devices, samples, plans, drawings and specifications, photographs and digital images, computer software and programming, all other confidential information and materials relating to the Business or affairs of the Company, and all notes, analyses, compilations, studies, summaries, reports, manuals, documents and other materials prepared by or for the Company containing or based in whole or in part on any of the foregoing, whether in verbal, written, graphic, electronic or any other form and whether or not conceived, developed or prepared in whole or in part by the Company.
such Person against fluctuations in interest rates; and (k) all interest, fees and other expenses owed with respect to indebtedness described in the foregoing clauses (a) through (j).
the application of any multiples (including multiples of the purchase price) when determining damages, except in the case of fraud or to the extent actually awarded to a Government Body or other third party.
such individual’s spouse and former spouses, any other individual who is related to the specified individual or such individual’s spouse or former spouse within the third degree, and any other individual who resides with the specified individual.
forms, to cooperate with each other in the preparation of such Tax Returns and forms, and to furnish each other with a copy of such Tax Returns and forms prepared in draft, within a reasonable period prior to the filing due date thereof.
Each of the Sellers, severally and not jointly, represents and warrants to the Buyer that the following representations are true and complete as of the Closing Date:
The Sellers and the Company, jointly and severally, represent and warrant to the Buyer as follows:
4.1 Organization, Qualification and Corporate Power. Schedule 4.1 sets forth the Company’s jurisdiction of incorporation, the other jurisdictions in which it is qualified to do business, and its directors and officers. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company is duly qualified to do business and is in good standing under the laws of each jurisdiction where such qualification is required. The Company has full corporate power and authority to conduct the businesses in which it is engaged, to own and use the properties and assets that it purports to own or use and to perform its obligations. The Company does not currently maintain, nor has at any time in the past maintained, employees or assets of any kind in any jurisdiction outside of the United States. The Company has delivered to the Buyer correct and complete copies of the Organizational Documents of the Company. The Company is not in violation of any of its Organizational Documents. The minute books, the stock certificate books and the stock ledger of the Company, in each case as delivered or made available to the Buyer, are correct and complete. The Company has not, within the last five years, (i) used any trade names or assumed names other than the trade names or assumed names set forth on Schedule 4.1 or (ii) operated any business other than the Business.
4.2 Capitalization. To the Knowledge of the Company, the entire authorized capital stock of the Company consists solely of 1,000,000 shares of voting common stock, of which only 1,061 shares of voting common stock are outstanding and all such outstanding shares are owned of record and beneficially by the Sellers, as set forth on Schedule 2.1. All of the outstanding capital stock of the Company has been duly authorized and is validly issued, fully paid and nonassessable. Except as set forth on Schedule 4.2, there are no outstanding securities convertible or exchangeable into capital stock of the Company or any options, warrants, purchase rights, subscription rights, preemptive rights, conversion rights, exchange rights, calls, puts, rights of first refusal or other Contracts that could require the Company to issue, sell or otherwise cause to become outstanding or to acquire, repurchase or redeem capital stock of the Company. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to the Company. The Company has not violated any securities Law in connection with the offer, sale or issuance of any of its capital stock or other equity or debt securities. Except as set forth on Schedule 4.2, there are no voting trusts, proxies or other Contracts relating to the voting of the capital stock of the Company. The Company does not control or own, directly or indirectly, any equity or profits interests in any Person or have the power, directly or indirectly, to elect any Persons to the board or directors or comparable governing body of any other Person.
4.3 Authority. The Company has full corporate power and authority to execute and deliver this Agreement and each Transaction Document to which the Company is a party, and to perform its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and each Transaction Document to which the Company is a party have been duly authorized by the board of directors of the Company. This Agreement and each Transaction Document to which the Company is a party constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with the terms thereof. Upon the execution and delivery by the Company of each Transaction Document to which the Company is a party, such Transaction Document will constitute the valid and legally binding obligation of the Company enforceable against the Company in accordance with the terms of such Transaction Document.
4.4 No Conflicts.
(a) Except as set forth on Schedule 4.4, neither the execution and delivery of this Agreement nor the performance of the Transactions will, directly or indirectly, with or without notice or lapse of time: (i) violate any Law to which the Company or any asset owned or used by the Company is subject; (ii) violate any Permit held by the Company or give any Governmental Body the right to terminate, revoke, suspend or modify any Permit held by the Company; (iii) violate any Organizational Document of the Company; (iv) violate, conflict with, result in a breach of, constitute a default under, result in the acceleration of or give any Person the right to accelerate the maturity or performance of, or to cancel, terminate, modify or exercise any remedy under, any Material Contract; (v) cause the Buyer or the Company to have any Liability for any Tax; or (vi) result in the imposition of any Encumbrance upon any asset owned or used by the Company. Except as set forth on Schedule 4.4, the Company does not need to notify, make any filing with, or obtain any Consent of any Person in order to perform the Transactions.
(b) If there are any Consents, which have not yet been obtained (or otherwise are not in full force and effect) as of the Closing (“Unobtained Consents”), in the case of each contract, agreement or obligation to which such Unobtained Consent relates (the “Restricted Contracts”), notwithstanding anything to the contrary contained in this Agreement, the transaction shall still proceed to Closing, and Company and Sellers shall continue their efforts to procure the Unobtained Consents. A list of Unobtained Consents is set forth on Schedule 4.4. In the case of each Unobtained Consent, neither this Agreement nor any other transaction document or any other document related to the consummation of the transactions contemplated by this Agreement shall constitute a sale, assignment, assumption, transfer, conveyance or delivery or an attempted sale, assignment, assumption, transfer, conveyance or delivery of the Restricted Contracts, and following the Closing, the Parties shall use their commercially reasonable efforts, and cooperate with each other, to obtain the Unobtained Consent relating to each Restricted Contract as quickly as practicable. Pending the obtaining of such Unobtained Consents relating to any Restricted Contract, the parties shall cooperate with each other in any reasonable and lawful arrangements designed to provide to the Company the benefits of use of the Restricted Contract, or Company and Sellers shall use commercially reasonable efforts to make arrangements to provide the use of similar items for the term of the Restricted Contracts (or any right or benefit arising thereunder). Once an Unobtained Consent is obtained, to party that obtains such consent shall promptly deliver such consent and the Restricted Contract to Buyer in satisfaction of its obligations hereunder.
(c) The parties acknowledge that failure to obtain the Unobtained Consents shall not provide a basis for a breach or termination of this Agreement and shall not delay the Closing.
4.5 Financial Statements.
(a) Attached to Schedule 4.5 are the following financial statements (collectively, the ”Financial Statements”): (i) unaudited balance sheets of the Company as of December 31 for each of the years 2012 to 2013, and statements of income, changes in stockholders’ equity, and cash flow for each of the fiscal years then ended; and (ii) an unaudited, consolidated balance sheet (the “Interim Balance Sheet”) of the Company as of March 31, 2014, and statements of income, and cash flow for the 3-month period then ended. To the Company’s Knowledge, the Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods covered thereby, and present fairly the financial condition of the Company as of and for their respective dates and periods covered thereby; provided, however, that the interim financial statements described in clause (ii) above are subject to normal, recurring year-end adjustments (which will not be, individually or in the aggregate, materially adverse) and lack notes (which, if presented, would not differ materially from the notes accompanying the Balance Sheet).
(b) The Company’s books and records (including all financial records, business records, customer lists, and records pertaining to products or services delivered to customers) (i) are complete and correct in all material respects and all transactions to which it is or has been a party are accurately reflected therein in all material respects on an accrual basis, (ii) reflect all discounts, returns and allowances granted by it with respect to the periods covered thereby, (iii) have been maintained in accordance with customary and sound business practices in its industry, (iv) form the basis for the Financial Statements with respect to the Company and (v) reflect in all material respects the assets, liabilities, financial position, results of operations and cash flows of it on an accrual basis. All computer-generated reports and other computer output included in its books and records are complete and correct in all material respects and were prepared in accordance with sound business practices based upon authentic data. The Company’s management information systems are adequate for the preservation of relevant information and the preparation of accurate reports.
(c) To the Knowledge of the Company, except as set forth on Schedule 4.5, there are no events of fraud, whether or not material, that involve management or other employees of the Company who have a significant role in the Company’s financial reporting and/or relate to the Business.
4.6 Absence of Certain Changes. Since March 31, 2014 (the “Interim Date”), there has not been any Material Adverse Effect and no event has occurred or circumstance exists that reasonably could result in any such Material Adverse Effect. Except as set forth on Schedule 4.6, since the Interim Date, the Company has:
(a) not sold, leased, transferred or assigned any asset, other than for fair consideration in the Ordinary Course of Business or made any distributions of any assets (cash or otherwise) to any of its Affiliates;
(b) not sold, leased, transferred or assigned any of its assets, tangible or intangible, other than the sale or transfer of inventory or immaterial assets for fair consideration in the Ordinary Course of Business;
(c) not experienced any material damage, destruction or loss other than ordinary wear and tear (whether or not covered by insurance) to its property or assets in excess of $5,000 in the aggregate;
(d) not entered into any Contract (or series of reasonably related Contracts, each of which materially relates to the underlying transaction as a whole) involving more than $5,000 or that can not be terminated without penalty on less than six months notice;
(e) not accelerated, terminated, modified or cancelled any Contract or Permit (or series of reasonably related Contracts or Permits) involving more than $5,000 annually to which the Company is a party or by which it or its assets is bound, and the Company has not received notice that any other party to such a Contract or Permit (or series of reasonably related Contracts or Permits) has accelerated, terminated, modified or cancelled the same;
(f) not had an Encumbrance (other than Permitted Encumbrances) imposed upon it or any of its assets;
(g) not (i) made any capital expenditure (or series of related capital expenditures) either involving more than $5,000 or outside the Ordinary Course of Business, (ii) failed to make any scheduled capital expenditures or investments when due, or (iii) made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans or acquisitions) involving more than $5,000;
(h) not delayed or postponed the payment of accounts payable and other Liabilities, accelerated the collection of accounts receivable, in either case outside the Ordinary Course of Business, or altered any accounting method or practice;
(i) not issued, created, incurred or assumed any Indebtedness (or series of related Indebtedness) involving more than $5,000 in the aggregate or delayed or postponed the payment of accounts payable or other Liabilities beyond the original due date;
(j) not canceled, compromised, waived or released any right or claim (or series of related rights or claims) or any Indebtedness (or series of related Indebtedness) owed to it, in any case involving more than $5,000;
(k) not issued, sold or otherwise disposed of any of its capital stock, or granted any options, warrants or other rights to acquire (including upon conversion, exchange or exercise) any of its capital stock or declared, set aside, made or paid any dividend or distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital stock or amended any of its Organizational Documents;
(l) not (i) conducted the Business outside the Ordinary Course of Business, (ii) made any loan to, or entered into any other transaction with, any of its directors, officers or employees on terms that would not have resulted from an arms-length transaction, (iii) entered into any employment Contract or modified the terms of any existing employment Contract, (iv) granted any increase in the compensation of any of its directors, officers or employees (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing or other plan or commitment), or (v) adopted, amended, modified or terminated any Employee Benefit Plan or other Contract for the benefit of any of its directors, officers or employees;
(m) not made, rescinded or changed any Tax election, changed any Tax accounting period, adopted or changed any accounting method, filed any amended Tax Return, entered into any closing agreement, settled any Tax claim, assessment or Liability, surrendered any right to claim a refund of Taxes, consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment, or taken any other similar action relating to the filing of any Tax Return or the payment of any Tax;
(n) not had any Proceeding commenced nor, to the Company’s Knowledge, threatened or anticipated relating to or affecting the Company, the Business or any asset owned or used by it;
(o) not suffered (i) any loss of any material customer, distribution channel, sales location or source of supply of raw materials, inventory, utilities or contract services or the receipt of any notice that such a loss may be pending, or (ii) any occurrence, event or incident related to the Company outside of the Ordinary Course of Business;
(p) not estimated or recorded any Contract Loss in any single instance of more than $5,000 or any Contract Losses in the aggregate of more than $20,000;
(q) not entered into any capital or operating leases;
(r) not obtained or sought to obtain any Permit; or
(s) not agreed or committed to any of the foregoing.
