i) If
the
Final Net Annual Average Profit exceeds $1,500,000 but is equal to or less
than
$2,000,000, the Contingent Merger Consideration payable pursuant to this section
3.7(d) shall be an amount determined by dividing (A) an amount determined by
multiplying (1) the Net Annual Average Profit reduced by $1,500,000, by (2)
6.5,
by (B) the number of Outstanding Shares.
(ii) If
the
Final Net Annual Average Profit exceeds $2,000,000 but is equal to or less
than
$2,500,000, the Contingent Merger Consideration payable pursuant to this section
3.7(d) shall be an amount determined by dividing (A) an amount equal to the
sum
of (1) an amount determined by multiplying (aa) the Net Annual Average Profit
reduced by $2,000,000, by (bb) 7.5, plus (2) $3,250,000, by (B) the number
of
Outstanding Shares.
10
(iii) If
the
Final Net Annual Average Profit exceeds $2,500,000, the Contingent Merger
Consideration payable pursuant to this section 3.7(d) shall be an amount
determined by dividing (A) an amount equal to the sum of (1) an amount
determined by multiplying (aa) the Net Annual Average Profit reduced by
$2,500,000, by (bb) 8, plus (2) $7,000,000, by (B) the number of Outstanding
Shares.
(e) Not
later
than five (5) business days after the Final Net Annual Average Profit Statement
becomes final, binding, and conclusive on the parties, the Contingent Merger
Consideration payable pursuant to section 3.7(d) shall be paid in cash without
interest to each former holder of Outstanding Shares who shall have surrendered
Certificates formerly evidencing Outstanding Shares. Thereafter, as and when
Certificates formerly evidencing Outstanding Shares are surrendered, the
Contingent Merger Consideration payable pursuant to section 3.7(d) shall be
paid
promptly in cash without interest to the respective former holder of Outstanding
Shares so surrendering a Certificate in respect of the Outstanding Shares
evidenced by the Certificate. Notwithstanding the foregoing, however, (i) in
the
event that ▇▇▇▇ ▇▇▇▇▇▇▇▇ fails to perform, or delays in performing, the
Financial Reporting Provisions (as set forth in her Employment Agreement) and
the determination of the amount, if any, of Contingent Consideration payable
pursuant to this section 3.7 and preparation of statements pursuant to this
section 3.7 are delayed, the obligation to pay any such Contingent Merger
Consideration shall be delayed, until such Financial Reporting Provisions are
fully performed, (ii) to the extent there are any unresolved Claims by the
Parent Indemnified Parties under Article VIII on the date an amount is payable
under this section 3.7(e), the amount so payable shall be reduced so that the
sum of the balance after such payment plus the balance then in the Escrow Fund
is not less than the aggregate Estimated Claim Amount in respect of such Claims
under Article VIII (including reasonably anticipated attorneys’ fees and
expenses), and (iii) as and when such Claims are resolved, additional amounts
may be paid, as long as the sum of the balance after such payment plus the
balance then in the Escrow Fund is not less than the aggregate amount of any
such then unresolved Claims under Article VIII.
Section
3.8 Transfer
of Rights to Contingent Consideration.
Notwithstanding anything to the contrary in this agreement, the parties hereto
recognize and acknowledge that each Principal Shareholder is entitled to
transfer his, her, or its rights to the Contingent Merger Consideration to
any
other Principal Shareholder (or, if the transfer is, in substance, gratuitous,
to any third party) at any time before April 30, 2010. Upon any such transfer,
the holder transferring the rights to the Contingent Merger Consideration agrees
immediately to deliver documentation reasonably satisfactory to the Parent
evidencing such transfer.
Section
3.9 Release
by Principal Shareholders.
Each Principal Shareholder hereby agrees that (a) at the Effective Time, the
Company and each Subsidiary (as defined in section 5.4) shall be released from
all liabilities and obligations, contingent or actual, arising from any fact,
event, or circumstance occurring or existing at any time on or before the
Effective Time (including, without limitation, all liabilities and obligations
arising by contract, tort, statute, or otherwise, but excluding any
liability or obligation under this agreement, the Escrow Agreement, or the
Employment Agreements, and any liability set forth on schedule 3.9) (“Pre-Merger
Company Liabilities”).
11
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND SUB
The
Parent represents and warrants to the Company and the Shareholders as
follows:
Section
4.1 Existence
and Corporate Power of the Parent and Sub.
The
Parent is a corporation validly existing and in good standing under the law
of
the nation of Israel, and has the corporate power to execute, deliver, and
perform its obligations under this agreement and the Escrow Agreement. The
Sub
is a corporation validly existing and in good standing under the law of the
state of Texas, and has the corporate power to execute, deliver, and perform
its
obligations under this agreement and the Escrow Agreement.
Section
4.2 Authority.
The
execution, delivery, and performance of its obligations under this agreement
and
the Escrow Agreement by each of the Parent and the Sub have been duly authorized
by its board of directors, and by the Parent as the sole shareholder of the
Sub,
and no other corporate proceedings on the part of the Parent or the Sub are
necessary to authorize the execution, delivery, or performance of this agreement
or the Escrow Agreement. This agreement has been duly and validly executed
and
delivered by each of the Parent and the Sub and constitutes a valid and binding
agreement of each of the Parent and the Sub, enforceable against each in
accordance with its terms, except insofar as enforceability may be limited
by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors’ rights generally, or principles governing the availability
of equitable remedies.
Section
4.3 Consents
and Approvals; No Violations.
Except
for the filing and recordation of the Articles of Merger under the TBCL, no
filing with, and no permit, authorization, consent, or approval of, any public
body or authority is necessary for the consummation by the Parent and the Sub
of
the transactions contemplated by this agreement. Neither the execution and
delivery of this agreement or the Escrow Agreement by the Parent or the Sub
nor
the performance by the Parent or the Sub of its obligations under this agreement
or the Escrow Agreement will (a) conflict with or result in any breach of any
provisions of its organizational instruments, (b) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a
default under, any agreement or other instrument to which it is a party or
by
which it or any of its assets may be bound, or (c) violate any order, writ,
injunction, decree, statute, rule, or regulation applicable to it or its
assets.
12
Section
4.4 Brokers. No
broker, finder, or financial advisor is entitled to any brokerage, finder’s, or
other fee or commission in connection with the Merger or the transactions
contemplated by this agreement based upon arrangements made by or on behalf
of
the Parent or the Sub.
Section
4.5 Proceedings.
There
is no claim, suit, proceeding or investigation pending, or to the knowledge
of
any officer, director, or key employee of the Parent threatened against or
affecting the Parent or the Sub, which, if determined adversely to either the
Parent or the Sub, could affect such party’s ability to consummate the
transactions contemplated hereby.
Section
4.6 Diligence.
The
Parent, the Sub, and their respective agents have been permitted access to
the
records, facilities, equipment, returns, contracts, and other properties and
assets of the Company they and their respective agents have, by a general
questionnaire, requested to see or review, and they and their respective agents
have had an opportunity to meet with the Company and its agents to discuss
the
businesses and assets of the Company. It is understood and agreed by the parties
to this agreement that nothing in this section 4.6 is intended to, or shall,
diminish or otherwise affect the rights of any Parent Indemnified Parties under
Article VIII.
Section
4.7 Sufficient
Funds. Parent
has, on the date hereof, the financial capability to consummate the Merger
and
the transactions contemplated hereby on the terms and subject to the conditions
set forth in this Agreement.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
The
Principal Shareholders jointly and severally represent and warrant to the Parent
and the Sub as follows:
Section
5.1 Existence,
Qualification, Etc.
Each of
the Company and ASNA Ltd. (the “UK Subsidiary”) is a company validly existing
and in good standing under the law of the state of Texas and the Commonwealth
of
England and Wales, respectively, and has full corporate power and authority
to
conduct its business and own and operate its properties as now conducted, owned,
and operated. The Company has delivered to the Parent true, correct, and
complete copies of the Company’s certificate of incorporation and by-laws and
the UK Subsidiary’s organizational instruments. Neither the Company nor the UK
Subsidiary is required to be licensed or qualified as a foreign corporation
in
any jurisdiction.
Section
5.2 Authorization
and Enforceability; Shares. Each
Principal Shareholder is legally competent to execute, deliver, and perform
that
Shareholder’s obligations under this agreement, and none of those actions will
violate any applicable law, regulation, order, or judgment, or result in the
breach of, or constitute a default (or an event that, with notice or lapse
of
time or both, would constitute a default) under, any agreement, instrument,
or
understanding to which that Shareholder is a party or by which that Shareholder
is bound. The
Company has the full power and authority and has taken all required action
necessary to permit it to execute, deliver, and perform this agreement, the
Escrow Agreement, and the employment agreements attached as exhibit 5.2 (the
“Employment Agreements”), and none of those actions will violate any provision
of the Company’s certificate of incorporation or bylaws or any applicable law,
regulation, order, or judgment, or result in the breach of, or constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, any agreement, instrument, or understanding to
which it is a party or by which it is bound. This agreement constitutes a legal,
valid, and binding obligation of each Principal Shareholder, enforceable against
each in accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws of general
application related to the enforcement of creditor’s rights generally and
general principles of equity. Each Employment Agreement constitutes a legal,
valid, and binding obligation of the Company, enforceable against the Company
in
accordance with its terms, except to the extent limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws of general
application related to the enforcement of creditor’s rights generally and
general principles of equity.
13
Section 5.3 Capitalization. The
authorized and issued capital stock of the Company are as set forth in schedule
5.3, which sets forth the number of Shares owned of record by each Shareholder.