4.7 No Undisclosed Liabilities. Except as set forth on Schedule 4.7, the Company has not incurred any Liability (and no basis exists for any Liability), except for (a) Liabilities under executory Contracts that are either listed on Schedule 4.13 or are not required to be listed thereon, excluding Liabilities for any breach of any executory Contract, (b) Liabilities to the extent reflected or reserved against on the Interim Balance Sheet (c) current Liabilities incurred in the Ordinary Course of Business since the Interim Date (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of Contract, breach of warranty, tort, infringement or violation of Law) and (d) Liabilities that are not required to be reflected in the Company’s Financial Statements in accordance with GAAP and are individually or in the aggregate not greater than $5,000. Except as set forth on Schedule 4.7, the Company has no Liability of any kind to Coastline.
4.8 Title to and Sufficiency of Assets. The Company has good and marketable title to, or a valid leasehold interest in, every property or asset used by it, located on its premises, purported to be owned by any it, or shown on the Interim Balance Sheet or acquired by the Company after the Interim Date (the “Assets”), free and clear of any Encumbrances except for Permitted Encumbrances and except for properties and assets disposed of in the Ordinary Course of Business since the Interim Date. The Assets include (a) all tangible and intangible property and assets necessary for the continued conduct of the Business and the provision of services therewith as of the Closing in the same manner as conducted prior to the Closing and in compliance in all material respects with all applicable Laws, Material Contracts and Permits as of the Closing and (b) all property and assets necessary to conduct the Business in the manner in which it is conducted immediately prior to Closing. Any and all Assets previously held by Coastline, if applicable, necessary to operate the Business were duly conveyed to the Company. Schedule 4.8 sets forth the assets and liabilities, if any, transferred to the Company by Coastline and the consideration exchanged therefor.
4.9 Tangible Personal Property; Condition of Assets. Schedule 4.9 lists all machinery, equipment, parts, tools, fixtures, furniture, office equipment, computer hardware, supplies, motor vehicles, and other items of tangible personal property owned by the Company (the “Tangible Personal Property”) that has a net book value in excess of $5,000 and the net book value of each such item. To the Company’s Knowledge, the buildings, structures, Tangible Personal Property and other tangible assets that are owned or leased by the Company are structurally sound, free from material defects, in good operating condition and repair (normal wear and tear excepted) and suitable for the uses for which they are used in the Business. Nonetheless, such Tangible Personal Property is being conveyed on an “as is/where is” basis. To the Company’s Knowledge, none of such buildings, structures, Tangible Personal Property or other tangible assets is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs that are not material in nature or cost to such building, plant, structure, Tangible Personal Property or other tangible asset. All of the tangible assets owned or leased by the Company are located on the Real Property (except for those in transit or located temporarily at any worksite for purposes of the conduct of the Business).
4.10 Accounts Receivable; Accounts Payable.
(a) All Accounts Receivable as of the Closing Date represent or will represent valid obligations arising from goods or services actually sold by the Company in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Receivable are and will be as of the Closing Date current and collectible in accordance with their terms net of the respective reserves shown on the Balance Sheet, the Interim Balance Sheet and the accounting records of the Company as of the Closing Date, respectively. The foregoing reserves are calculated consistent with past practices. There is no contest, claim, or right to set-off, other than warranty work in the Ordinary Course of Business, under any Contract with any obligor of an Account Receivable relating to the amount or validity of such
Account Receivable. Schedule 4.10(a) contains a list of all Accounts Receivable as of the Interim Date, which list sets forth the aging of such Accounts Receivable.
(b) All Accounts Payable as of the Closing Date represent or will represent valid obligations arising from purchases or commitments actually made by the Company in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Payable are and will be as of the Closing Date current and payable in accordance with their terms net of the respective reserves shown on the Balance Sheet, the Interim Balance Sheet and the accounting records of the Company as of the Closing Date, respectively. There is no contest, claim, or right to set-off under any Contract with any obligee of an Account Payable relating to the amount or validity of such Account Payable. Schedule 4.10(b) contains a list of all Accounts Payable as of the Interim Date, which list sets forth the aging of such Accounts Payable.
4.11 Intentionally Blank.
4.12 Real Property. The Company does not own, nor has ever owned, any real property. Schedule 4.12 lists all of the real property and interests therein leased, subleased or otherwise occupied or used by the Company (with all easements and other rights appurtenant to such property, the “Real Property”). For each item of Real Property, Schedule 4.12 also lists the lessor, the lessee, the lease term, the lease rate, and the lease, sublease, or other Contract pursuant to which the Company holds a possessory interest in the Real Property and all amendments, renewals, or extensions thereto (each, a “Lease”). Except as set forth on Schedule 4.12, the leasehold interest of the Company with respect to each item of Real Property is free and clear of any Encumbrances, except Permitted Encumbrances. The Company is not is a sublessor of, and has not assigned any lease covering, any item of Real Property. The Real Property constitutes all interests in real property currently used in connection with the Business necessary to conduct the Business in the Ordinary Course of Business. Leasing commissions or other brokerage fees due from or payable by the Company with respect to any Lease have been paid in full.
4.13 Contracts.
(a) Schedule 4.13 lists the following Contracts to which the Company is a party or by which the Company is bound or to which any asset of the Company is subject or under which the Company has any rights or the performance of which is guaranteed by the Company or under which the Company is conducting any of the Business (collectively, with the Leases, Licenses and Insurance Policies, the “Material Contracts”): (i) each Contract (or series of related Contracts) that involves delivery or receipt of products or services of an amount or value in excess of $5,000 or that involves expenditures or receipts in excess of $5,000; (ii) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property, including each Lease and License; (iii) each licensing agreement or other Contract with respect to Intellectual Property, including any agreement with any current or former employee, consultant or contractor regarding the appropriation or non-disclosure of any Intellectual Property; (iv) each collective bargaining agreement and other Contract to or with any labor union or other employee representative of a group of employees; (v) each joint venture, partnership or Contract involving a sharing of profits, losses, costs or Liabilities with any other Person; (vi) each Contract containing any covenant that purports to restrict the business activity of the Company or limit the freedom of the Company to engage in any line of business or to compete with any Person; (vii) each Contract providing for payments to or by any Person based on sales, purchases or profits, other than direct payments for goods; (viii) each power of attorney; (ix) each Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by the Company to be responsible for consequential, incidental or punitive damages; (x) each Contract (or series of related Contracts) for capital expenditures in excess of $5,000; (xi) each written warranty, guaranty or other
similar undertaking with respect to contractual performance other than in the Ordinary Course of Business; (xii) each Contract for Indebtedness; (xiii) each employment or consulting Contract; (xiv) each Contract to which the Seller or any Related Person of the Sellers or of the Company is a party or otherwise has any rights, obligations or interests; and (xv) each Contract not terminable without penalty on less than six months notice.
(b) The Company has delivered to the Buyer a correct and complete copy of each written Material Contract and a written summary setting forth the terms and conditions of each other Material Contract. Each Material Contract, with respect to the Company, is legal, valid, binding, enforceable, in full force and effect and will continue to be so on identical terms following the Closing Date. Each Material Contract, with respect to the other parties to such Material Contract, to the Company’s Knowledge, is legal, valid, binding, enforceable, in full force and effect and will continue to be so on identical terms following the Closing Date. The Company is not in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification or acceleration, under any Material Contract. No other party is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification or acceleration, under any Material Contract. No party to any Material Contract has repudiated any provision of any Material Contract.
(c) There is no Contract to which the Company is a party and performing work as a subcontractor for a prime contractor (a “Subcontract”), which incorporates terms or conditions from the related Contract between the prime contractor and the other Person party thereto (the “Prime Contract”), where the terms and conditions incorporated into the Subcontract from the Prime Contract (i) impose material obligations on the Company not expressly delineated in the Subcontract (e.g., can not incorporate by reference to the Prime Contract) or (ii) require the Company to perform in a manner inconsistent with, or above and beyond, the terms of Material Contracts (which are not Subcontracts) previously provided to the Buyer .
4.14 Intellectual Property.
(a) Except as set forth on Schedule 4.14, the Company is the sole and exclusive legal and beneficial, and, as to registered Intellectual Property, record, owner of all right, title and interest in and to the Intellectual Property, and has the valid right to use all other Intellectual Property used in or necessary for the conduct of the Company’s current business or operations, in each case, free and clear of Encumbrances other than Permitted Encumbrances. Without limiting the generality of the foregoing, the Company has entered, or will enter, prior to Closing, into binding, written agreements with every current employee of the Company, and with every current independent contractor, whereby such employees and independent contractors (i) assign to the Company any ownership interest and right they may have in the Intellectual Property; and (ii) acknowledge the Company’s exclusive ownership of all Intellectual Property. Each item of Intellectual Property owned, licensed or used by the Company immediately prior to the Closing is set forth on Schedule 4.14. The Company represents and warrants that Coastline has no claim against, or ownership rights to, the Intellectual Property. Each item of Intellectual Property owned, licensed or used by the Company is valid and enforceable and otherwise fully complies with all Laws applicable to the enforceability thereof. Schedule 4.14 identifies each item of Intellectual Property that any Person other than the Company owns and that the Company uses pursuant to license, agreement or permission (a “License”). With respect to each item of Intellectual Property required to be identified in Schedule 4.14: (i) such item is not subject to any Order; (ii) no action is pending or, to the Company’s Knowledge, is threatened or anticipated that challenges the legality, validity or enforceability of such item; and (iii) the Company has not granted any sublicense or similar right with respect to the License relating to such item.
(b) The conduct of the Company’s business as currently and formerly conducted, and the products, processes and services of the Company, have not infringed, misappropriated, diluted or otherwise violated, and do not and will not infringe, dilute, misappropriate or otherwise violate the Intellectual Property or other rights of any Person. No Person has infringed, misappropriated, diluted or otherwise violated, or is currently infringing, misappropriating, diluting or otherwise violating, any Intellectual Property. There are no Proceedings (including any oppositions, interferences or re-examinations) settled, pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property of any Person by the Company; (ii) challenging the validity, enforceability, registrability or ownership of any Intellectual Property or the Company’s rights with respect to any Intellectual Property; or (iii) by the Company or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of the Intellectual Property. The Company is not subject to any outstanding or prospective Order (including any motion or petition therefor) that does or would restrict or impair the use of any Company Intellectual Property.
(c) The Company has taken all commercially reasonable actions to maintain and protect all of the Intellectual Property as of the Closing Date so as not to adversely affect the validity or enforceability thereof. The consummation of the transactions contemplated hereunder will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the Company’s right to own, use or hold for use any Intellectual Property as owned, used or held for use in the conduct of the Company’s business or operations as currently conducted.
4.15 Tax.
(a) The Company has timely filed with the appropriate Governmental Body all Tax Returns that the Company was required to have filed. All Tax Returns filed by the Company are true, correct and complete in all respects. All Taxes owed (or required to be remitted) by the Company (whether or not shown or required to be shown on any Tax Return) have been timely paid to the appropriate Governmental Body.
(b) No claim has been made by any Governmental Body in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to the payment, collection or remittance of any Tax of that jurisdiction or is otherwise subject to taxation by that jurisdiction. There are no Encumbrances on any of the assets of the Company that arose in connection with, or otherwise relate to, any failure (or alleged failure) to pay any Tax. Schedule 4.15 (i) contains a list of all states, territories and other jurisdictions (whether domestic or foreign) in which the Company has filed a Tax Return at any time during the six-year period ending on the date hereof, (ii) identifies those Tax Returns that have been audited, (iii) identifies those Tax Returns that currently are the subject of audit, (iv) lists all Tax rulings and similar determinations requested or received by the Company or Sellers, (v) identifies those Tax Returns that are due to be filed within 90 days after the date hereof and (vi) contains a complete and accurate description of all material Tax elections that were made by or on behalf of the Company. The Company has delivered or made available to the Buyer true, correct and complete copies of all Tax Returns filed by, and all examination reports, and statements of deficiencies assessed against or agreed to by, the Company during the six-year period ending on the date hereof.