All the Shares are validly issued, fully paid, and nonassessable, and have
been
issued in compliance with all applicable laws. There are no outstanding options,
warrants, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or any other securities, rights, or obligations
convertible into or exchangeable for, or otherwise giving any person or entity
any right to subscribe for or acquire, any shares, stock, or other securities
of
the Company or the UK Subsidiary, or, to the actual knowledge (“Knowledge”) of
the Senior Specified Employees (as defined in section 5.7), CoCovai 400 S.L.,
a
Spanish Sociedad Limitada (the “Spanish Subsidiary”) (collectively, “Equity
Commitments”).
Section
5.4 Subsidiaries.
The
Company does not own any shares or other interests of any kind in any other
business or entity, except for a one hundred percent (100%) interest in the
UK
Subsidiary, which has a thirty percent (30%) interest in the Spanish Subsidiary.
Except
for the UK Subsidiary’s ownership interest in the Spanish Subsidiary, the UK
Subsidiary does not own any shares or other equity interests of any kind in
any
other business or entity. Schedule 5.4 fairly describes the capital structure
of
the UK Subsidiary, including, without limitation, the authorized and outstanding
capital stock and Equity Commitments, the equity and other securities of the
UK
Subsidiary owned by the Company, and all written and oral agreements,
arrangements, and understandings between the UK Subsidiary and its officers,
directors, and affiliates, on the one hand, and the Company and its officers,
directors, and affiliates, on the other hand. Except as set forth in the
shareholders agreement among the Spanish Subsidiary, ▇▇▇▇▇▇ ▇▇▇▇▇▇, and the
UK
Subsidiary dated June 2006, and the right of first refusal, co-sale and buy-sell
agreement among the Spanish Subsidiary, ▇▇▇▇▇▇ ▇▇▇▇▇▇, and the UK Subsidiary
dated June 2006, neither the Company nor the UK Subsidiary has any liability
or
obligation, actual or contingent, as a shareholder of the Spanish Subsidiary
or
otherwise, to or in respect of the Spanish Subsidiary (each of the UK Subsidiary
and the Spanish Subsidiary, a “Subsidiary”).
14
Section
5.5 Financial
Statements
and
Information.
(a) Attached
hereto as schedule 5.5(a) are the Company’s unaudited consolidated and
consolidating balance sheets and statements of income as of and for the fiscal
year ended December 31, 2006 (the
“2006 Financial Statements”) and the Company’s consolidated and consolidating
balance sheets and statements of income as of and for the six months ended
June
30, 2007 (the “Most Recent Financial Statements”). ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Van
Tright, LLP have consulted with the Company in the Company’s preparation of the
2006 Financial Statements and the Most Recent Financial Statements (the “Company
Financial Statements”).
(b) The
Company Financial Statements have been prepared in good faith and in accordance
with the books and records of the Company and the UK Subsidiary and fairly
present the consolidated or consolidating, as the case may be, financial
condition and consolidated or consolidating, as the case may be, results of
operations of the Company and the UK Subsidiary as of the dates and for the
periods indicated.
(c)
Schedule 5.5 contains a true and complete copy of the Company’s and the UK
Subsidiary’s budgets for the year ending December 31, 2007, as well as a
detailed list of backlog as of August 1, 2007. As of the date of this agreement,
to the Knowledge of the Senior Specified Employees, the budgets reasonably
reflect all material information currently available to the Company and the
UK
Subsidiary.
(d)
The
aggregate amount of the Company’s and the UK Subsidiary’s cash and cash
equivalents on the date of this agreement (and prior to the distribution of
the
dividend referred to in section 5.6(a)(xi) is not less than $$1,800,000.
Schedule 5.5 sets forth the amount, if any, of the Company’s and the UK
Subsidiary’s aggregate revenues derived from sales to affiliates in the 12
months ended June 30, 2007.
Section
5.6 Absence
of Certain Changes
(a) Except
as
set forth in schedule 5.6, from the date of the Most Recent Financial Statement
(the “Financial Statement Date”) to the date of this agreement, neither the
Company nor the UK Subsidiary has:
(i) incurred
any liabilities, other than current liabilities incurred, or obligations under
contracts entered into, in the ordinary course of business and consistent with
past practice;
(ii) paid,
discharged, or satisfied any claim, lien, or liability, other than any claim,
lien, or liability (A) reflected or reserved against on the consolidated balance
sheet as of the Most Recent Financial Statements and paid, discharged, or
satisfied in the ordinary course of business and consistent with past practice
since the Financial Statement Date, (B) incurred and paid, discharged, or
satisfied since the Financial Statement Date in the ordinary course of business
and consistent with past practice;
15
(iii) sold,
leased, assigned, or otherwise transferred any of its assets, tangible or
intangible, or sold any of its services (other than sales of assets or services
in the ordinary course of business and consistent with past
practice);
(iv) permitted
any of its assets, tangible or intangible, to become subject to any lien,
security interest, or other charge or encumbrance (a “Lien”) (other than any
Permitted Lien, which, for purposes of this agreement shall mean a Lien for
Taxes (as defined in section 5.19(c)(ii)) not yet due and payable, a
materialman’s Lien in respect of a claim not yet due and payable, and any
similar inchoate statutory Lien that could not adversely affect the value of
any
of the Company’s or the UK Subsidiary’s assets or the ability of the Company or
the UK Subsidiary to use, sell, or otherwise exploit such assets);
(v) written
off as uncollectible any accounts receivable;
(vi) terminated
or amended, or suffered the termination or amendment of, or failed to perform
in
all material respects, all its obligations, or suffered or permitted any
material default to exist under, any material agreement, license, or
permit;
(vii) suffered
any damage, destruction, or loss of any fixed assets (whether or not covered
by
insurance);
(viii) made
any
loan (including, without limitation, any intercompany loan) to any person or
entity (including advances to employees and intercompany advances);
(ix) canceled,
waived, or released any debt, claim, or right;
(x) paid
any
amount to, or entered into any agreement, arrangement, or transaction with,
any
affiliate (including its officers, directors, and employees), other than
payments of salary, reimbursement of expenses and benefits to employees in
the
ordinary course of business and consistent with past practice;
(xi) declared,
set aside, or paid any dividend or distribution with respect to its capital
stock, or redeemed, purchased, or otherwise acquired any of its capital stock,
except for a cash dividend payable to holders of Outstanding Shares immediately
before the Effective Time in an aggregate amount equal to
$1,700,000;
(xii) granted
any increase in the compensation of any officer or employee or made any other
change in employment terms of any officer or employee;
(xiii) made
any
change in accounting or cash management practices;
(xiv) suffered
or caused any other occurrence, event, or transaction outside the ordinary
course of business; or
16
(xv) agreed,
in writing or otherwise, to any of the foregoing.
(b) Since
the
Financial Statement Date, there has been no material adverse change in the
Company or the UK Subsidiary, or its respective business.
Section
5.7 Litigation. Except
as
set forth in schedule 5.7, no claim, suit, proceeding, or investigation is
pending or, to the actual Knowledge of ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇ (the
“Specified Senior Employees”), threatened against or affecting the Company or
the UK Subsidiary, there is no valid basis for any claim, suit, or proceeding
against the Company or the UK Subsidiary, and, to the actual Knowledge of the
Specified Employees, no claim, suit, proceeding, or investigation is pending
or
threatened against or affecting the Spanish Subsidiary and there is no valid
basis for any claim, suit, or proceeding against the Spanish
Subsidiary.
Section
5.8 Licenses,
Compliance with Law, Other Agreements.
Each of
the Company and the UK Subsidiary, and, to the actual Knowledge of the Specified
Employees, the Spanish Subsidiary, has all material franchises, permits,
licenses, and other rights to allow it to conduct its business and is not in
violation, in any material respect, of any order or decree of any court, or
of
any law, order, or regulation of any Governmental Authority (as defined below),
or of the provision of any material contract or agreement to which it is a
party
or by which it is bound, and neither this agreement nor the transactions
contemplated by this agreement will result in any such violation. The business
of each of the Company and the UK Subsidiary, and, to the actual Knowledge
of
the Specified Employees, the Spanish Subsidiary, has been conducted in all
material respects in compliance with all applicable laws, rules, and
regulations. As used in this agreement, the term "Governmental Authority" means
any domestic or foreign national, state, provincial, municipal or other local
judicial, legislative, executive, administrative, or regulatory authority or
any
governmental or private body exercising any regulatory or taxing
authority.
Section
5.9 Third-Party
Approvals. Neither
the Company nor the UK Subsidiary, nor, to the actual Knowledge of the Specified
Employees, the Spanish Subsidiary, is required to obtain any order, consent,
approval, or authorization of, or to make any declaration or filing with, any
Governmental Agency or other third party in connection with the execution,
delivery, or performance of this agreement or the transactions contemplated
by
this agreement.
Section
5.10 No
Undisclosed Liabilities. None
of
the Company or the Subsidiaries has any liabilities or obligations, whether
or
not disclosed in the Financial Statements or the notes to the Financial
Statements, and whether actual or contingent, except (a) as disclosed in
schedule 5.10 or on the face of the Financial Statements (excluding any notes
to
the Financial Statements), (b) those expressly set forth as such in a schedule
to this agreement, (c) those incurred in the ordinary course of business and
consistent with past practice since the Financial Statement Date, or (d) those
under agreements, written or oral, set forth in a schedule to this agreement
or
not required to be set forth in a schedule to this agreement.
17
Section
5.11 Tangible
Assets. Each
of
the Company and the UK Subsidiary owns or leases all tangible assets used or
reasonably necessary in connection with the conduct of its business. All
material tangible assets owned or leased by the Company are free from any Liens
(other than Permitted Liens), are free from any material defects, have been
maintained in accordance with normal industry practice and any regulatory
standard or procedure to which such assets are subject, are in good operating
condition and repair (subject to normal wear and tear), and are suitable for
the
purposes for which such assets are used, other than Liens, defects, and wear
and
tear that, in the aggregate, could not be expected to have
a
material adverse effect on the Company or the UK Subsidiary, as the case may
be.
Section
5.12 Real
Property.
Neither
the Company nor the UK Subsidiary owns any real property.
Section
5.13 Intellectual
Property
(a) Schedule
5.13 sets forth, for the Intellectual Property (as defined below), a complete
and accurate list of all U.S. and foreign (i) Patents (as defined below); (ii)
Trademarks (as defined below); (iii) Copyright (as defined below); and (iv)
all
Software (as defined below) (other than readily available "off-the-shelf"
commercial software programs having an acquisition price of less than $10,000),
in the case of subclauses (i) through (iv) above, that are owned, licensed,
or
leased, by the Company or the UK Subsidiary, identifying which Intellectual
Property is owned, licensed, or leased, as the case may be, as well as the
identity of the lessor or licensor with respect thereto. The Intellectual
Property constitutes all the material intellectual property used in, and
necessary to operate, the business of each of the Company and the UK Subsidiary
in the manner in which it is currently operated. To the extent indicated on
schedule 5.13, the Intellectual Property has been duly registered in, filed
in
or issued by the United States Patent and Trademark Office, United States
Copyright Office, a duly authorized and appropriate domain name registrar,
the
appropriate offices in the various states of the United States and the
appropriate offices of other jurisdictions (foreign and domestic), and each
such
registration, filing and issuance remains in full force and effect.
(b) Schedule
5.13(b) sets forth a complete and accurate list of all material oral or written
agreements to which the Company or the UK Subsidiary is a party or otherwise
bound, (i) granting or obtaining any right to use or practice any rights
under any Intellectual Property (other than any license for readily available
“off-the-shelf” commercial software programs purchased by the Company or the UK
Subsidiary for less than $10,000, which are not bundled in the Intellectual
Property), or (ii) restricting the Company's right to use any Intellectual
Property, including, without limitation, any license agreements, development
agreements, distribution agreements, settlement agreements, consent to use
agreements, and covenants not to ▇▇▇ (collectively, the “License Agreements”).
The License Agreements of the Company are valid and binding obligations of
the
Company, enforceable in accordance with their terms, and, to the Specified
Senior Employees’ Knowledge, there exists no event or condition that will result
in a violation or breach of, or constitute (with or without due notice of lapse
of time or both) a default by any party under any such License Agreement. Except
as set forth in schedule 5.13, the Company has not licensed or sublicensed
its
rights in any material Intellectual Property, other than pursuant to a valid
and
binding License Agreement. No royalties, honoraria, or other fees are currently
payable by the Company to any third parties for the use of or right to use
any
Intellectual Property, except pursuant to any License Agreement and set forth
on
schedule 5.13(b).
18
(c) Except
as
set forth on schedule 5.13(c), the Company owns the Intellectual Property
identified as “owned” in schedule 5.13(a) free and clear of all Liens, other
than Permitted Liens, and has a valid right to use, free and clear of all Liens,
other than Permitted Liens, all the Intellectual Property of the Company. The
Company is listed in the records of the appropriate United States, state, or
foreign registry as the sole current owner of record for each application and
registration and has the exclusive right to file, prosecute, and maintain all
applications and registrations with respect to the Intellectual Property that
is
listed on schedule 5.13.
(d) Except
as
set forth on schedule 5.13, none of the Intellectual Property owned by the
Company and, to the Knowledge of the Specified Senior Employees, none of the
material Intellectual Property licensed to the Company has been cancelled,
expired, been abandoned, or otherwise terminated, and all renewal fees in
respect thereof have been duly paid.
(e) Except
as
set forth on schedule 5.13(e), the Company has not received any written notice
or claim and there is no pending or, to the Knowledge of the Specified Senior
Employees, threatened claim, suit, arbitration, interference or other
adversarial or contested proceeding before any court, agency, arbitral tribunal,
or registration authority in any jurisdiction (foreign or domestic) involving
the Intellectual Property owned by the Company or the material Intellectual
Property licensed to the Company alleging that the activities or the conduct
of
the business of the Company infringes upon, dilutes, violates, or constitutes
the unauthorized use, misuse, or misappropriation of the intellectual property
rights of any third party or challenging the Company's ownership, use, validity,
enforceability, or registrability of any of its Intellectual Property. There
are
no settlements, forebearances to ▇▇▇, consents, judgments, or orders or similar
obligations to which the Company is a party, other than the License Agreements,
that (i) restrict the Company's right to use any Intellectual Property, (ii)
restrict the Company's business in order to accommodate a third party's
Intellectual Property rights, or (iii) permit third parties to use any
Intellectual Property owned by the Company.
(f) Except
as
set forth on schedule 5.13(f), the conduct of the Company's business as
currently conducted does not infringe upon (either directly or indirectly such
as through contributory infringement or inducement to infringe) any Intellectual
Property owned or controlled by any third party. Except as set forth on schedule
5.13, to the Specified Senior Employees’ Knowledge, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned by the Company and no such claims, suits, arbitrations, or other
adversarial proceedings have been brought or threatened against any third party
by the Company.
19
(g) The
Company takes reasonable measures to protect the confidentiality of its Trade
Secrets (as defined below). No Trade Secret of the Company has been disclosed
or
authorized to be disclosed to any third party, other than pursuant to a
non-disclosure agreement. To the Knowledge of the Specified Senior Employees,
except as set forth on schedule 5.13(g), no party to any non-disclosure
agreement relating to its Trade Secrets is in breach or default thereof. The
Parent has been provided with a true and complete copy of the Company's form
of
non-disclosure agreement and the non-disclosure agreements referred to in this
clause (g) contain substantially the same terms and conditions as the form
of
non-disclosure agreement.
(h) Except
as
set forth on schedule 5.13(h), no current or former director, officer, or
employee of the Company (or any of its predecessors in interest) will, after
giving effect to the transactions contemplated by this agreement, directly
own
any of the Intellectual Property owned or used by the Company.
(i) The
Software set forth in schedule 5.13(c) as “owned” was either developed (i) by
employees of the Company within the scope of their employment, or (ii) by
independent contractors who have assigned their rights to the Company pursuant
to signed, written agreements.
(j) To
the
Knowledge of the Specified Senior Employees, the Trademarks listed on schedule
5.13 have been continuously used in the form appearing in, and in connection
with the goods and services listed in, their respective registration
certificates. To the Knowledge of the Specified Senior Employees, there has
been
no prior use of the Trademarks by any third party that would confer upon the
third party superior rights in such Trademarks. The Company has undertaken
reasonable policing of such Trademarks against third party
infringement.
(k) As
used
in this agreement:
(i) "Intellectual
Property" means any and all Copyrights, Patents, Software, Trademarks, Trade
Secret, moral and economic rights of authors and inventors (however
denominated), databases and compilations, "mask works" (as defined under 17
U.S.C. Section 901) and any registrations and applications for "mask works,"
and
all improvements and refinements of any of the foregoing.
(ii) "Copyrights"
means all copyrights (including any registrations and applications for any
of
the foregoing) and copyrightable works.
(iii) "Patents"
means all patents and industrial designs (including any continuations,
divisionals, continuations-in-part, renewals, provisionals, reissues, and
applications for any of the foregoing), inventions (whether or not patentable),
and invention disclosures.
(iv) "Software"
means all (A) computer programs, including any and all software implementation
of algorithms, models and methodologies, whether in source code or object code
form, (B) databases and compilations, including any and all data and collections
of data, (C) designs, processes, procedures and data collectors, and (D) all
documentation, including user manuals and training materials, relating to any
of
the foregoing.
20
(v) "Trademarks"
means all domestic and foreign registered or material unregistered trademarks,
service marks, trade names, corporate and business names, brand names, Internet
domain names, universal resource locators, designs, logos, trade dress, slogans,
and general intangibles of like nature, together with all goodwill,
registrations and applications related to the foregoing.
(vi) "Trade
Secrets" means technical data and customer lists, technology, trade secrets,
and
any other confidential information (including any lists of professional
employees), know-how, proprietary processes, formulae, algorithms, models,
and
methodologies (whether or not patentable).
Section
5.14 Clients. There
has
not been any material adverse change in the business relationship of the Company
or the UK Subsidiary with any client who accounted for more than 5% of the
Company's consolidated revenues during the 12 months ended June 30,
2007.
Section
5.15 Insurance. Schedule
5.15 contains an accurate and complete summary of all policies of fire,
liability, workmen's compensation, and other forms of insurance owned or held
by
the Company or the UK Subsidiary. All such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date of the Closing have been paid or accrued on the books and
records of the Company and the UK Subsidiary, and no notice of cancellation
or
termination has been received with respect to any such policy. Such policies
are
sufficient for compliance with all requirements of law and of all agreements
to
which the Company or the UK Subsidiary is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage for the assets and
operations of the Company and the UK Subsidiary; will remain in full force
and
effect through the respective dates set forth in schedule 5.15 without the
payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
agreement. Neither the Company nor the UK Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last five years.
Section
5.16 Employees,
Etc. Schedule
5.16 lists each employee (which term, as used in this agreement, includes
consultants, unless the context otherwise requires) of the Company and the
UK
Subsidiary and the respective employee’s gross salary. Except as set forth in
schedule 5.16, no employee of the Company received any rights or benefits
greater than as provided in the Company’s “Employee Hand Book” (updated January
2007), a true and complete copy of which has been provided to the Parent. From
the Financial Statement Date to the date of this agreement, no employee has
terminated, or, to the Knowledge of the Specified Senior Employees, plans to
terminate, employment with the Company or the UK Subsidiary. Neither the Company
nor the UK Subsidiary has committed any unfair labor practice or violated any
applicable law or regulation regulating employers or the terms and conditions
of
its employees' employment.
All
employees of the Company and the UK Subsidiary are employed ”at will”, and their
employment can be terminated by the Company or the UK Subsidiary, as the case
may be, at the will of the respective entity, without obligation to pay
severance and without prior notice of more than 60 days.