(c) The Company (i) has never been a member of an Affiliated Group filing a consolidated federal income tax return (other than a group the common parent of which was the Company), (ii) has never been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company owe any amount under any such agreement, (iii) does not have any liability for Taxes of any person under Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign law, and including any
arrangement for group relief within a jurisdiction or similar arrangement), as a transferee or successor, by contract, or otherwise, and (iv) has never been a party to any joint venture, partnership or other agreement or arrangement that could be treated as a partnership for Tax purposes.
(d) The Company has never constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for a tax-free treatment under Code Section 355.
(e) The Company has withheld or collected, and timely paid to the appropriate Governmental Body, all Taxes required to have been withheld or collected and remitted, and complied with all information reporting and back-up withholding requirements, and has maintained all required records with respect thereto, in connection with amounts paid or owing to any employee, customer, creditor, stockholder, independent contractor, or other third party.
(f) There is no basis for any Governmental Body to, and no Seller or director or officer (or employee responsible for Tax matters) of the Company expects any Governmental Body to, assess any additional Taxes for any period. There is no dispute or claim concerning any Liability for Taxes paid, collected or remitted (or to be paid, collected or permitted) by the Company either (vii) claimed or raised by any Governmental Body in writing or (viii) as to which any of the Sellers or Company has Knowledge. The Company has not waived any statute or period of limitations with respect to any Tax or agreed, or been requested by any Governmental Body to agree, to any extension of time with respect to any Tax. No extension of time within which to file any Tax Return of the Company has been requested, granted or currently is in effect.
(g) The unpaid Taxes of the Company (ix) did not, as of the Interim Date, exceed the reserve for Liability for Taxes (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Interim Statement (rather than in any notes thereto) and (x) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. Since the Interim Date, the Company has not incurred any Liability for Taxes outside the ordinary course of business.
(h) The Company has not, directly or indirectly, participated in any transaction (including, the transactions contemplated by this Agreement) that would constitute (xi) a “reportable transaction” or “listed transaction” as defined in Treasury Regulation Section 1.6011-4 or (xii) a “tax shelter” as defined in Code Section 6111 and the Treasury Regulations thereunder.
(i) The Company will not be required to include any item of income in, or exclude any item of deduction from, Taxable income for any Taxable period (or portion thereof) ending after the Closing Date, including as a result of: (i) a “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign Tax law) executed on or prior to the Closing Date; (ii) change in method of accounting under Code Section 481(c); (iii) deferred intercompany gain or excess loss account under Treasury Regulations under Code Section 1502; (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.
(j) Schedule 4.15 lists each agreement, contract, plan or other arrangement (whether or not written and whether or not an Employee Benefit Plan) to which the Company is a party that is a “nonqualified deferred compensation plan” within the meaning of Code Section 409A and the Treasury Regulations thereunder. Each such nonqualified deferred compensation plan (i) complies, and is operated and administered in accordance, with the requirements of Code Section 409A, the Treasury Regulations thereunder and any other IRS guidance issued thereunder and (ii) has been operated and administered in
good faith compliance with Code Section 409A from the period beginning on the adoption of such nonqualified deferred compensation plan.
4.16 Legal Compliance.
(a) Except where the failure to do so would have a material adverse effect, the Company is, and since January 1, 2012, has been, in compliance in all material respects with all applicable Laws and Permits. No Proceeding is pending, nor since January 1, 2012, has been filed or commenced, against the Company alleging any failure to comply with any applicable Law or Permit. No event has occurred or circumstance exists that (with or without notice or lapse of time) may constitute or result in a violation by the Company of any Law or Permit. The Company has not received any notice or other communication from any Person regarding any actual, alleged or potential violation by the Company of any Law or Permit or any cancellation, termination or failure to renew any Permit held by the Company. For purposes of this Section 4.16, “material adverse effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Company, or (b) the ability of Sellers to consummate the transactions contemplated hereby on a timely basis.
(b) Schedule 4.16 contains a complete and accurate list of each Permit held by the Company or that otherwise relates to the Business or any asset owned or leased by the Company and states whether each such Permit is transferable. Each Permit listed or required to be listed on Schedule 4.16 is valid and in full force and effect. Each Permit listed or required to be listed on Schedule 4.16 is renewable for no more than a nominal fee and, to the Company’s Knowledge, there is no reason why such Permit will not be renewed. The Permits listed on Schedule 4.16 constitute all of the Permits necessary to allow the Company to lawfully conduct and operate the Business as currently conducted and operated and to own and use its assets as currently owned and used.
4.17 Litigation. There is no Proceeding pending or, to the Company’s Knowledge, threatened or anticipated relating to or affecting (a) the Company or the Business or any asset owned or used it or (b) the Transactions. To the Company’s Knowledge, no event has occurred or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any such Proceeding. There is no outstanding Order to which the Company or any asset owned or used by it is subject. Schedule 4.17 lists all Proceedings pending at any time since January 1, 2012, in which the Company has been named as a defendant (whether directly, by counterclaim or as a third-party defendant) and all Proceedings pending at any time since January 1, 2012, in which the Company has been a plaintiff. Schedule 4.17 lists all Orders in effect at any time since January 1, 2012, to which the Company has been subject or any asset owned or used by the Company is subject.
4.18 Service Warranties. Each service provided by the Company has been in conformity with all applicable contractual commitments and all express and implied warranties. The Company has not had any Liability (and there is no basis for any present or future Proceeding against the Company that could give rise to any Liability) for replacement or repair or other damages in connection therewith. Schedule 4.18 lists (i) all Contracts which contain warranties extended beyond 12 months, (ii) all warranty claims made against the Company in excess of $5,000 since January 1, 2012 and (iii) any guaranty, warranty or indemnity provided by the Company not consistent with past practice or that could reasonably have a claim in excess of $5,000. The Company has not had any Liability (and there is no basis for any present or future Proceeding against the Company that could give rise to any Liability) arising out of any injury to any individual or property as a result of any service provided by the Company.
4.19 Environmental. Except as set forth on Schedule 4.19, the Company has complied and is in compliance with all Environmental Laws. No Permits are required pursuant to any Environmental Law for the occupation of the facilities or operation of the business of the Company. The Company has not received any written or oral notice, report or other information regarding any actual or alleged violation of any Environmental Law, or any Liabilities or potential Liabilities, including any investigatory, remedial or corrective obligations, relating to it or its facilities arising under any Environmental Law.
4.20 Employees.
(a) To the Company’s Knowledge, with respect to each employee and independent contractor of the Company, Schedule 4.20(a) sets forth the name, job title, current rate of direct compensation, date of commencement of employment or engagement, and, as to employees, sick and vacation leave (both number of days and USD equivalent) that is accrued and unused. The Active Employees are employed by the Company and constitute those Persons necessary to run the Business at Closing.
(b) Except as set forth on Schedule 4.20(b), there are no pending, or to the Company’s Knowledge, threatened, Proceedings with respect to the Company under any Laws relating to or arising out of any employment relationship with its employees. Except as set forth on Schedule 4.20(b), the Company is not subject to any settlement or consent decree with any present or former employee, labor union or Governmental Body relating to claims of discrimination, wrongful practices or other claims in respect of employment practices and policies.
(c) The Company is, and since January 1, 2012 has been, in compliance in all material respects with all Laws relating to the employment of labor, including Laws respecting employment and employment practices, terms and conditions of employment, wages and hours, payroll documents, equal opportunity, immigration compliance, occupational health and safety, termination or discharge, plant closing and mass layoff requirements, affirmative action, workers’ compensation, disability, unemployment compensation, whistleblower laws, collective bargaining, the payment of all applicable Taxes including the full payment of all required social security contributions and other required withholdings.
(d) All employees and former employees of the Company have been, or will have been on or before the Closing Date, paid in full for, or the Company shall have properly accrued for, all wages, salaries, commissions, bonuses, vacation pay, severance and termination pay, sick pay, and other compensation for all services performed by them or that was accrued by them up to the Closing, payable in accordance with the obligations of the Company under any employment or labor practices and policies, or any collective bargaining agreement or individual agreement to which the Company is a party, or by which the Company may be bound.
(e) To the Company’s Knowledge, no employee, officer or director of the Company is a party to or bound by any agreement that (xiii) could adversely affect the performance of his or her duties as an employee, officer or director other than for the benefit of the Company, (xiv) could adversely affect the ability of the Company to conduct its businesses, (xv) restricts or limits in any way the scope or type of work in which he or she may be engaged other than for the benefit of the Company or (xvi) requires him or her to transfer, assign or disclose information concerning his or her work to anyone other than the Company.
4.21 Employee Benefits.
(a) Schedule 4.21 identifies each Company Benefit Plan.
(b) The Company does not have any ERISA Affiliate with respect to any of the Company Benefit Plans.
(c) True, correct and complete copies of each of the Company Benefit Plans, and related trusts, if applicable, including all amendments thereto, have been delivered or made available to the Buyer. There has also been delivered or made available to the Buyer, with respect to each Company Benefit Plan and to the extent applicable: (i) the three most recent annual or other reports filed with each Governmental Body with respect to each such plan, including all applicable schedules and audited financial statements attached thereto; (ii) each insurance contract and other funding agreement, and all amendments thereto; (iii) the most recent summary plan description and any summaries of material modifications thereto, as well as the most recent notices to participants and beneficiaries required by applicable Laws; (iv) the most recent audited financial statements or accounts and actuarial report or valuation required to be prepared under applicable Laws; (v) the most recent determination letter or opinion letter issued by the IRS; and (vi) all other contracts that are material to the Company Benefit Plan.
(d) The Company does not contribute to or have any obligation to contribute to, and no Company Benefit Plan is, a plan subject to Title IV of ERISA, ERISA Section 302 or Code Section 412. No Company Benefit Plan is funded through a trust that is intended to be exempt from federal income taxation pursuant to Code Section 501(c)(9), and each Company Benefit Plan that is an employee welfare benefit plan under ERISA Section 3(1) either (i) is funded through an insurance policy or contract and is not a “welfare benefit fund” within the meaning of Code Section 419, or (ii) is unfunded. The Company is not a party to any split dollar life insurance policy or arrangement, and except as set forth on Schedule 4.21, no Company Benefit Plan providing vacation or paid time off provides for carryover of vacation or paid time off from one calendar year to the next.
(e) The Company has substantially performed in all material respects all obligations, whether arising by operation of any applicable Laws or by contract, required to be performed by it in connection with the Company Benefit Plans, and there have been no defaults or violations by any other party to the Company Benefit Plans. All contributions required to be made by the Company to the Company Benefit Plans pursuant to their terms and provisions or pursuant to applicable Laws have been made timely. The Company has not incurred, and no facts exist which reasonably would be expected to result in, any liability (direct or indirect by virtue of indemnification or otherwise) to the Company with respect to any Company Benefit Plan, including any liability, tax, penalty or fee under ERISA, the Code or any applicable Laws (other than to pay premiums, contributions or benefits in the ordinary course).