21
Section
5.17 Employee
Benefits. Except
as
set forth in schedule 5.17, neither the Company nor the UK Subsidiary maintains
or has ever maintained any employee pension benefit plans (as defined in section
3(2) of the Employee Retirement Income Security Act (“ERISA”), stakeholder
pension scheme (as defined in section 1(1) of the Pension Schemes Act 1993),
employee welfare benefit plans (as defined in section 3(1) of ERISA), or fringe
benefit plans or programs (collectively, “Plans”). Except as set forth in
schedule 5.17, the Financial Statements reflect all accruals for liabilities
for
all Plans, including, without limitation, vacation benefits, sick day benefits,
bonuses, and deferred compensation. Schedule 5.17 describes all benefit changes
within the past 12 months. Except as set forth in schedule 5.17, there are
no
amounts required to be paid but not yet paid by the Company or the UK Subsidiary
or their respective employees under any Plan, whether or not such amounts are,
or are required to be, reflected as liabilities in the Financial Statements.
Except as set forth in schedule 5.17, no further changes have been agreed or
committed to or announced by or on behalf of the Company or the UK Subsidiary;
and, except as set forth in schedule 5.17, no further changes are planned,
scheduled, or contemplated by the Company or the UK Subsidiary prior to August
15, 2008.
Except
as set forth in schedule 5.16 or 5.17 or as reflected as liabilities in the
Financial Statements, neither the Company nor the UK Subsidiary has any
liability or obligation, actual or contingent, to any past or current employee.
Section
5.18 Related
Party Agreements. Schedule
5.18 sets forth all agreements, arrangements, and understandings between the
Company, the UK Subsidiary, or, to the actual Knowledge of the Specified
Employees, the Spanish Subsidiary, on the one hand, and any of the Company’s or
the Subsidiaries employees, officers, directors, or affiliates, on the other
hand. Except as set forth in schedule 5.18, neither the Company nor the UK
Subsidiary is a party to any agreements, arrangements, or understandings with
any of its employees, officers, directors, or affiliates.
Section
5.19 Taxes
(a) Schedule
5.19 sets forth the dates through which all Tax Returns (as defined below)
of
the Company and the UK Subsidiary has been audited.
(b) Except
as
set forth in schedule 5.19:
(i) each
of
the Company and the UK Subsidiary has filed all Tax Returns it was required
to
file, and has paid all Taxes (as defined below) shown, or required to be shown,
on those Tax Returns as owing;
(ii) neither
the Company nor the UK Subsidiary (i) has ever been a member of an affiliated
group filing a consolidated federal Tax Return and (ii) has any liability for
the Taxes of any person or entity (other than itself (under Treasury Regulation
§1.1502-6 or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise;
22
(iii) each
of
the Company and the UK Subsidiary has withheld and paid all Taxes required
to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder, or other third party;
and
(iv) there
is
no dispute or claim concerning any Tax Liability of the Company or the UK
Subsidiary either (A) claimed or raised by any authority in writing or (B)
as to
which the Company or any Specified Senior Employee has Knowledge.
(c) As
used
in this agreement:
(ii) "Tax
Authority" means any competent Governmental Authority responsible for the
determination, assessment or collection of Taxes.
(ii) "Tax"
or
"Taxes" means any and all federal, state, local, foreign and other taxes,
customs, duties or similar fees, assessments or charges of any kind, including
but not limited to those on or measured by or referred to as income, gross
receipts, capital, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, social security,
workers' compensation, unemployment compensation, net worth, transfer,
occupation, premium, value added, real or personal property or windfall profits
taxes, customs, duties or similar fees, assessments or charges, together with
any interest and any penalties, additions to tax or additional amounts imposed
by any Governmental Authority.
(iii) "Tax
Return" means any return, report, certificate, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, amended tax return,
claim for refund or declaration of estimated Tax) required or permitted to
be
supplied to, or filed with, a Tax Authority in connection the determination,
assessment or collection of any Tax or the administration of any laws of any
Governmental Authority relating to any Tax.
5.20 Certain
Fees.
After
the Effective Time and upon payment of the Fees and Expenses (as defined below),
no fees or commissions will be payable by the Company or the UK Subsidiary
to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated by this agreement. Schedule 5.20 sets forth
all
costs and expenses incurred or expected to be incurred by the Company or the
UK
Subsidiary, or, to the actual Knowledge of the Specified Employees, the Spanish
Subsidiary, through the Effective Time in connection with this agreement or
the
transactions contemplated by this agreement, including, without limitation,
fees
and disbursements of counsel, accountants, and those referred to in the
preceding sentence (including all fees and expenses payable now at any time
before, at, or after the Effective Time, to Verto Group LLC) (the “Fees and
Expenses”).
23
5.21 Contracts
and Commitments
(a) Except
as
set forth in schedule 5.21, neither the Company nor the UK Subsidiary is a
party
to or bound by any of the following agreements, whether such agreements are
written or oral:
(i) contract
for the employment of any person on a full-time, part-time, or consulting basis
or any severance agreements, other than at the will of the employer and subject
to termination by either party, without cause and notice of
termination;
(ii) except
for any capital lease under which the Company and the UK Subsidiary have
aggregate payment obligations of less than $25,000, promissory note, agreement,
or promise to pay, or indenture relating to the borrowing of money or to
mortgaging, pledging, or otherwise placing a lien, security interest, or other
charge or encumbrance on any of its assets, other than Permitted
Liens;
(iii) agreement
with respect to the lending or investing of funds, other than agreements entered
into in the ordinary course of business and consistent with past practice
regarding cash management and involving not more than $20,000 in the
aggregate;
(iv) license
or royalty agreements, other than off-the-shelf software and agreements with
customers in the ordinary course of business and consistent with past
practice;
(v) guaranty
of indebtedness or liability of any other person or entity;
(vi) lease
or
agreement under which it is lessee of, or holds or operates, any personal
property owned by any other party that involves annual payments of more than
$25,000;
(vii) lease
or
agreement under which it is lessor of or permits any third party to hold or
operate any property, real or personal, owned or controlled by it;
(viii) contract
or group of related contracts with the same party for the purchase by it of
supplies, products, or other personal property or for the furnishing or receipt
of services that involves a sum in excess of $25,000;
(ix) contract
that prohibits or purports to prohibit it or any of its affiliates from freely
engaging in business anywhere in the world or grants exclusive rights, whether
in a particular territory or worldwide;
(x) contract
relating to the distribution, marketing, or sale of its products or services,
other than any contract that can be terminated by the Company or the UK
Subsidiary on fewer than 90 days’ notice (without penalty or other termination
payment obligation) and involves annual payments of not more than
$25,000;
24
(xi) warranty
agreement with respect to products or services sold or licensed, other than
in
the ordinary course of business, consistent with past practice, and using the
standard form agreement ordinarily used by the Company);
(xii) franchise
agreement and license agreement, other than in the ordinary course of business
and consistent with past practice;
(xiii) agreement,
contract, or understanding pursuant to which it engages independent contractors,
other than any contract that can be terminated by the Company or the UK
Subsidiary on fewer than 90 days’ notice (without penalty or other termination
payment obligation), involves annual payments of not more than $25,000, and
was
entered into in the ordinary course of business consistent with past practice;
or
(xiv) other
agreement that involves annual payments in excess of $25,000 and cannot be
terminated by the Company or the UK Subsidiary on fewer than 90 days’ notice
(without penalty or other termination payment obligation).
(b) As
of the
date of this agreement, except as set forth in schedule 5.21, none of the
Specified Senior Employees has any Knowledge of any material breach or
anticipated material breach by any other party to any agreement required to
be
set forth in schedule 5.21.
(c) The
Parent has been provided with a true and correct copy of each written agreement
referred to in schedule 5.21, together with all amendments, waivers, or other
changes to those agreements. Schedule 5.21 contains an accurate and complete
description of all material terms of all oral contracts and agreements referred
to in that schedule.
Section
5.22 Books
and Records. The
books
of account, stock record books, and similar records of the Company and the
UK
Subsidiary are complete and correct in all material respects and have been
maintained in accordance with sound business practices. The minute books of
each
of the Company and the UK Subsidiary contain accurate and complete records
of
all meetings of, and corporate action taken by, the shareholders, the board
of
directors, and committees of the board of directors, except where the failure
to
adequately maintain such books and records would not have an adverse effect
on
the Company or the UK Subsidiary.
Section
5.23 Bank
Accounts. Schedule
5.23 sets forth the names and locations of all banks, trust companies, savings
and loan associations and other financial institutions at which the Company
or
the UK Subsidiary maintains safe deposit boxes or accounts of any nature and
the
names of all persons authorized to draw thereon, make withdrawals therefrom
or
have access thereto. At the Closing, the Company will deliver to the Parent
copies of all records, including all signature or authorization cards,
pertaining to such bank accounts.
Section
5.24 Shareholder
Communications. None
of
the information supplied or to be supplied by the Company to its shareholders
in
connection with the shareholders’ approval of the transactions contemplated by
this agreement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order
to
make the statements therein, in light of the circumstances under which they
are
made, not misleading.
25
Section
5.25 Brokers. Except
as
set forth in schedule 5.25, which contains a true and correct description of
the
terms of the Company’s engagement of Verto Group LLC, no broker, finder, or
financial advisor is entitled to any brokerage, finder's, or other fee or
commission in connection with the Merger or the transactions contemplated by
this agreement based upon arrangements made by or on behalf of the Company
or
any of the Shareholders.
ARTICLE
VI
COVENANTS
Section
6.1 Conduct
of Business Pending the Merger.
Prior
to the Effective Time, unless the Parent otherwise agrees in writing, or as
may
be expressly permitted pursuant to this agreement:
(a) the
businesses of the Company and the UK Subsidiary will be conducted only in the
ordinary and usual course of business and consistent with past practices, and
there will be no material changes in the conduct of their
operations;
(b) the
Company will not (i) amend its certificate of incorporation or bylaws; or (ii)
split, combine, or reclassify any shares of its outstanding capital stock or
declare, set aside, or pay any dividend or other distribution payable in cash,
stock, or property, or redeem or otherwise acquire any shares of its capital
stock;
(c) except
as
set forth on schedule 6.1(c), neither the Company nor the UK Subsidiary will
(i)
authorize for issuance, issue, or sell or agree to issue or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital stock
of
any class (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase, or otherwise); (ii) acquire,
dispose of, transfer, lease, license, mortgage, pledge, or encumber any fixed
or
other assets, other than in the ordinary course of business and consistent
with
past practices; (iii) incur, assume, or prepay any indebtedness or any other
material liabilities, other than in the ordinary course of business and
consistent with past practices; (iv) assume, guarantee, endorse, or otherwise
become liable or responsible (whether directly, contingently, or otherwise)
for
the obligations of any other person; (v) make any loans, advances, or capital
contributions to, or investments in, any other person; (vi) authorize any
capital expenditure; (vii) permit any insurance policy naming the Company or
the
UK Subsidiary as a beneficiary or a loss payee to be cancelled or terminated;
(viii) make any Tax election or settle or compromise any Tax liability that
could increase Taxes payable by the Company or the UK Subsidiary on or after
the
Closing Date; (ix) change its fiscal year; (x) change its methods of accounting
(including, without limitation, make any material write-off or reduction in
the
carrying value of any assets); or (xi) enter into any contract, agreement,
commitment, or arrangement with respect to any of the
foregoing;
26
(d) each
of
the Company and the UK Subsidiary will use its best efforts to preserve intact
its business organization, to keep available the services of its present key
employees, and to preserve the goodwill of those having business relationships
with it;
(e) neither
the Company nor the UK Subsidiary will enter into any new employment agreements
with any of its officers or employees or grant any increases in the compensation
of its officers or employees, or enter into, adopt, or amend any Plan;
and
(f)
the
UK Subsidiary, in its capacity as a shareholder of the Spanish Subsidiary,
will
not take any action in respect of the Spanish Subsidiary inconsistent with
clauses (a) through (e) above, mutatis
mutandis.
Section
6.2 Access
and Information.
Upon
reasonable notice, the Company shall afford to the Parent and its financial
advisors, legal counsels, accountants, consultants, financing sources, and
other
representatives full access during normal business hours throughout the period
prior to the Effective Time to all of its and the UK Subsidiary’s books,
records, properties, and personnel (including those related to the Spanish
Subsidiary held by the Company or the UK Subsidiary), and, during such period,
will furnish promptly to the Parent all information as the Parent may reasonably
request; provided that no investigation pursuant to this section 6.2 will affect
any representations or warranties made in this agreement or the conditions
to
the obligations of the respective parties to consummate the Closing; provided,
further, that (a) the activities of the Parent and its agents will be conducted
in such a manner as not to interfere unreasonably with the operation of the
business of the Company, and (b) in no event will the Company be required to
furnish any information that it reasonably demonstrates to the Parent or the
Parent’s counsel it is prohibited from disclosing by legal requirement, order,
or contract. Prior to the Effective Time and subject to any obligation to
disclose pursuant to any applicable law or regulation, the Parent will hold
in
confidence all nonpublic information until such time as such information is
otherwise publicly available and, if this agreement is terminated, the Parent
will either destroy or deliver to the Company all documents, work papers, and
other material (including copies) obtained by such party or on its behalf from
the other party as a result of this agreement or in connection herewith, whether
so obtained before or after the execution of this agreement.
Section
6.3 Proxies;
Shareholder Approvals
(a) The
Company, acting through its board of directors, shall, immediately after the
execution and delivery of this agreement and in accordance with applicable
law
and its certificate of incorporation and bylaws:
27
(i) submit
for approval and adoption by the Company’s shareholders, by written consent in
lieu of meeting, this agreement and the Merger and shall use its best efforts
to
obtain such approval; and
(ii) recommend
approval and adoption of this agreement and the Merger by the Company’s
shareholders and take all lawful action to obtain such approval.
(b) Each
Principal Shareholder hereby agrees (i) to vote all of that Principal
Shareholder’s Shares in favor of this agreement, or to vote all shares
beneficially held by such Principal Shareholder in favor of the agreement,
and
the Merger in the meeting or written consent contemplated by clause (a)(i)
above, and to vote against any proposal inconsistent with the foregoing, and
(ii) not to sell, otherwise dispose of, hypothecate, pledge, or give a proxy
or
right to vote with respect to any Shares.
(c) In
connection with the submission of this agreement and the Merger for approval
by
the Company’s shareholders pursuant to section 6.3(a)(i), the Company shall
furnish each such shareholder a true and correct copy of a draft of this
agreement dated August 16, 2007 (excluding schedules and exhibits).
Section
6.4 Public
Announcements.
The
Parent may issue press releases or otherwise make public statements or respond
to press inquiries with respect to this agreement or the transactions
contemplated by this agreement. Neither Verto Group LLC, nor the Company nor
any
of the Principal Shareholders shall issue any press release or otherwise make
any public statement or respond to any press inquiry with respect to this
agreement or the transactions contemplated by this agreement without the prior
approval of the Parent, except as may be required by law.
Section
6.5 Expenses.
Whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this agreement and the transactions contemplated hereby, including, without
limitation, fees and disbursements of counsel, financial advisors, and
accountants, will be paid by the party incurring such costs and expenses.
Notwithstanding the foregoing, the Principal Shareholders agree that the costs
and expenses of the Company incurred in connection with this agreement and
the
transactions contemplated hereby will be included in Fees and Expenses and
therefore deducted from the Initial Merger Consideration.
Section
6.6 Additional
Agreements.
Each
party agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this agreement, including using all reasonable
efforts to obtain all necessary waivers, consents, and approvals and to effect
all necessary registrations and filings. For purposes of this section 6.6,
however, the term “all reasonable efforts” shall not be deemed to require the
payment of any cash or other consideration by any party, except as expressly
set
forth in this agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
agreement, the Principal Shareholders and the proper officers and directors
of
the Parent, the Sub, and the Company shall take all such necessary
action.
28
Section
6.7 Notices
of Certain Events.
Prior
to the Effective Time, the Company and the Principal Shareholders shall promptly
notify the Parent in writing of:
(a) any
notice or other communication received by the Company or any Principal
Shareholder from any person alleging that the consent of such person is or
may
be required in connection with the transactions contemplated by this
agreement;
(b) any
notice or other communication received by the Company or any Principal
Shareholder relating to the transactions contemplated by this agreement and
any
other significant notices or other communications from any Governmental
Authority; and
(c) any
actions, suits, claims, investigations, or proceedings commenced or, to the
Specified Senior Employees’ Knowledge, threatened against, the Company or the UK
Subsidiary.
Section
6.8 Supplemental
Disclosure.
From
time to time prior to the Closing, the Principal Shareholders shall promptly
supplement the disclosure schedules to this agreement with respect to any facts,
events, or circumstances hereafter arising, existing, or occurring and that,
if
arising, existing, or occurring on or before the date of this agreement, would
have been required to be set forth or described in the schedules to Article
V
(each, a “Disclosure Supplement”). If the Parent elects to consummate the
Merger, notwithstanding any such Disclosure Supplement, the schedules are deemed
amended and supplemented by all information set forth in each Disclosure
Supplement, and Article V is deemed amended and supplemented by all such
information set forth in the Disclosure Supplement, as if amended on the date
of
the parties’ execution of this agreement. Except as expressly set forth in this
section 6.8, nothing in this section 6.8 shall affect the rights of the Parent
or the Sub under Article VII or VIII or otherwise under this agreement.
Section
6.9 Parent’s
Credit Line. The
Parent shall make available, or cause to be made available, to the Company
from
time to time during the period from the Effective Time through December 31,
2009, a revolving line of credit of up to $1,700,000 (the “Revolver”). The
Company may draw on the Revolver from time to time in its reasonable discretion,
subject to the conditions that (a) the proceeds of the Revolver shall be applied
in a manner consistent with the Company’s budget as in effect at the time the
Revolver is drawn upon, and (b) the Company’s cash and cash equivalents,
immediately after giving effect to a drawdown, not exceed $500,000. The Revolver
shall be repaid in full on December 31, 2009. The Revolver shall bear interest
on the principal amount outstanding from time to time at a rate equal to the
one-year London interbank offered rate for U.S. dollars from time to time (as
quoted from time to time in the internet website of Bank Leumi Le’Israel). The
Revolver shall be subject to such other terms and conditions as the Parent
may
reasonably determine from time to time and that are not less favorable to the
Company than those in comparable loans by unaffiliated commercial banks. In
calculating Net Profit and Net Loss, all fees and other expenses (including
interest) under the Revolver shall be excluded.
29
Section
6.10 Non-Competition. Each
of
▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇ agrees that, until six months following the
termination of his or her employment with the Company, except on behalf of
the
Company or the UK Subsidiary, he or she will not, directly or indirectly, serve
as an officer, director, stockholder, employee, partner, proprietor, joint
venturer, associate, representative, or consultant of any other person,
corporation, firm, partnership, or other entity whatsoever known by him or
her
to compete directly or indirectly with the Company or its subsidiaries, anywhere
in the world, in any line of business engaged in (or planned to be engaged
in)
by the Company or its subsidiaries; provided, however, that he or she may
purchase or otherwise acquire up to (but not more than) one percent (1%) of
any
class of securities of any enterprise (but without participating in the
activities of such enterprise), if such securities are listed on any national
or
regional securities exchange or have been registered under section 12(g) of
the
Securities Exchange Act of 1934. Each of ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇ (a)
acknowledges that a breach of this section 6.10 by him or her would irreparably
damage the Company and monetary damages would not constitute an adequate remedy
for any such breach, and agrees that the Parent, on its own behalf or on behalf
of the Company, shall be entitled to an injunction or decree of specific
performance by any court of competent jurisdiction to enforce an actual of
threatened breach of this section 6.10 by him or her, without any bond or other
security required.