(f) Except as otherwise set forth on Schedule 4.21:
(i) each Company Benefit Plan has been established, documented, administered and operated in compliance in all material respects with applicable Laws and its governing documents;
(ii) all reports and disclosures relating to the Company Benefit Plans required to be filed with or furnished to Governmental Bodies, Company Benefit Plan participants or Company Benefit Plan beneficiaries have been filed or furnished in substantial compliance with applicable Laws in a timely manner;
(iii) each of the Company Benefit Plans intended to be qualified under Code Section 401(a) (A) satisfies in all material respects the requirements of such Code section, (B) is maintained in all material respects pursuant to a prototype document approved by the IRS, or has received a favorable determination letter from the IRS regarding such qualified status, (C) has
been timely amended in all material respects as required by applicable Laws, (D) has not been amended or operated in a way which would adversely affect such qualified status and (E) has not experienced a termination or partial termination of the plan within the meaning of Code Section 411(d)(3);
(iv) there are no Proceedings pending (other than routine claims for benefits) or, to the Company’s Knowledge, threatened against, or with respect to, any of the Company Benefit Plans or their assets;
(v) no act, omission or transaction has occurred which would result in imposition on the Company of (A) breach of fiduciary duty liability damages under ERISA Section 409, (B) a civil penalty assessed pursuant to subsections (c), (i) or (l) of ERISA Section 502 or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the Code;
(vi) there is no matter pending (other than routine qualification determination filings) with respect to any of the Company Benefit Plans before any Governmental Body;
(vii) except as otherwise provided in this Agreement, the execution and delivery of this Agreement and the consummation of the Transactions will not (A) require the Company to make a larger contribution to, or pay greater amounts or benefits under, any Company Benefit Plan than it otherwise would, whether or not some other subsequent action or event would be required to cause such payment or provision to be triggered, or (B) create or give rise to any additional vested rights, service credits or other benefits or payments under any Company Benefit Plan; and
(viii) no Company Benefit Plan is a “multiple employer plan” within the meaning of Code Section 413(c).
(g) Except as otherwise set forth on Schedule 4.21, in connection with the consummation of the Transactions, no payments of money or property, acceleration of benefits, or provisions of other rights have or will be made hereunder, under the Company Benefit Plans or under any other agreement which, in the aggregate and with respect to the Company, and its employees and other service providers, would be reasonably likely to result in an imposition of sanctions under Code Section 280G and Section 4999, whether or not some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered.
(h) Each Company Benefit Plan which is an “employee benefit plan,” as such term is defined in ERISA Section 3(3), may be unilaterally amended or terminated in its entirety, in accordance with the terms thereof, without liability except as to benefits accrued thereunder prior to such amendment or termination.
(i) Except to the extent required pursuant to Code Section 4980B(f) and the corresponding provisions of ERISA, no Company Benefit Plan provides retiree medical or retiree life insurance benefits to any Person, and the Company is not
(j) contractually or otherwise obligated (whether or not in writing) to provide any Person with life insurance or medical benefits upon retirement or termination of employment.
4.22 Customers and Suppliers.
(a) With respect to each of the three fiscal years most recently completed prior to the date hereof, Schedule 4.22 lists the largest (by dollar volume) customers of the Company during each such period (showing the dollar volume for each) (the “Major Customers”). No event has occurred and no condition or circumstance exists that would reasonably be expected to materially and adversely affect the relations of the Company with any Major Customer or any supplier. No Major Customer or supplier has notified the Company of plans to terminate or materially alter its business relations with the Business, either as a result of the transactions contemplated by this Agreement or otherwise, or to enter bankruptcy or liquidate. Notwithstanding anything to the contrary contained herein, neither Company nor any of the Sellers represent or warrant that any customer will continue to do business with the Company after Closing or will not modify or decrease its business with the Company.
(b) Except to the extent set forth on Schedule 4.22, the Company is not currently required to provide any bonding or other financial security arrangements in any amount in connection with any on-going jobs, projects or other transactions with any Major Customers or suppliers.
4.23 Transactions with Related Persons. Except as set forth in Schedule 4.23, for the past three years, neither any shareholder, officer, director or employee of the Company nor any Related Person of any of the foregoing has (a) owned any interest in any asset used in the Business, (b) been involved in any business or transaction with the Company or (c) engaged in competition with the Company. Except as set forth in Schedule 4.23, neither any shareholder, officer, director or employee of the Company nor any Related Person of any of the foregoing (i) is a party to any Contract with, or has any claim or right against, the Company or (ii) has any Indebtedness owing to the Company. Except as set forth in Schedule 4.23, the Company has not had (A) any claim or right against any shareholder, officer, director or employee of the Company or any Related Person of any of the foregoing or (B) any Indebtedness owing to any shareholder, officer, director or employee of the Company or any Related Person of any of the foregoing.
4.24 Indebtedness and Guaranties. Complete and correct copies of all instruments (including all amendments, supplements, waivers and consents) relating to any Indebtedness of the Company have been furnished to the Buyer. The Closing Date Debt is listed on Schedule 4.24 and accurately reflects all amounts necessary to discharge the amounts of Indebtedness outstanding immediately prior to the Closing (excluding the Debt Assumption). Except as specifically described in Schedule 4.24, the Company is not a guarantor or otherwise liable for any Liability (including indebtedness) of any other Person.
4.25 Capital Expenditures. Attached to Schedule 4.25 are (a) a list of the Company’s capital expenditures in excess of $2,000 for its three prior fiscal years and the current fiscal year through the Interim Date and (B) the Company’s budgets for capital expenditures for its current fiscal year and the following fiscal year. Except as set forth on Schedule 4.25, there are no capital expenditures that the Company currently plans to make or anticipates will need to be made during its current fiscal year or the following fiscal year in order to comply with existing Laws or to continue operating the Business following the Closing in the manner currently conducted. The Company has not foregone or otherwise materially altered any planned capital expenditure as a result of the Sellers’ decision to enter into the Transactions or otherwise sell or dispose of the Business.
4.26 Insurance. Schedule 4.26 sets forth the following information with respect to each insurance policy (collectively, the “Insurance Policies”) to which the Company is a party, a named insured, covered or otherwise the beneficiary of coverage: the name of the insurer, the policy number, the name of the policyholder, the period of coverage, and the amount of coverage. The Company has
delivered to the Buyer true and complete copies of each Insurance Policy and each pending application of the Company for any insurance policy. All premiums relating to the Insurance Policies have been timely paid. Schedule 4.26 describes any self-insurance arrangements affecting the Company. The Company has been covered during the past three years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during such period. The Company is in compliance with all obligations relating to insurance created by Law or any Contract to which the Company is a party. The Company has delivered or made available to the Buyer copies of loss runs and outstanding claims as of a recent date with respect to each Insurance Policy.
4.27 No Acceleration of Rights and Benefits. The Company has not made, nor is the Company obligated to make, any payment to any Person in connection with the Transactions or any change of control. No rights or benefits of any Person have been (or will be) accelerated, increased or modified and no Person has the right to receive any payment or remedy (including rescission or liquidated damages), in each case as a result of a change of control or the consummation of the Transactions.
4.28 No Brokers’ Fees. The Company does not have any Liability for any fee, commission or payment to any broker, finder or agent with respect to the Transactions.
4.29 Disclosure. No representation or warranty contained in this Article IV and no statement in any Schedule related thereto contains any untrue statement of material fact or omits to state any material fact necessary to make the statements therein not misleading. There is no impending change in the Business or in the Company’s competitors, relations with employees, suppliers or customers, or in any Laws affecting the Business, that (a) has not been disclosed in the Schedules to the representations and warranties in this Article IV and (b) has resulted in or is reasonably likely to result in any breach of any representation or warranty or any Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING THE BUYER
The Buyer represents and warrants to the Sellers as follows:
5.1 Organization and Authority. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Buyer has full corporate power and authority to execute and deliver the Transaction Documents to which it is a party and to perform its obligations thereunder. The execution and delivery by the Buyer of each Transaction Document to which the Buyer is a party and the performance by the Buyer of the Transactions have been duly approved by all requisite corporate action of the Buyer. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable against the Buyer in accordance with the terms of this Agreement. Upon the execution and delivery by the Buyer of each Transaction Document to which the Buyer is a party, such Transaction Document will constitute the valid and legally binding obligation of the Buyer, enforceable against the Buyer in accordance with the terms of such Transaction Document.
5.2 No Conflicts. Neither the execution and delivery of this Agreement nor the performance of the Transactions will, directly or indirectly, with or without notice or lapse of time: (a) violate any Law to which the Buyer is subject; (b) violate any Organizational Document of the Buyer; or (c) violate, conflict with, result in a breach of, constitute a default under, result in the acceleration of or give any Person the right to accelerate the maturity or performance of, or to cancel, terminate, modify or exercise any remedy under, any Contract to which the Buyer is a party or by which the Buyer is bound or the performance of which is guaranteed by the Buyer. The Buyer is not required to notify, make any filing with, or obtain any Consent of any Person in order to perform the Transactions.
5.3 Auxilio Stock. The Securities Consideration will be duly authorized and validly issued and, upon the issuance of the Securities Consideration as set forth in Section 2.2(b), will be fully paid, nonassessable and free of preemptive rights. Buyer has timely filed all forms, reports and documents required to be filed by it with the SEC, all of which have complied as of their respective filing dates or, if amended or superseded by a subsequent filing prior to the date hereof, the date of the last such amendment or superseding filing, in all material respects with all applicable requirements of the Securities Act and the Exchange Act. None of the forms, reports or documents filed by the Buyer with the SEC, including any financial statements or schedules included or incorporated by reference therein, at the time filed (and, in the case of a registration statement, as of its effective date) or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
5.4 Litigation. There is no Proceeding pending or, to the Knowledge of the Buyer, threatened or anticipated against the Buyer relating to or affecting the Transactions.
5.5 No Brokers’ Fees. The Buyer has no Liability for any fee, commission or payment to any broker, finder or agent with respect to the Transactions for which the Seller could be liable.
5.6 Investment Intent. The Buyer is acquiring the Shares purchased hereunder for its own account and not with a view to distribution of such Shares in violation of the Securities Act.
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions to the Buyer’s Obligations. The Buyer’s obligation to perform the Transactions contemplated to be performed on or before the Closing Date is subject to satisfaction, or written waiver by the Buyer, of each of the following conditions:
(a) (i) all of the representations and warranties of the Company and the Sellers in this Agreement must have been accurate in all material respects as of the date hereof and must be accurate in all material respects as if made on the Closing Date, except in each case to the extent any such representation or warranty is made as of an earlier specific date, in which case such representation or warranty must have been and must be accurate in all respects as of such date, and (ii) the Company and the Sellers must have performed and complied with all of their respective covenants and agreements in this Agreement to be performed prior to or at the Closing.
(b) each of the following documents must have been delivered to the Buyer and dated as of the Closing Date (unless otherwise indicated):
(i) certificates representing all of the Shares, free and clear of any Encumbrances, accompanied by duly executed stock powers, in form and substance reasonably satisfactory to the Buyer;
(ii) the minute books, the stock certificate books and the stock ledger of the Company;
(iii) the Escrow Agreement, executed by the Sellers and the Escrow Agent;
(iv) the Employment Agreement, executed by Mike Gentile;
(v) the Independent Contractor Agreement, executed by Blackbox Technology Consulting Corp.;
(vi) signed resignations of each director and officer of the Company, in form and substance reasonably satisfactory to the Buyer;
(vii) executed releases from each Seller and each director and officer of the Company, as well as from Coastline, in form and substance reasonably satisfactory to the Buyer;
(viii) a certificate of the secretary of the Company, in form and substance reasonably satisfactory to the Buyer, certifying that with respect to it (A) attached thereto are a true, correct and complete copy of (1) its articles or certificate of incorporation certified as of a recent date by the Secretary of State of its state of incorporation and its bylaws, (2) to the extent applicable, resolutions duly adopted by its board of directors and stockholders authorizing the performance of the Transactions and the execution and delivery of the Transaction Documents to which it is a party and (3) a certificate of existence or good standing as of a recent date of it from its state of incorporation and a certificate of existence or good standing as of a recent date of it from each state in which it is qualified to conduct business;
(ix) consents to the Transactions, a release of the Company and a waiver of any rights in any Shares executed by the spouse of a Seller, in form and substance reasonably satisfactory to the Buyer;
(x) a certificate of each Seller’s non-foreign status as set forth in Treasury Regulation Section 1.1445-2(b), or Form W8BEN, as applicable; and
(xi) such other documents as the Buyer may reasonably request for the purpose of (A) evidencing the accuracy of each Seller’s and the Company’s representations and warranties, (B) evidencing each Seller’s and the Company’s performance of, and compliance with, any covenant or agreement required to be performed or complied with by each Seller and the Company, or (C) evidencing the satisfaction of any condition referred to in this Section 6.1.