ARTICLE
VII
CONDITIONS
TO CLOSING
Section
7.1 Conditions
to Each Party’s Obligation to Effect the Closing.
The
respective obligations of each party to effect the Closing will be subject
to
the satisfaction at or prior to the Closing of the following
conditions:
(a) This
agreement, the Merger, and the transactions contemplated by this agreement
shall
have been approved and adopted by the requisite vote of the Shareholders of
the
Company in accordance with applicable law.
(b) No
preliminary or permanent injunction or other order by any federal or state
court
in the United States that prohibits the consummation of the Merger shall have
been issued and remain in effect.
(c) The
Escrow Agreement is in full force and effect.
30
Section
7.2 Conditions
to Obligation of the Company to Effect the Closing.
The
obligations of the Company to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following additional
conditions:
(a) Each
of
the Parent and the Sub shall have performed such party’s obligations under this
agreement required to be performed by it at or prior to the Closing and the
representations and warranties of the Parent and the Sub in this agreement
shall
be true and correct in all material respects at and as of the Closing as if
made
at and as of such time, and the Company shall have received a certificate of
an
executive officer of the Parent as to the satisfaction of this
condition.
(b) There
shall be no action, suit or other proceeding against the Parent or the Sub
that
is pending or threatened pertaining to this agreement or the consummation of
the
transactions contemplated by this agreement.
Section
7.3 Conditions
to Obligations of the Parent and the Sub to Effect the Closing.
The
obligations of the Parent and the Sub to effect the Closing shall be subject
to
the satisfaction at or prior to the Closing of the following additional
conditions:
(a) The
Company and each Principal Shareholder shall have performed that party’s
obligations under this agreement required to be performed by it at or prior
to
the Closing and the representations and warranties of the Company and the
Principal Shareholders in this agreement shall be true and correct in all
material respects at and as of the Closing as if made at and as of such time,
and the Parent and the Sub shall have received a certificate of the president
of
the Company as to the satisfaction of this condition.
(b) Since
the
date of this agreement, there shall have occurred no material adverse change
in
the Company or the UK Subsidiary or its respective business or prospects or
discovery of a condition or occurrence of any event that would be reasonably
likely to result in such a material adverse change.
(c) All
consents of third parties described in this agreement or any schedules to this
agreement necessary to consummate the transactions contemplated by this
agreement shall have been obtained.
(d) There
shall be no action, suit or other proceeding against the Company that is pending
or threatened pertaining to this agreement or the consummation of the
transactions contemplated by this agreement.
(e) The
Company shall have received resignations from such officers of the Company
as
the Parent shall designate prior to the Closing Date.
(f) Each
Employment Agreement is in full force and effect.
31
(g) This
agreement, the Merger, and the transactions contemplated by this agreement
shall
have been approved by holders of, or beneficial owners holding, not fewer than
84% of the Shares entitled to vote thereon.
ARTICLE
VIII
SURVIVAL
AND INDEMNIFICATION
Section
8.1 Survival. The
representations and warranties of the parties shall survive the execution and
delivery of this agreement and the consummation of the transactions contemplated
by this agreement for a period of three (3) years, regardless of any
investigation made by or on behalf of any party; provided, however, that the
representations and warranties set forth in sections 5.1 through 5.4 and 5.25
shall survive indefinitely, regardless of any investigation made by or on behalf
of any party; and further provided, however, that the representations and
warranties set forth in section 5.19 shall survive until 90 days after the
expiration of all applicable statutes of limitations in respect of Taxes,
regardless of any investigation made by or on behalf of any party.
Section
8.2 Indemnification
by the Principal Shareholders
(a) Subject
to the limitations, conditions, and restrictions set forth in this agreement,
the Principal Shareholders shall jointly and severally indemnify and defend
the
Parent and its affiliates, officers, directors, employees, and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this agreement) (collectively, the “Parent
Indemnified Parties”) and hold them harmless from and against any and all
losses, liabilities, damages, and expenses of or against the Parent Indemnified
Parties, including, for the sake of clarity, those of the Company (including
reasonable attorneys’ fees and expenses) to the extent resulting from or arising
out of (a) any breach by the Company prior to the Effective Time of any
covenant, representation, or warranty in this agreement, or any breach by the
Principal Shareholders at any time of any covenant, representation, or warranty
in this agreement, or (b) any appraisal or other proceeding brought by or on
behalf of any Shareholder in respect of any fact, event, or circumstance
arising, occurring, or existing prior to or on the Effective Time (including,
without limitation all Pre-Merger Company Liabilities), or in respect of any
dispute regarding the authority or actions by or on behalf of the Representative
under Article X or otherwise (provided, however, that nothing in this subsection
(b) is intended to limit or restrict the right of the Representative to take
any
act permitted under this agreement and not in contravention of applicable law
or
the rights of any Shareholder).
(b)
Subject to sections 8.5(b), the Principal Shareholders shall jointly and
severally indemnify the Parent Indemnified Parties in an amount equal to the
Accounts Receivable Deficit (as defined below). As used in this agreement,
the
term “Accounts Receivable Deficit’ means the aggregate amount, if any, of the
accounts receivable listed on schedule 8.2 that shall not have been collected
on
or before the earlier of January 31, 2008 or (ii) the date the Parent’s
consolidated financial statements are prepared (assuming, for these purposes,
that amounts collected from a particular account debtor shall be applied to
that
account debtor’s receivables in the order in which such receivables arose,
unless the account debtor shall have specified otherwise in writing to the
Company or the UK Subsidiary).
32
(c) Subject
to sections 8.5(b), the Principal Shareholders shall jointly and severally
indemnify the Parent Indemnified Parties in an amount equal to the GAAP Deficit
(as defined below). As used in this agreement, the term “GAAP Deficit’ means an
amount equal to (i) the sum of (A) the amount, if any, by which $6,833,449
exceeds the Company’s consolidated revenues (determined in accordance with GAAP
consistently applied) in the 12 months ended June 30, 2007, plus (B) the amount,
if any, by which expense (excluding depreciation and amortization, but
including, without limitation, accruals for liabilities for all
Plans) reflected
in any Company Financial Statement is less than the amount of aggregate expense
that would have been reflected therein, if that Company Financial Statement
had
been prepared in accordance with GAAP consistently applied, reduced by (ii)
the
general reserve for expenses of $104,000 reflected therein.
Section
8.3 Indemnification
by the Parent.
Subject
to the limitations, conditions, and restrictions set forth in this agreement,
the Parent, the Sub, and their respective successors and assigns shall jointly
and severally indemnify the Shareholders and hold them harmless from and against
any and all losses, liabilities, damages, and expenses of the Shareholders
(including reasonable attorneys’ fees and expenses) to the extent resulting from
or arising out of any breach of any covenant, representation, or warranty made
by the Parent or the Sub in this agreement.
Section
8.4 Procedure
Relative to Indemnification.
(a) In
the
event that any party hereto claims that it is entitled to be indemnified,
defended, or held harmless pursuant to the terms of this Article 8 (each, a
“Claim”), such party (the “Claiming Party”) will promptly notify the party or
parties against which the claim is made (the “Indemnifying Party”) in writing (a
“Claim Notice”) of such Claim promptly after the Claiming Party receives notice
of any action, Proceeding, demand, or assessment or otherwise has received
notice of any claim of a third party (a “Third-Party Claim”) that may reasonably
be expected to result in a Claim by the Claiming Party against the Indemnifying
Party. The Claim Notice will specify the breach of representation, warranty,
agreement, or covenant claimed by the Claiming Party and the losses incurred
by,
or imposed upon, the Claiming Party on account thereof. If such losses are
liquidated in amount, the Claim Notice will so state, and such amount is deemed
the amount of the Claim of the Claiming Party. If the amount is not liquidated,
the Claim Notice will so state, and in such event a Claim is deemed asserted
against the Indemnifying Party on behalf of the Claiming Party, but no payment
will be made on account thereof (except for reasonable attorneys’ fees and
expenses) until the amount of such claim is liquidated and the Claim is finally
determined.
(b) With
respect to Claims of the Claiming Party based upon a Third-Party Claim
(including any form of proceeding filed or instituted by any governmental body),
the Indemnifying Party has the right, upon receipt of the Claim Notice and
at
its expense, to defend such Third-Party Claim in its own name or, if necessary,
in the name of the Claiming Party. The Claiming Party will cooperate with and
make available to the Indemnifying Party such assistance and materials as may
be
reasonably requested of the Claiming Party, and the Claiming Party has the
right, at the Claiming Party’s expense, to participate in the defense. The
Indemnifying Party has the right to settle and compromise such Third-Party
Claim
only with the consent of the Claiming Party (which consent may not be
unreasonably withheld or delayed) unless there is no finding or admission of
any
violation of legal requirements or any violation of the rights of any person
and
no affect on any other Claims that may be made against the Claiming Party,
and
the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party.
33
(c) Upon
receipt of a Claim Notice that does not involve a Third-Party Claim, the
Indemnifying Party has thirty (30) days from the receipt of such Claim Notice
to
notify the Claiming Party that the Indemnifying Party disputes such Claim.
If
the Indemnifying Party does not timely notify the Claiming Party of such
dispute, then the amount of such Claim is deemed, conclusively, a liability
of
the Indemnifying Party hereunder. If the Indemnifying Party does timely notify
the Claiming Party of such dispute, then the Claiming Party has thirty (30)
days
to respond in a written statement to the objection of the Indemnifying Party.
If
after such thirty (30)-day period there remains a dispute as to any such Claim,
then the Claiming Party and the Indemnifying Party will attempt in good faith
for a period not to exceed thirty (30) additional days to agree upon the rights
of the respective parties with respect to such Claim. If the parties should
so
agree, a memorandum setting forth such agreement will be prepared and signed
by
the Parent and the Representative. If the parties do not agree within such
additional thirty (30)-day period, then the Claiming Party may pursue any and
all other remedies available to it hereunder.
(d) Once
the
amount of any Claim under this Article 8 is finally determined, the Claiming
Party is entitled to pursue each and every remedy available to it at law or
in
equity to enforce the indemnification provisions of this Article 8 and, in
the
event it is determined, or the Indemnifying Party agrees, that it is obligated
to indemnify the Claiming Party for such Claim, the Indemnifying Party agrees
to
pay all costs, expenses and fees, including all reasonable attorneys’ fees which
may be incurred by the Claiming Party in attempting to enforce indemnification
under this Article 8, whether the same is enforced by suit or otherwise which
the Indemnifying Party and the Claiming Party agree are due to the Claiming
Party or which a court, arbitrator or other judicial body determines are due
to
the Claiming Party. In the event that it is determined, or that the Claiming
Party agrees, that the Indemnifying Party is not obligated to indemnify the
Claiming Party for such Claim, the Claiming Party will pay all costs, expenses
and fees, including reasonable attorneys’ fees, which may have been incurred by
the Indemnifying Party in defending or disputing the Claim by the Claiming
Party
under this Article 8.
(e) For
purposes of this section 8.4 and subject to Article 10, the Representative
will
act on behalf of the Principal Shareholders.
34
Section
8.5 Limits
on Indemnification
(a) Notwithstanding
anything contained in this agreement to the contrary, the Principal Shareholders
shall not be obligated to indemnify, defend, or hold harmless any Parent
Indemnified Party with respect to any losses from any Claim for
misrepresentation or breach of warranty, unless and until the aggregate losses
from such Claims exceed $100,000, at which point the Parent Indemnified Parties
may recover the full amount of losses from dollar one.
(b)
Notwithstanding
anything contained in this agreement to the contrary (including, without
limitation, the joint and several liability of the Principal Shareholders under
section 8.2), in no event shall any Principal Shareholder’s aggregate liability,
at a particular time, for losses from all Claims for misrepresentation and
breach of warranty, pursuant to article 8 or otherwise, exceed, in the
aggregate, an amount equal to the sum of (i) the aggregate amount of the Merger
Consideration theretofore paid or distributed to that Principal Shareholder
(or
his or her assignees or transferees) plus (ii) the aggregate amount of all
dividends and distributions referred to in section 5.6(a)(11) theretofore paid
or distributed to that Principal Shareholder (or his or her assignees or
transferees).
(c) As
a
condition to any Indemnifying Party’s obligation to indemnify, defend or hold
harmless any Claiming Party, such Claiming Party must have taken and caused
its
affiliates to take all commercially reasonable steps to mitigate any losses
upon
becoming aware of any event that gives rise thereto consistent with such
Claiming Party’s past practices.
(d) No
Parent
Indemnified Party may recover duplicative losses in respect of a single set
of
facts or circumstances under more than one representation or warranty in this
agreement regardless of whether such facts or circumstances would give rise
to a
breach of more than one representation or warranty in this
agreement.
(e) Notwithstanding
anything contained in this agreement to the contrary, no person or entity will
be liable to any other person or entity for any exemplary or punitive damages
of
such other person or entity; provided, however, nothing in this section 8.5(e)
shall be deemed to limit or otherwise affect the Parent
Indemnified Parties’ right to indemnification under this agreement for any loss,
liability, damage, or expense arising out of a Third Party Claim for such
damages; and provided that no party may claim consequential or incidental
damages arising out of a breach of the representations set forth in section
5.5.
Section
8.6 Sole
Remedy.
The
sole remedy of any Claiming Party for any and all monetary claims with respect
to this agreement and the transactions contemplated hereby (except in the case
of intentional fraud) is as set forth in this article 8, and no person or entity
has any other entitlement, remedy, or recourse, whether in contract, tort or
otherwise, against the other parties with respect to the transactions
contemplated hereby, all of such remedies, entitlements, and recourse being
expressly waived by the parties hereto to the fullest extent permitted by legal
requirements.
Section
8.7. No
Implied Representations or Warranties.
Except
as expressly set forth in this agreement, none of the parties has made any
representation or warranty to any other party in connection with the
transactions contemplated by this agreement.
35
Section
8.8 Contribution
Among Principal Shareholders.
If
any
Claim is made by a Parent Indemnified Party against one or more Principal
Shareholders, each Principal Shareholder agrees, upon notice from such other
Principal Shareholder, to directly contribute that
Principal Shareholder’s Pro Rata Share of any payments made to the Parent
Indemnified Party in connection with such Claim and, if applicable, to reimburse
(up to that Principal Shareholder’s Pro Rata Share) any Principal Shareholder
that was required to pay more than his or her Pro Rata Share of any such
Claim. For purposes of this section 8.8, with respect to payments made in
connection with any Claim, each Principal Shareholder’s “Pro Rata Share”, at a
particular time, means the percentage of the total Merger Consideration
theretofore paid or distributed to all Principal Shareholders represented by
the
amount of Merger Consideration theretofore paid or distributed to such Principal
Shareholder. Each Principal Shareholder agrees that failure to pay that
Principal Shareholder’s Pro Rata Share within ten (10) business days of notice
thereof shall entitle the noticing Principal Shareholder to have all
attorney's fees and other costs of enforcing the contribution obligation paid
to
it by the noticed Principal Shareholder.
ARTICLE
IX
TERMINATION,
AMENDMENT AND WAIVER
Section
9.1 Termination.
This
agreement may be terminated at any time prior to the Closing, whether before
or
after approval by the Shareholders of the Company:
(a) by
mutual
consent of the Parent and the Company;
(b) by
the
Parent or the Company, if the Closing shall not have been consummated on or
before August 16, 2007;
(c) by
the
Company, if any of the conditions specified in section 7.1 or 7.2 has not been
fulfilled or waived by the Company on or before August 16, 2007; or
(d) by
the
Parent, if any of the conditions specified in section 7.1 or 7.3 has not been
fulfilled or waived by the Parent on or before August 16, 2007.
Section
9.2 Effect
of Termination.
In the
event of termination of this agreement under section 9.1, this agreement will
forthwith become void and, except for a termination resulting from a breach
of
warranty or agreement, or misrepresentation, by a party, there will be no
liability on the part of any party.
Section
9.3 Waiver.
At any
time prior to the Closing, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained in this
agreement, and (c) waive compliance with any agreement or any condition.
Any agreement on the part of a party to any such extension or waiver will be
valid only if set forth in an instrument in writing signed on behalf of that
party.
36
ARTICLE
X
Section
10.1 Appointment
of the Representative.
By
approval and adoption of this agreement, each Shareholder hereby irrevocably
appoints a committee comprised of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇▇, and their duly appointed successors, as its, his or her true and
lawful attorney-in-fact and agent (the “Representative”),
with
full power of substitution or resubstitution, to act on behalf of such
Shareholder in any disputes involving this agreement, to do or refrain from
doing all such further acts and things, and to execute all such documents as
the
Representative deems necessary or appropriate in connection with the
transactions contemplated hereby, including the power:
(a) to
act
for such Shareholder and the Company with regard to Claims, including the power
to compromise any Claim on behalf of such Shareholder and to transact matters
of
litigation, and to act for such Shareholder under the Escrow
Agreement;
(b) to
execute and deliver all amendments, waivers, ancillary agreements, certificates
and documents that the Representative deems necessary or appropriate in
connection with the consummation of the Merger;
(c) to
receive funds, make payments of funds, and give receipts for funds;
(d) to
receive funds for the payment of expenses of such Shareholder and apply such
funds in payment for such expenses; and
(e) to
do or
refrain from doing any further act or deed on behalf of such Shareholder that
the Representative deems necessary or appropriate in its sole discretion
relating to the subject matter of this agreement as fully and completely as
such
Shareholder could do if personally present.
37
Section
10.2 Other
Powers and Duties of the Representative.
The
Representative will act as a committee, and all decisions of the Representative
will be made by the affirmative consent of a majority of its members at a
meeting (in person or telephonic) or the unanimous written consent of the
members (which may be evidenced by e-mail correspondence). Each member of the
Representative is free to resign and is entitled to appoint his or her
successor. If, for any reason, there cease to be any members of the
Representative, and the Parent shall have given the Principal Shareholders
notice of the fact that a decision of the Representative is then required,
then
a majority of the Principal Shareholders shall, within 21 days of such notice,
give the Parent notice of who thereafter shall serve as members of the
Representative (it being understood and agreed that, if the Principal
Shareholders fail to give the Parent such notice, then and thereafter, until
such notice is given, the Parent may, at its option, take any action under
this
agreement that would require the consent or approval of the Representative,
without the consent or approval of any Shareholder or other third party, and
such action shall not be deemed a breach of this agreement solely by virtue
thereof). The appointment of the Representative is deemed coupled with an
interest and is irrevocable, and the parties hereto and any other person or
entity may conclusively and absolutely rely, without inquiry, upon any action
of
the Representative in all matters referred to herein. Any action taken by the
Representative will be in writing and will be signed by any member of the
Representative. The Shareholders hereby confirm and ratify all that the
Representative does or causes to be done by virtue of its appointment as the
representative of the Shareholders hereunder. The Representative will act for
the Shareholders on all of the matters set forth in this agreement in the manner
the Representative believes to be in the best interest of the Shareholders,
and
consistent with the obligations of the Shareholders under this Agreement, but
the Representative is not responsible to the Shareholders for any loss or
damages which the Shareholders may suffer by the performance of the
Representative’s duties under this Agreement, other than loss or damages arising
from willful violation of any legal requirement, bad faith or fraud in the
performance of such duties under this agreement and in no event does any such
losses or damages include consequential, incidental, indirect, special,
exemplary or punitive losses or damages of any kind whatsoever. The
Representative does not have any duties or responsibilities except those
expressly set forth in this agreement, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities are read into this
agreement or otherwise exist against the Representative.