(c) each Consent listed in Schedule 4.4 (but not including the Unobtained Consents listed in Schedule 4.4) must have been obtained, delivered to the Buyer, be in full force and effect and be in the form approved by the Buyer pursuant to Section 5.2;
(d) there must not be any Proceeding pending or threatened against the Buyer or any of its Affiliates that (i) challenges or seeks damages or other relief in connection with any of the Transactions or (ii) may have the effect of preventing, delaying, making illegal or interfering with any of the Transactions;
(e) the Board of Directors of the Buyer shall have approved the Transactions;
(f) each of the Company and each Seller shall have preserved intact the Business and their relationships with the Company’s employees, customers, agents and all other Persons reasonably related to the Business in a manner consistent with past practices or in the Ordinary Course of Business;
(g) Reserved;
(h) the performance of the Transactions must not, directly or indirectly, with or without notice or lapse of time, violate any Law that has been adopted or issued, or has otherwise become effective, since the date hereof; and
(i) all Indebtedness owed to the Company by each Seller or any Related Person of the Seller must have been paid in full by such Person.
6.2 Conditions to the Sellers’ Obligations. The Sellers’ obligations to perform the Transactions contemplated to be performed on or before the Closing Date are subject to satisfaction, or written waiver by the Sellers, of the following conditions:
(a) (i) all of the representations and warranties of the Buyer in this Agreement must have been accurate in all material respects as of the date hereof and must be accurate in all material respects as if made on the Closing Date, and (ii) the Buyer must have performed and complied with all of its covenants and agreements in this Agreement to be performed prior to or at the Closing.
(b) each of the following documents must have been delivered to the Seller:
(i) the Escrow Agreement, executed by the Buyer and the Escrow Agent; and
(ii) the Employment Agreement, executed by the Company, as applicable; and
(c) the sale of the Shares by the Sellers to the Buyer will not violate any Law that has been adopted or issued, or has otherwise become effective, since the date hereof.
(d) Documents for exemption for registration of the Securities Consideration.
ARTICLE VII
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the Closing:
7.1 Litigation Support. If any Party is evaluating, pursuing, contesting or defending against any Proceeding in connection with (a) any Transaction or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, then upon the request of such Party each other Party will cooperate with the requesting Party and its counsel in the evaluation, pursuit, contest or defense, make available its personnel, and provide such testimony and access to its books and records as may be necessary in connection therewith. The requesting Party will reimburse each other Party for its out-of-pocket expenses related to such cooperation (unless the requesting Party is entitled to indemnification therefor under Section 8.1 without regard to Section 8.4).
7.2 Transition. No Seller will take any action that is designed or intended to have the effect of discouraging any lessor, lessee, employee, Governmental Body, licensor, licensee, customer, supplier or other business associate of any the Company from maintaining the same relationships with the Company after the Closing as it maintained prior to the Closing.
7.3 Confidentiality. Each of the Sellers will, and will cause its Affiliates and Representatives to, maintain the confidentiality of the Confidential Information at all times, and will not, directly or indirectly, use any Confidential Information for its own benefit or for the benefit of any other Person or reveal or disclose any Confidential Information to any Person other than authorized Representatives of the Buyer and the Company, except in connection with this Agreement or with the prior written consent of the Buyer. The covenants in this Section 7.3 will not apply to Confidential Information that (a) is or becomes available to the general public through no breach of this Agreement by a Seller or its Affiliates or Representatives or, to the Knowledge of each Seller, breach by any other Person of a duty of confidentiality to the Buyer or (b) a Seller is required to disclose by applicable Law;
provided, however, that each Seller will notify the Buyer in writing of such required disclosure as much in advance as practicable in the circumstances and cooperate with the Buyer to limit the scope of such disclosure. At any time that the Buyer may request, each Seller will, and will cause its Affiliates and Representatives to, turn over or return to the Buyer all Confidential Information in any form (including all copies and reproductions thereof) in its possession or control.
7.4 Non-Competition.
(a) Each Seller hereby agrees that during the Restricted Period, except in regards to the Seller’s proper performance of his or her duties as an employee of the Buyer or its successor or any of its Affiliates, such Seller shall not, directly or indirectly:
(i) engage in the Business in the Restricted Territory, including providing funds for the same;
(ii) provide services routinely performed for customers (directly or indirectly) in the operation of the Business (“Services”) in the Restricted Territory;
(iii) solicit any Customer for purposes of providing Services;
(iv) accept as a customer any Customer for purposes providing Services;
(v) induce or attempt to induce any Employee to terminate his employment with the Buyer or any of its Affiliates;
(vi) employ, or engage as an independent contractor, any Employee;
(vii) interfere with the business relationship between a Customer or Employee and the Buyer or any of its Affiliates; or
(viii) encourage any Person to engage in any of the foregoing activities, including but not limited to providing financing, directly or indirectly, for any of the foregoing activities;
provided, however, that, subject to the foregoing and the terms of Mike Gentile’s Employment Agreement, the Restricted Period as to Mike Gentile only, solely for the purposes of providing Services to any Person other than Customers of the Company, shall be two (2) years from the date of this Agreement, and the Restricted Period for the creation, development or sale of any and all types of software related to risk management shall continue for three (3) years from the date of this Agreement. Notwithstanding the foregoing, if (i) the Company defaults in its payment obligations under the Note payable to Mike Gentile, and fails to cure such default as provided in the Note, and (ii) (A) Mike Gentile’s Employment Agreement has been terminated and (B) Mike Gentile is not being paid any severance or any other benefit by the Company or Buyer, then the foregoing noncompetition covenants shall terminate.
Provided, further, that, subject to the foregoing and the terms of the Independent Contractor Agreement with Blackbox Technology Consulting Corp., the Restricted Period as to Jason Houlden (and any affiliated entity), solely for the purposes of providing Services to any Person other than Customers of the Company, shall be two (2) years from the date of this Agreement, and the Restricted Period for the creation, development or sale of any and all types of software related to risk management shall continue for three (3) years from the date of this Agreement. If Jason Houlden is presented with an unsolicited opportunity to perform services which would potentially be in violation of this Section or the Independent Contractor Agreement, Mr. Houlden shall notify the Company, at which point the parties shall work
together in good faith to develop a workable solution. Notwithstanding the foregoing, if (i) the Company defaults in its payment obligations under the Note payable to Jason Houlden, and fails to cure such default as provided in the Note, and (ii) (A) the Independent Contractor Agreement between the Company and Blackbox Technology Consulting Corp. has been terminated and (B) neither Jason Houlden nor Blackbox Technology Consulting Corp. is being compensated by the Company or Buyer in any way, then the foregoing noncompetition covenants shall terminate as to Jason Houlden and Blackbox Technology Consulting Corp.
Provided, further, the foregoing will not restrict the ability of the Seller to purchase or otherwise acquire up to five percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities have been registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934.
(b) Each Seller hereby agrees that the covenants in this Agreement are reasonable given the real and potential competition encountered (and reasonably expected to be encountered) by the Buyer and the substantial knowledge and goodwill such Seller has acquired with respect to the Business. Notwithstanding the foregoing, in the event that at the time of enforcement of any provision of this Section 7.4 a court or other tribunal will hold that the restrictions in this Section 7.4 are unreasonable or unenforceable under circumstances then existing, the Parties agree that the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area.
(c) The Parties agree that in the event of any breach by a Seller of any of the provisions of this Section 7.4, money damages would be inadequate and the Buyer would have no adequate remedy at law. Accordingly, notwithstanding anything to the contrary contained in this Agreement (including Article VIII), the Parties agree that the Buyer will have the right, in addition to any other rights and the obligations under this Section 7.4 or Section 7.5, to seek an adequate remedy for such, not only by an action for damages but also by an action or actions for specific performance, injunction and/or other equitable relief in order to enforce or prevent any violations (whether anticipatory, continuing or future) of the provisions of this Section 7.4.
7.5 Forfeiture of Escrow Funds. EACH SELLER ACKNOWLEDGES THAT A MATERIAL BREACH BY A SELLER OF THIS ARTICLE VII OR ANY OTHER POST-CLOSING COVENANTS CONTAINED IN THIS AGREEMENT ON OR PRIOR TO THE FIRST ANNIVERSARY OF THE CLOSING DATE, WILL RESULT IN THE FORFEITURE BY SUCH SELLER OF ANY ESCROW FUNDS THEN REMAINING, AND RELEASES ANY CLAIM AGAINST THE BUYER, THE COMPANY OR THEIR RESPECTIVE AFFILIATES FOR ANY FORFEITED ESCROW FUNDS.
7.6 Change and Use of Name. Each Seller and the Company will, and the Sellers will cause the Company to, cease to use and will not grant any license to use any name containing any combination of the term “Delphiis” or any name, slogan, logo or trademark that is similar to any of the trademarks acquired by the Buyer pursuant hereto and will take such actions as the Buyer may reasonably request to enable the Buyer and its Affiliates to use such name, slogan, logo or trademark.
7.7 Escrow Agreement. The Sellers and the Buyer shall each duly perform its, his or her respective obligations under the Escrow Agreement and, in addition, shall do the following in connection with the Escrow Agreement so long as any Escrow Funds are held thereunder:
(a) Promptly upon the final resolution of any claim by the Buyer or any of the other Buyer Indemnitees for indemnification by the Sellers under Article VIII of this Agreement (whether such
resolution be by mutually-agreed settlement, confirmed arbitration award, or final adjudication by a court of competent jurisdiction after all rights to further appeal have been exhausted or expired), if such resolution involves any payment to the Buyer or any other Buyer Indemnitee for which provision is not otherwise made, the Sellers and the Buyer shall jointly instruct the Escrow Agent to disburse from the Escrow Funds to the Buyer and any such other Buyer Indemnitee all amounts payable to them by the Sellers, using the cash, investments and other property in the Escrow Funds. Upon or in connection with such final resolution, the Buyer shall have the right to apply to any court of competent jurisdiction for an order compelling the Seller’s joinder in such instructions to the Escrow Agent.
(b) Promptly upon any final determination that all remaining Escrow Funds have been forfeited pursuant to Section 7.5 (whether such determination be by mutually-agreed settlement, confirmed arbitration award, or final adjudication by a court of competent jurisdiction after all rights to further appeal have been exhausted or expired), the Sellers and the Buyer shall jointly instruct the Escrow Agent to disburse all of the remaining Escrow Funds to the Buyer and to terminate the escrow under the Escrow Agreement. Upon or in connection with such final determination, the Buyer shall have the right to apply to any court of competent jurisdiction for an order compelling the Sellers’ joinder in such instructions to the Escrow Agent.
(c) Within five (5) Business Days after the first anniversary of the Closing Date, the Sellers and the Buyer shall jointly instruct the Escrow Agent to disburse all of the remaining Escrow Funds to the Sellers unless, on or prior to such first anniversary (i) the Buyer has claimed, by written notice to the Sellers, that the Escrow Funds have been forfeited pursuant to Section 7.5, or (ii) the Buyer has given the Sellers timely notice of a claim for indemnification under Article X of this Agreement and such claim has not been resolved or, to the extent resolved, paid. In the case of an alleged forfeiture of the Escrow Funds pursuant to Section 7.5, all of the remaining Escrow Funds shall continue to be held by the Escrow Agent until a final determination whether such forfeiture has occurred (whether such determination be by mutually-agreed settlement, confirmed arbitration award, or final adjudication by a court of competent jurisdiction after all rights to further appeal have been exhausted or expired); and upon such final determination, the Sellers and the Buyer shall jointly direct the disbursement of the remaining Escrow Funds in accordance with such final determination. In the case of an unresolved claim for indemnification, the Escrow Funds shall continue to be held by the Escrow Agent until a final resolution of such claim (whether such resolution be by mutually-agreed settlement, confirmed arbitration award, or final adjudication by a court of competent jurisdiction after all rights to further appeal have been exhausted or expired); and upon such final resolution, the Sellers and the Buyer shall jointly direct the disbursement of the remaining Escrow Funds in accordance with such final resolution. Notwithstanding the foregoing, if on such first anniversary there has been no claim by the Buyer that the Escrow Funds have been forfeited, and if all claims by the Buyer for indemnification are in a maximum aggregate amount that would be satisfied by less than all of the Escrowed Funds, then the Sellers and the Buyer shall jointly instruct the Escrow Agent to disburse to the Seller all of the remaining Escrow Funds in excess of the maximum aggregate amount of all pending and unpaid indemnification claims, with the balance to continue to be held until final resolution of the pending claims.
(d) Pursuant to the Escrow Agreement, the Buyer will agree to pay the fees and expenses of the Escrow Agent and the Buyer and the Sellers will jointly and severally indemnify the Escrow Agent as to various matters. Each of the Buyer and the Sellers hereby agrees that, in the event and to the extent that the Escrow Agent becomes entitled to indemnification due to such party’s willful misconduct, unlawful act, or breach of this Agreement or the Escrow Agreement, then such party shall indemnify and reimburse the other party for any amounts paid by such other party to the Escrow Agent that are attributable thereto.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Sellers. After the Closing and subject to the terms and conditions of this Article VIII:
(a) The Sellers will severally indemnify and hold harmless the Buyer, the Company and any Subsidiaries and their respective Affiliates (other than the Sellers and the Sellers’ Related Persons) and Representatives (other than the Sellers) (collectively, “Buyer Indemnitees”) from, and pay and reimburse each Buyer Indemnitee for, all Losses directly or indirectly relating to or arising from: (i) any breach or inaccuracy, or any allegation of any third party that, if true, would be a breach or inaccuracy, of any representation or warranty made by the Sellers in Article III; or (ii) any breach of any covenant or agreement of the Sellers in this Agreement.
(b) The Sellers will severally indemnify and hold harmless each Buyer Indemnitee from, and pay and reimburse each Buyer Indemnitee for, all Losses, directly or indirectly, relating to or arising from: (i) any breach or inaccuracy, or any allegation of any third party that, if true, would be a breach or inaccuracy, of any representation or warranty made by the Sellers, the Seller Representative or the Company in this Agreement (other than in Article III); (ii) any breach of any covenant or agreement of the Company in this Agreement; (iii) all Liabilities of, or arising from the conduct of, the Company existing at the Closing, or arising out of events or circumstances occurring prior to the Closing; (iv) any claim by the Sellers or any Person claiming through or on behalf of the Sellers arising out of or relating to any act or omission by the Buyer or any other Person in reliance upon instructions from or notices given by the Sellers; or (v) any matter set forth on Schedule 8.1.
8.2 Indemnification by the Buyer. After the Closing, subject to the terms and conditions of this Article VIII, the Buyer will indemnify and hold harmless the Sellers and Seller’s Representative from, and pay and reimburse the Sellers and Seller’s Representative for, all Losses, directly or indirectly, relating to or arising from: (a) any breach or inaccuracy, or any allegation of any third party that, if true, would be a breach or inaccuracy, of any representation or warranty made by the Buyer in this Agreement; or (b) any breach of any covenant or agreement of the Buyer in this Agreement.
8.3 Survival and Time Limitations. All representations, warranties, covenants and agreements of the Buyer, Company and the Sellers in this Agreement or any other certificate or document delivered pursuant to this Agreement will survive the Closing. The Sellers will have no Liability with respect to any claim for any breach or inaccuracy of any representation or warranty in this Agreement or any other certificate or document delivered pursuant to this Agreement unless the Buyer notifies the Sellers of such a claim on or before July 1, 2015; provided, however, that (a) any claim relating to Section 4.19 (environmental) or 4.21 (employee benefits) may be made at any time until July 1, 2015, (b) any claim relating to Section 4.15 (taxes) may be made at any time until the date 90 days after the expiration of the statute or period of limitations (including any extension of such statute or period of limitations) applicable to Third-Party Claims with respect thereto and (c) any claim relating to Article III (the Sellers) or Section 4.1 (organization), 4.2 (capitalization), 4.3 (authority), 4.4 (conflicts), 4.7 (no undisclosed liabilities) or 4.8 (title to assets), fraud, or any covenant or agreement to be performed or complied with at or after the Closing may be made at any time until July 1, 2019. The Buyer will have no Liability with respect to any claim for any breach or inaccuracy of any representation or warranty in this Agreement or any other certificate or document delivered pursuant to this Agreement unless the Sellers notify the Buyer of such a claim on or before July 1, 2015; provided, however, that any claim relating to fraud or any covenant or agreement to be performed or complied with at or after the Closing may be made at any time without any time limitation. If the Buyer or the Sellers, as applicable, provides proper notice of a claim
within the applicable time period set forth above, liability for such claim will continue until such claim is resolved.
8.4 Limitations on Indemnification by the Seller. The Sellers will have no Liability with respect to the matters described in Section 8.1(b)(i) until the total of all Losses with respect to such matters exceeds $20,000 (the “Basket”), at which point the Sellers will be obligated to indemnify for all Losses without regard to the Basket; provided, however, that any claim relating to Section 4.1 (organization), 4.2 (capitalization), 4.3 (authority), 4.4 (conflicts), 4.7 (no undisclosed liabilities), 4.8 (title to assets), 4.15 (taxes) or 4.28 (brokers) will not be subject to or counted towards the Basket. Each Seller’s maximum aggregate Liability with respect to the matters described in Section 8.1(b)(i) will be limited to an amount equal to sixty percent (60.00%) of the Purchase Price received by each such Seller (the “Cap”); provided, however, that any claim relating to Section 4.1 (organization), 4.2 (capitalization), 4.3 (authority), 4.4 (conflicts), 4.7 (no undisclosed liabilities), 4.8 (title to assets), 4.14 (intellectual property), 4.15 (taxes), 4.16 (legal compliance), 4.17 (litigation), 4.19 (environmental) or 4.28 (brokers) will not be subject to the Cap. This Section 8.4 will not apply to any fraudulent breach of any representation or warranty.
8.5 Claims Against the Company. Following the Closing, the Sellers may not assert, directly or indirectly, and hereby waive, any claim, whether for indemnification, contribution, subrogation or otherwise, against the Company with respect to any act, omission, condition or event occurring or existing prior to or on the Closing Date or any obligation of the Sellers under Section 8.1. Each of the Sellers agrees not to make, directly or indirectly, and hereby waives, any claim for indemnification against the Company by reason of the fact that such Seller was a stockholder, director, officer, employee or agent of the Company or was serving at the request of the Company as a partner, trustee, director, officer, employee or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, Losses, expenses or otherwise and whether such claim is pursuant to any Law, Organizational Document, Contract or otherwise) with respect to any Proceeding brought by the Buyer or the Company against the Sellers or any Affiliate thereof (whether such Proceeding is pursuant to this Agreement or otherwise), provided that this section shall not apply to any party’s obligations under this Agreement.
8.6 Manner of Payment. Upon final judicial adjudication that Buyer is entitled to indemnification pursuant to this Article VIII, the Buyer may set off any amount to which it or the Company may be entitled under this Article VIII against any amount otherwise payable by the Company, the Buyer or any of their respective Affiliates to the Sellers. The exercise of such set-off right in good faith will not constitute a breach or event of default under any Contract relating to any amount against which the set-off is applied. If the Buyer does not exercise this right of set-off, the Buyer will seek payment of such amount from the Escrow Funds until such funds are exhausted and then may seek payment directly from the Sellers.
8.7 Third-Party Claims.
(a) If a third party commences or threatens a Proceeding (a “Third-Party Claim”) against any Person (the “Indemnified Party”) with respect to any matter that the Indemnified Party might make a claim for indemnification against any Party (the “Indemnifying Party”) under this Article VIII, then the Indemnified Party must notify the Indemnifying Party (or the Sellers, in the case of the Sellers) thereof in writing of the existence of such Third-Party Claim and must deliver copies of any documents served on the Indemnified Party with respect to the Third-Party Claim; provided, however, that any failure to notify the Indemnifying Party or deliver copies will not relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is materially prejudiced by such failure.
(b) Upon receipt of the notice described in Section 8.7(a), the Indemnifying Party will have the right to defend the Indemnified Party against the Third-Party Claim with counsel reasonably satisfactory to the Indemnified Party so long as (i) within ten days after receipt of such notice, the Indemnifying Party notifies the Indemnified Party in writing that the Indemnifying Party will, subject to the limitations of Section 8.4, indemnify the Indemnified Party from and against any Losses the Indemnified Party may incur relating to or arising out of the Third-Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third-Party Claim and fulfill its indemnification obligations hereunder, (iii) the Indemnifying Party is not a party to the Proceeding or the Indemnified Party has determined in good faith that there would be no conflict of interest or other inappropriate matter associated with joint representation, (iv) the Third-Party Claim does not involve, and is not likely to involve, any claim by any Governmental Body, (v) the Third-Party Claim involves only money damages and does not seek an injunction or other equitable relief, (vi) settlement of, or an adverse judgment with respect to, the Third-Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice adverse to the continuing business interests of the Indemnified Party, (vii) the Indemnifying Party conducts the defense of the Third-Party Claim actively and diligently and (viii) the Indemnifying Party keeps the Indemnified Party apprised of all developments, including settlement offers, with respect to the Third-Party Claim and permits the Indemnified Party to participate in the defense of the Third-Party Claim. Notwithstanding anything to the contrary contained herein, no Indemnified Party will take any actions that would or may invalidate the insurance coverage of the Indemnifying Party.
(c) So long as the Indemnifying Party is conducting the defense of the Third-Party Claim in accordance with Section 8.7(b), (i) the Indemnifying Party will not be responsible for any attorneys’ fees incurred by the Indemnified Party regarding the Third-Party Claim (other than attorneys’ fees incurred prior to the Indemnifying Party’s assumption of the defense pursuant to Section 8.7(b)) and (ii) neither the Indemnified Party nor the Indemnifying Party will consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the other party, which consent will not be withheld unreasonably. If the Indemnified Party desires to consent to the entry of judgment with respect to or settle a Third-Party Claim but the Indemnifying Party refuses, then the Indemnifying Party will be responsible for all Losses with respect to such Third-Party Claim, without giving effect to the Basket or the Cap.
(d) If any condition in Section 8.7(b) is or becomes unsatisfied, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third-Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith), (ii) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically (but no less often than monthly) for the costs of defending against the Third-Party Claim, including attorneys’ fees and expenses, and (iii) the Indemnifying Party will remain responsible for any Losses the Indemnified Party may incur relating to or arising out of the Third-Party Claim to the fullest extent provided in this Article VIII.
8.8 Other Indemnification Matters
. Any claim for indemnification under this Article VIII must be asserted by providing written notice to the Sellers (or the Buyer, in the case of a claim by the Sellers) specifying the factual basis of the claim in reasonable detail to the extent then known by the Person asserting the claim. All indemnification payments under this Article VIII will be deemed adjustments to the Purchase Price. The right to indemnification will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the date hereof, with respect to any representation, warranty, covenant or agreement in this Agreement. THE INDEMNIFICATION PROVISIONS IN THIS ARTICLE VIII WILL BE
ENFORCEABLE REGARDLESS OF WHETHER ANY PERSON ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR ITS AFFILIATES, OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED ON THE PERSON SEEKING INDEMNIFICATION OR ITS AFFILIATES. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or agreement, will not affect the right to indemnification, payment of damages, or other remedy based on any such representation, warranty, covenant or agreement.