Section
10.3 Reliance
by the Representative.
The
Representative
is entitled to rely, and is fully protected in relying, upon any statements
furnished to it by any party hereto or any other evidence reasonably deemed
by
the Representative to be reliable, and the Representative is entitled to act
on
the advice of counsel selected by it.
Section
10.4 Expenses
of the Representative.
The
Representative
is entitled to retain counsel and to incur such expenses (including court costs
and reasonable attorneys’ fees and expenses) as the Representative deems to be
necessary or appropriate in connection with its performance of its obligations
under this agreement. In the event that the Representative spends, in the
aggregate and amongst all persons comprising the Representative, more than
25
hours performing its duties hereunder (the “Hour Baseline”), the Representative
will be entitled to receive, for each hour spent performing its duties hereunder
(including the first 25 hours), $450.00 per hour (such fees constitute the
“Representative Fees”). This fee will be recoverable against the Representative
Escrow Fund (as defined below).
Section
10.5 Indemnification.
Each
Shareholder hereby agrees (severally
but not jointly)
to
indemnify the Representative (in its capacity as such) against, and to hold
the
Representative (in its capacity as such) harmless from, its proportionate share
(based on the Merger Consideration) of any and all losses of whatever kind
which
may at any time be imposed upon, incurred by or asserted against the
Representative in such capacity in any way relating to or arising out of the
Representative’s action or failure to take action pursuant to this agreement or
in connection herewith or therewith in such capacity; provided,
however,
that no
Shareholder is liable for the payment of any portion of such losses to the
extent resulting from the bad faith or fraud of the Representative or any
violation by the Representative of its obligations under this Agreement.
38
Section
10.6 Survival.
The
agreements in this Article 10 survive termination of this
Agreement.
Section
10.7 Representative
Escrow.
At the
Effective Time, pursuant to the escrow agreement between the Representative
and
the Escrow Agent (the “Representative Escrow Agreement”), the Parent shall
deposit $250,000 in cash in the Representative Escrow Fund (as defined in the
Representative Escrow Agreement). The Parent agrees that it will have no rights
to the Representative Escrow Fund, but for its general rights under Article
VIII. The Representative Escrow Fund will be used by the Representative, if
necessary, to fund its costs and expenses incurred in meeting its obligations
under this agreement. On May 31, 2010, or such earlier date as the
Representative in its sole discretion determines appropriate, the Representative
shall cause the Escrow Agent to transfer to the Shareholders’ Representative an
amount equal to (i) the sum of (A) $250,000 plus (B) interest earned thereon
under the Representative Escrow Agreement, reduced by (ii) the sum of (A) the
amount the Representative in its commercially reasonable discretion determines
is necessary to defend or pursue Claims existing as that time, plus (B) any
Representative Fees, plus (C) the aggregate amount of any fees payable to the
Escrow Agent pursuant to the Representative Escrow Agreement (the
“Representative Escrow Distribution”). Within five (5) business days after the
Representative’s receipt of the Representative Escrow Fund, the Representative
shall pay each Shareholder an amount per share determined by dividing the amount
of the Representative Escrow Distribution by the number of Outstanding Shares.
ARTICLE
XI
GENERAL
PROVISIONS
Section
11.1 Confidentiality
and Non-Solicitation.
The
parties acknowledge and agree that: (a) prior to the Closing, or if this
agreement is terminated prior to the Closing, the terms and conditions of the
Confidentiality Agreement dated July __, 2007 among the Parent, the Company,
and
Verto Group LLC remains binding on the parties thereto in accordance with its
terms, and (b) after the Closing, such Confidentiality Agreement shall terminate
and be of no further force or effect.
Section
11.2 Notices. All
notices, requests, consents, and other communications provided for in this
agreement shall be in writing and shall be (a) delivered in person,
(b) transmitted by telecopy, (c) sent by first-class, registered or
certified mail, postage prepaid, or (d) sent by reputable overnight courier
service, fees prepaid, to the recipient at the address or telecopy number set
forth below, or such other address or telecopy number as may hereafter be
designated in writing by such recipient. Notices shall be deemed given upon
personal delivery, seven days following deposit in the mail as set forth above,
upon acknowledgment by the receiving telecopier or one day following deposit
with an overnight courier service.
39
If
to the
Company or a Principal Shareholder, to that party at:
Amalgamated
Software of North America, Inc.
▇▇▇▇
▇▇▇▇
▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to:
Kendall,
Koening & ▇▇▇▇▇▇▇ PC
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇▇▇▇▇▇
Attention:
▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇
If
to the
Representative:
▇▇▇▇▇▇
▇▇▇▇▇
c/o
Simke, Chodos & Sasaki LLP
▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
with
a
copy to:
Kendall,
Koening & ▇▇▇▇▇▇▇ PC
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇▇▇▇▇▇
Attention:
▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇
If
to the
Parent or the Sub, to it at:
8
Maskit
▇▇▇▇▇▇
▇.▇.
▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇
Facsimile:
972-9-9526111
Attention:
Chief Financial Officer
40
with
a
copy to:
▇▇▇▇▇▇
▇.
▇▇▇▇▇▇, Esq.
▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
Section
11.3 Amendment
and Waiver. No
amendment of any provision of this agreement shall be effective, unless it
is in
writing and signed by the party to be charged. Any failure of a party to comply
with any provision of this agreement may only be waived in writing by the
parties affected. No such waiver shall operate as a waiver of, or estoppel
with
respect to, any subsequent or other failure. No failure by any party to take
any
action against any breach of this agreement or default by any other party shall
constitute a waiver of that party’s right to enforce any provision of this
agreement or to take any such action.
Section
11.4 Counterparts. This
agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one agreement.
Section
11.5 Headings. The
headings of the various sections of this agreement have been inserted for
reference only and shall not be deemed part of this agreement.
Section
11.6 Governing
Law. This
agreement shall be governed by and construed in accordance with the law of
the
state of New York applicable to agreements made and to be performed wholly
in
New York.
Section
11.7 Consent
to Jurisdiction. The
parties irrevocably submit to the exclusive jurisdiction of the New York state
courts located in the City of New York, the Texas state courts located in the
city of San Antonio, and the United States courts located in the City of New
York or the city of San Antonio for the purposes of any action, suit, or
proceeding arising out of this agreement or any transaction contemplated by
this
agreement (and agree not to commence any such action, suit, or proceeding except
in such courts). The parties further agree that service of any process, summons,
notice, or document hand delivered or sent in accordance with section 11.2
shall
be effective service of process for any action, suit, or proceeding in New
York
with respect to any matters to which it or he has submitted to jurisdiction
as
set forth in the immediately preceding sentence. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit,
or proceeding referred to above in any of the courts referred to above, and
hereby further irrevocably and unconditionally waive and agree not to plead
or
claim in any such court that any such action, suit or proceeding brought in
any
such court has been brought in an inconvenient forum.
Section
11.8 No
Third Party Beneficiaries. Nothing
in this agreement is intended or shall be construed to confer upon any person
or
entity other than the parties to this agreement, a Claiming Party, and the
other
Shareholders, and their respective successors or assigns, any rights or remedies
under or by reason of this agreement.
41
Section
11.9 Severability. If
any
provision of this agreement is held by a court of competent jurisdiction to
be
invalid, void, or unenforceable, the remainder of the agreement shall remain
in
full force and effect and shall not be affected, impaired, or
invalidated.
Section
11.10 General.
The
information set forth in the schedules attached hereto refer to the section
or
paragraph of this agreement to which such schedule and information is
responsive, and each such schedule and the information contained therein is
deemed to have been disclosed with respect to all other sections and paragraphs
of the agreement, to the extent of the express cross-references in the
schedules. All capitalized terms used and not otherwise defined in the schedules
have the same meanings ascribed to such term in this agreement. The schedules
do
not vary, change, or alter the literal meaning of the representations and
warranties of the Principal Shareholders contained in this agreement, but
reflect exceptions thereto that are responsive to the language of the
representations and warranties contained in this agreement.
Section
11.11 Entire
Agreement. This
agreement, the schedules and the other agreements executed and delivered in
connection with this agreement constitute the entire agreement among the parties
with respect to their subject matter and supersede all prior arrangements or
understandings among them.
[Signature
Pages Follow]
42
|
PARENT:
|
||||
|
By:
|
/s/▇▇▇▇ ▇▇▇▇▇▇ | |||
|
Name:
|
▇▇▇▇
▇▇▇▇▇▇
|
|||
|
Title:
CEO
|
||||
|
SUB:
|
||||
|
ASNA
TRANSITORY SUB, INC.
|
||||
|
By:
|
/s/ | |||
|
Name:
|
||||
|
Title:
|
||||
|
COMPANY:
|
||||
|
AMALGAMATED
SOFTWARE OF
NORTH
AMERICA, INC.
|
||||
|
By:
|
/s/ | |||
|
Name:
|
||||
|
Title:
|
||||
43
| SHAREHOLDERS’ REPRESENTATIVE: | |||
|
By:
|
/s/▇▇▇▇▇▇
▇▇▇▇▇
|
||
|
Name:
|
▇▇▇▇▇▇
▇▇▇▇▇
|
||
|
|
|||
|
By:
|
/s/▇▇▇▇
▇▇▇▇▇▇▇
|
||
|
Name:
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
||
|
|
|||
|
By:
|
/s/▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
||
|
Name:
|
▇▇▇▇
▇▇▇▇▇▇▇▇▇
|
||
|
|
|||
▇▇
|
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇:
|
|
|
/s/
▇▇▇▇ ▇▇▇▇▇▇▇▇
|
|
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
|
|
|
|
| /s/ ▇▇▇▇▇▇▇ ▇▇▇▇ | |
|
▇▇▇▇▇▇▇
▇▇▇▇
|
|
|
|
45