8.9 Exclusive Remedy. After the Closing, this Article VIII will provide the exclusive legal remedy for the matters covered by this Article VIII, except for claims based upon fraud or as contemplated in Sections 7.4 or 7.5. This Article VIII will not affect any remedy any Party may have under this Agreement prior to the Closing or upon termination of this Agreement or any equitable remedy available to any Party.
ARTICLE IX
TAX MATTERS
The following provisions will govern the allocation of responsibility as between the Buyer and the Sellers for certain Tax matters following the Closing Date:
9.1 Tax Indemnification.
(a) The Sellers shall severally pay, reimburse and indemnify the Company, the Buyer and its Affiliates and hold them harmless from and against Losses resulting from or attributable to (i) all Taxes (or the non-payment thereof) of the Company for all Taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any Taxable period that includes (but does not end on) the Closing Date (the “Pre-Closing Tax Period”), and (ii) any and all Taxes of any Person imposed on the Company as a transferee or successor, by Contract or pursuant to any law, rule, or regulation. The indemnification under this Section 9.1 shall not be subject to the indemnification deductible and limit set forth in Section 8.4 or elsewhere in this Agreement. The Sellers shall pay the Buyer, or the Company at the Buyer’s instruction, for any Taxes that are the responsibility of the Sellers pursuant to this Section 9.1 at least 5 days prior to payment of such amounts by the Buyer or the Company. To the extent it is commercially and legally reasonable to do so, the Buyer agrees that in exercising any discretionary powers under this Section 9.1 it will do so in a manner that does not materially prejudice the Seller from a tax perspective.
(b) In the case of any Taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured by income or receipts for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the Taxable period of any partnership or other pass-through entity shall be deemed to terminate at such time) and the amount of other Taxes for a Straddle Period which relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.
9.2 Tax Periods Ending on or Before the Closing Date. The Sellers will cause to be prepared, by an accounting firm approved by the Buyer, which approval shall not be unreasonably withheld, all Tax Returns for the Company for all Tax periods ending on or prior to the Closing Date that are due after the Closing Date, and the Buyer will file or cause to be filed all such Tax Returns. The
Sellers will permit the Buyer to review, comment on and approve, which approval shall not be unreasonably withheld, each such Tax Return described in the preceding sentence prior to filing. The Sellers will pay, reimburse and indemnify the Buyer and the Company for the Taxes on such Tax Returns in accordance with Section 9.1(a).
9.3 Tax Periods Beginning Before and Ending After the Closing Date. The Buyer will prepare and file, or cause to be prepared and filed, any Tax Returns for the Company for Straddle Periods. The Buyer will permit the Sellers to review and comment on each such Tax Return described in the preceding sentence prior to filing. The Sellers will pay, reimburse and indemnify the Buyer and Company for Taxes on such Tax Returns related to the Pre-Closing Tax Period (determined in accordance with Section 9.1(b)) in accordance with Section 9.1(a). The Buyers will not subsequently cause the company to refile, amend, or do any other thing that would result in an increase to the taxes owing by the company for any Tax Period ending on or before the closing date.
9.4 Cooperation on Tax Matters. The Buyer, the Company and the Sellers will cooperate fully, as and to the extent reasonably requested by the other Party or Parties, in connection with the filing and preparation of Tax Returns pursuant to this Article IX and any Proceeding related thereto. Such cooperation will include the retention and (upon any other Party’s request) the provision of records and information that are reasonably relevant to any such Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Buyer and the Sellers agree that the Company will retain all books and records with respect to Tax matters pertinent to such Company relating to any Taxable period beginning before the Closing Date until the expiration of the statute or period of limitations of the respective Taxable periods.
9.5 Certain Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees, including any penalties and interest thereon (collectively, the “Transfer Taxes”), incurred in connection with this Agreement or the Transactions will be paid by the Sellers when due, and the Sellers will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and if required by applicable Law, the Buyer will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.
ARTICLE X
MISCELLANEOUS
10.1 Seller Representative.
(a) Each Seller hereby irrevocably appoints Mike Gentile (the “Seller Representative”) as such Seller’s representative, attorney-in-fact and agent, with full power of substitution to act in the name, place and stead of such Seller, to act on behalf of such Seller after the Closing in any amendment of or litigation or arbitration involving the Transaction Documents, and to do or refrain from doing all such further acts and things, and to execute all such documents, as the Seller Representative shall deem necessary or appropriate after the Closing, including the power (i) to give and receive all notices and communications to be given or received under the Transaction Documents and to receive service of process in connection with any claims under the Transaction Documents, including service of process in connection with arbitration, and (ii) to take all actions which under the Transaction Documents that may be taken by the Sellers and to do or refrain from doing any further act or deed on behalf of the Sellers which the Seller Representative deems necessary or appropriate in its sole discretion relating to the subject matter of this Agreement as fully and completely as such Sellers could do if personally present.
(b) The Seller Representative will not be liable for any act taken or omitted by him as permitted under the Transaction Documents, except if taken or omitted in bad faith or by willful
misconduct. The Seller Representative will also be fully protected in relying upon any written notice, demand, certificate or document that it in good faith believes to be genuine (including facsimiles thereof).
(c) The Sellers agree, severally (based on their respective ownership of Shares) but not jointly, to indemnify the Seller Representative for, and to hold the Seller Representative harmless against, any losses, liability or expense incurred without willful misconduct or bad faith on the part of the Seller Representative, arising out of or in connection with the Seller Representative’s carrying out its duties under this Agreement or any of the other Transaction Documents, including costs and expenses of successfully defending the Seller Representative against any claim of liability with respect thereto. The Seller Representative may consult with counsel of its own choice and will have full and complete authorization and protection for any action taken or suffered by him in good faith and in accordance with the opinion of such counsel.
(d) Notwithstanding anything in this Agreement to the contrary, nothing in this Section 10.1 shall release or hold harmless any Seller or the Seller Representative from their obligations to the Buyer under this Agreement, or otherwise operate to the detriment of the Buyer or the Buyer’s rights under this Agreement.
(e) The Buyer and the Buyer Indemnified Parties shall be entitled to rely upon any action taken and any agreements or amendments entered into by the Seller Representative in his capacity as such, and shall have no liability or obligation to any Seller in respect thereof
10.2 No Third-Party Beneficiaries. This Agreement does not confer any rights or remedies upon any Person (including any employee of the Company) other than the Parties, their respective successors and permitted assigns and, as expressly set forth in this Agreement, any Indemnified Party.
10.3 Entire Agreement. The Transaction Documents constitute the entire agreement among the Parties with respect to the subject matter of the Transaction Documents and supersede all prior agreements (whether written or oral and whether express or implied) among any Parties to the extent related to the subject matter of the Transaction Documents (including any letter of intent or confidentiality agreement).
10.4 Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Seller may assign, delegate or otherwise transfer (whether by operation of law or otherwise) any of such Seller’s rights, interests or obligations in this Agreement without the prior written approval of the Buyer. The Buyer may assign any or all of its rights or interests, or delegate any or all of its obligations, in this Agreement to (a) any successor to the Buyer, any successor to the Company, or any acquirer of a material portion of the businesses or assets of the Buyer or the Company, (b) one or more of the Buyer’s Affiliates, or (c) any lender to the Buyer or the Company as security for obligations to such lender. No assignment shall relieve the assigning party of any of its obligations hereunder.
10.5 Counterparts. This Agreement may be executed by the Parties in multiple counterparts and shall be effective as of the date set forth above when each Party shall have executed and delivered a counterpart hereof, whether or not the same counterpart is executed and delivered by each Party. When so executed and delivered, each such counterpart shall be deemed an original and all such counterparts shall be deemed one and the same document. Transmission of images of signed signature pages by facsimile, e-mail or other electronic means shall have the same effect as the delivery of manually signed documents in person.
10.6 Notices. Any notice pursuant to this Agreement must be in writing and will be deemed effectively given to another Party on the earliest of the date (a) three Business Days after such notice is sent by registered U.S. mail, return receipt requested, (b) one Business Day after receipt of confirmation if such notice is sent by facsimile, (c) one Business Day after delivery of such notice into the custody and control of an overnight courier service for next day delivery, (d) one Business Day after delivery of such notice in person and (e) such notice is received by that Party; in each case to the appropriate address below (or to such other address as a Party may designate by notice to the other Parties):
If to the Sellers (or to the Company prior to the Closing):
Mike Gentile, as Seller’s Representative
40 Via Agradar
San Clemente, California 92673
(949) 282-8633
with a copy to:
Ethan Miller-Bazemore
15621 Mayflower Lane
Huntington Beach, California 92647
(714) 585-8906
If to the Buyer:
Auxilio, Inc.
26300 La Alameda, Suite 100
Mission Viejo, CA 92691
Phone: (949) 614-0698
Attn: Paul T. Anthony, CFO
with a copy to:
Kirton McConkie PC
60 E. South Temple, Suite 1800
Salt Lake City, Utah 84111
Fax: (801) 212-2006
Phone: (801) 321-4864
Attn: Alexander N. Pearson
10.7 JURISDICTION; SERVICE OF PROCESS. EACH PARTY (A) CONSENTS TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ORANGE COUNTY, CALIFORNIA (AND ANY CORRESPONDING APPELLATE COURT) IN ANY PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT, (B) WAIVES ANY VENUE OR INCONVENIENT FORUM DEFENSE TO ANY PROCEEDING MAINTAINED IN SUCH COURTS AND (C) EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, AGREES NOT TO INITIATE ANY PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT IN ANY OTHER COURT OR FORUM. PROCESS IN ANY SUCH PROCEEDING MAY BE SERVED ON ANY PARTY ANYWHERE IN THE WORLD.
10.8 Resolution of Disputes.
(a) All claims, disputes, controversies and alleged breaches arising out of or related to this Agreement or any of the other Transaction Documents or the performance or nonperformance hereof or thereof (other than as matters arising out of or relating to an alleged breach of Section 7.4) which cannot be settled through negotiation, including but not limited to any claim, dispute or controversy relating to the validity or enforceability of this Agreement, any Transaction Document or the breach thereof (each, a “Dispute”), shall be subject to mediation before the American Arbitration Association under its Commercial Mediation Procedures in effect as of the date the mediation proceeding is initiated. The mediation shall be held in Orange County, California, unless another location is mutually agreed upon. Within seven (7) calendar days after a mediator has been selected in accordance with such rules, the parties to such Dispute shall meet with the mediator for at least one mediation session of at least five (5) hours, it being agreed that each party’s representative attending that mediation session shall act in good faith. The mediation may be terminated at any time by either party by notice that the mediation procedures are not productive. Agreements reached in mediation shall be enforceable as settlement agreements in any court having jurisdiction thereof. The costs of the mediation shall be shared equally between the parties. All aspects of the mediation shall be confidential. In the event a Dispute is not settled within forty-five (45) days after the first mediation session among the parties, any Party may initiate arbitration proceedings pursuant to Section 10.8(b) below.
(b) Any Dispute not resolved pursuant to 10.8(a) above shall, upon the demand of either Party, be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and the provisions of this subsection:
(i) The arbitration shall be conducted by a panel of three impartial arbitrators selected in accordance with such Commercial Arbitration Rules, unless either the amount in controversy is less than $20,000 or the parties shall hereafter mutually agree in writing to have the arbitration conducted by a single arbitrator, in either which case the arbitration shall be conducted by a single arbitrator. The final decision and award by the arbitrator(s) shall be set forth in a written decision.
(ii) The arbitration shall be conducted in Orange County, California, unless the Parties mutually agree at the time for some other situs for the conduct of the arbitration proceeding.
(iii) In conducting the arbitration and rendering their award, the arbitrators shall give effect to the terms of this Agreement and the other applicable Transaction Documents, including the choice of applicable law, shall give effect to any other agreement of the parties relating to the conduct of the arbitration, and shall give effect to applicable statutes of limitations. If any dispute submitted to arbitration shall involve claims by or against a party hereto against or by a third party, and such third party cannot be made a party to such arbitration, the arbitrators shall be empowered to take such actions as they deem just and equitable in order to avoid prejudice to the parties hereto by reason of the inability of the arbitrators to adjudicate such third party claims, including without limitation, if they so determine, conditioning their award upon the outcome of the third party claims or staying the arbitration pending the outcome of the third party claims. The arbitrators shall be empowered to order the Parties to provide pre-hearing discovery to each other upon such terms as the arbitrators may direct if one of both of the Parties requests discovery, the Parties fail to agree between themselves as to the conduct of discovery, and the arbitrators determine that such discovery will be consistent with the overriding goals of a fair and efficient process and a just and equitable award.
(iv) The costs of the arbitration, including the fees and expenses of the arbitrators and of the American Arbitration Association, shall be allocated to such parties as, and in such proportions as, the arbitrators shall determine to be just and equitable, which determination shall be set forth in the award.
(v) Judgment upon the award of the arbitrators may be entered by any court of competent jurisdiction.
(c) Nothing in this Section shall preclude either Party from applying to a court of competent jurisdiction for, and obtaining if warranted, preliminary or ancillary relief pending the conduct of such alternative dispute resolution procedures and arbitration, or an order to compel the arbitration provided for herein, or such other relief as may be required to protect and preserve such Party’s rights pending the conduct of such procedures and arbitration. This Section 10.8 provides the exclusive method of resolving any Dispute, provided that, notwithstanding any provision of this Agreement to the contrary, nothing in this Section 10.8 or in any other provision of this Agreement shall preclude any Party from seeking injunctive relief against the violation or breach of any provision in this Agreement as set forth in Section 10.14.
10.9 Governing Law. This Agreement and all other Transaction Documents (unless otherwise stated therein) will be governed by the laws of the State of California without giving effect to any choice or conflict of law principles of any jurisdiction.
10.10 Amendments and Waivers. No amendment of any provision of this Agreement will be valid unless the amendment is in writing and signed by the Buyer and the Seller Representative. No waiver of any provision of this Agreement will be valid unless the waiver is in writing and signed by the waiving Party. The failure of a Party at any time to require performance of any provision of this Agreement will not affect such Party’s rights at a later time to enforce such provision. No waiver by any Party of any breach of this Agreement will be deemed to extend to any other breach hereunder or affect in any way any rights arising by virtue of any other breach.
10.11 Severability. Any provision of this Agreement that is determined by any court of competent jurisdiction to be invalid or unenforceable will not affect the validity or enforceability of any other provision hereof or the invalid or unenforceable provision in any other situation or in any other jurisdiction. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
10.12 Expenses. The Company will bear all expenses incurred by the Company or any Representative of the Company in connection with the Transactions contemplated to be performed before or on the Closing Date and such expenses will have been paid or accrued by the Company prior to the Closing Date. The Sellers will bear all expenses incurred by the Sellers or any of their Representatives (including without limitation the Seller’s Representative) in connection with the Transactions contemplated to be performed before or on the Closing Date. Except as otherwise expressly provided in this Agreement, the Buyer will bear all expenses incurred by the Buyer or any of its Representatives in connection with the Transactions contemplated to be performed on or before the Closing Date. In the event of termination of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from a breach of this Agreement by another Party.
10.13 Construction. The article and section headings in this Agreement are inserted for convenience only and are not intended to affect the interpretation of this Agreement. Any reference in this Agreement to any Article or Section refers to the corresponding Article or Section of this Agreement. Any reference in this Agreement to any Schedule or Exhibit refers to the corresponding Schedule or
Exhibit attached to this Agreement and all such Schedules and Exhibits are incorporated herein by reference. The word “including” in this Agreement means “including without limitation.” This Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any provision in this Agreement. Unless the context requires otherwise, any reference to any Law will be deemed also to refer to all amendments and successor provisions thereto and all rules and regulations promulgated thereunder, in each case as in effect as of the date hereof and the Closing Date. All accounting terms not specifically defined in this Agreement will be construed in accordance with GAAP as in effect on the date hereof (unless another effective date is specified herein). The word “or” in this Agreement is disjunctive but not necessarily exclusive. All words in this Agreement will be construed to be of such gender or number as the circumstances require. References in this Agreement to time periods in terms of a certain number of days mean calendar days unless expressly stated herein to be Business Days. In interpreting and enforcing this Agreement, each representation and warranty will be given independent significance of fact and will not be deemed superseded or modified by any other such representation or warranty.
10.14 Specific Performance. Each Party acknowledges that the other Parties would be damaged irreparably and would have no adequate remedy of law if any provision of this Agreement is not performed in accordance with its specific terms or otherwise is breached. Accordingly, each Party agrees that the other Parties will be entitled to an injunction to prevent any breach of any provision of this Agreement and to enforce specifically any provision of this Agreement, in addition to any other remedy to which they may be entitled and without having to prove the inadequacy of any other remedy they may have at law or in equity and without being required to post bond or other security.
10.15 Further Assurances. Each Party agrees to furnish upon request to any other Party such further information, to execute and deliver to any other Party such other documents, and to do such other acts and things, all as any other Party may reasonably request for the purpose of carrying out the intent of the Transaction Documents.
[Signature pages follow]
The Parties have executed and delivered this Stock Purchase Agreement as of the date first written above.
| “Buyer”: |
| AUXILIO, INC. |
By: /s/ Joseph J. Flynn Name: Joseph J. Flynn Title: President & Chief Executive Officer |
| |
| “Sellers”: |
/s/ Mike Gentile Mike Gentile |
/s/ Jason Houlden Jason Houlden |
/s/ Ethan Miller Bazemore Ethan Miller-Bazemore |
/s/ Hiep Ong Hiep Ong |
/s/ Henning Schwalbe Henning Schwalbe |
/s/ Peter Glynn Peter Glynn |
/s/ Huy Nguyen Huy Nguyen |
/s/ Chris Rogers Chris Rogers |
| |
| “Company”: |
| DELPHIIS, INC. |
By: /s/ Mike Gentile Name: Mike Gentile Title: Chief Executive Officer |
EXHIBIT A
Employment Agreement
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of July 1, 2014 (“Effective Date”), by and between AUXILIO, Inc., a Nevada corporation (“Company”) and Mike Gentile (“Employee”). For purposes of this Agreement, the term “Company” refers to Auxilio, Inc. and its wholly owned subsidiaries Auxilio Solutions, Inc. and Delphiis, Inc., each a California Corporation.
The parties agree as follows:
1. Employment; Release of Claims.
1.1 Employment. Company hereby employs Employee, and Employee hereby accepts such employment, upon the terms and conditions set forth herein. Employee acknowledges and agrees that Employee’s employment relationship with the Company commencing as of the Effective Date shall be “at will.” This Agreement does not in any way alter Employee’s “at-will” status or limit Company’s or Employee’s right to terminate Employee’s employment with Company at any time, with or without cause.
1.2 Release of Claims. This Agreement supersedes in its entirety any employment agreement, oral or in writing, or comparable arrangements between the Company or its wholly-owned subsidiary Delphiis, Inc. (“Delphiis”) in effect prior to the Effective Date. Except for non-employment related obligations of Delphiis, Employee hereby relinquishes and unconditionally waives any claim or entitlement to any severance pay or other post-termination benefits from the Company or Delphiis pursuant to any agreement in effect prior to the Effective Date, and hereby discharges and releases any claims against Company and Delphiis relating to anything done or omitted to be done with respect to Employee’s employment up to the date of this Agreement.
2. Duties.
2.1 Position. Employee is employed as [Executive Vice President] and shall have the duties and responsibilities assigned by the Company’s Chief Executive Officer, as may be reasonably assigned from time to time. Employee shall perform faithfully and diligently all duties assigned to Employee. Company reserves the right to modify Employee’s duties at any time in its sole and absolute discretion.
2.2 Best Efforts/Full-time. Employee will expend Employee’s best efforts on behalf of Company and its subsidiaries, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances. Employee will act in the best interest of Company at all times. Employee shall devote Employee’s full business time and efforts to the performance of Employee’s assigned duties for Company, unless Employee notifies the Chief Executive Officer in advance of Employee’s intent to engage in other paid work and receives the express written consent to do so.
3. Term.
3.1 Initial Term. The employment relationship pursuant to this Agreement shall be for an initial term commencing on the Effective Date set forth above and continuing until June 30, 2017 (“Initial Term”), unless sooner terminated in accordance with paragraph 7 below.
3.2 Renewal. On completion of the Initial Term specified in subparagraph 3.1 above, this Agreement will automatically renew for subsequent twelve (12) month terms unless either party provides advance written notice to the other that such party does not wish to renew the Agreement for a subsequent twelve (12) months. In the event either party gives notice of nonrenewal pursuant to this subparagraph 3.2, this Agreement will expire at the end of the current term.
4. Compensation.
4.1 Base Salary. As compensation for Employee’s performance of Employee’s duties hereunder, Company shall pay to Employee an initial Base Salary (the “Base Salary”) of $200,000, payable in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions. In the event Employee’s employment under this Agreement is terminated by either party, for any reason, Employee will be entitled to receive Employee’s Base Salary prorated to the date of termination.
4.2 Incentive Compensation. Employee will be eligible to earn incentive compensation in accordance with the provisions set forth in Exhibit A.
4.3 Equity Compensation. Subject to the terms and conditions of this Agreement, Employee will be granted a total of 400,000 restricted shares of the Company’s Common Stock (the “Equity Compensation”), which shares of Common Stock will vest as follows: 100,000 shares will vest two (2) years from the Effective Date; 100,000 shares will vest three (3) years from the Effective Date; 100,000 shares will vest four (4) years from the Effective Date and 100,000 shares will vest five (5) years from the Effective Date.
5. Customary Fringe Benefits. Employee will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company’s benefit plan documents. Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Employee.
6. Business Expenses. Employee will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Employee’s duties on behalf of Company. To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company’s policies.
7. Termination of Employee’s Employment.
7.1 Termination for Cause by Company. Although Company anticipates a mutually rewarding employment relationship with Employee, Company may terminate Employee’s employment immediately at any time for Cause. For purposes of this Agreement, “Cause” is defined as: (a) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Employee with respect to Employee’s obligations or otherwise relating to the business of Company; (b) Employee’s material breach of this Agreement; and (c) Employee’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude. In the event Employee’s employment is terminated in accordance with this Section 7.1, Employee shall be entitled to receive Employee’s Base Salary prorated to the date of termination. All other Company obligations to Employee pursuant to this Agreement will become automatically terminated and completely extinguished. Employee will not be entitled to receive the Severance Payment described in Section 7.3 below and will forfeit any unvested shares of Common Stock granted to Employee pursuant to this Agreement, including without limitation the Equity Compensation. Without limiting the foregoing, the Company will provide written notice of what it deems to constitute “Cause” in reasonable detail, and Employee will have thirty (30) days to cure the default or in the event that the default is not susceptible to cure within thirty (30) days, Employee will take actions to commence to cure such default and will inform the Company of the proposed time required to cure such default, which the Company may accept or reject. If Company rejects in good faith Employee’s proposed cure time period, then termination shall be effective thirty (30) days following the date written notice was provided to Employee. During such cure period, Company may, however, temporarily suspend Employee’s employment and may require that Employee remain off-site or without access to Company’s facilities and systems.
7.2 Termination as a Result of Employee’s Death or Disability. Employee’s employment hereunder shall terminate automatically upon Employee’s death and may be terminated by the Company upon Employee’s Disability (as hereinafter defined). If Employee’s employment hereunder is terminated by reason of Employee’s Disability or death, Employee’s (or Employee’s estate’s) right to benefits under this Agreement will terminate as of the date of such termination and all of Company’s obligations hereunder shall immediately cease and terminate, except that Employee or Employee’s estate, as the case may be, will be entitled to receive accrued Base Salary and benefits through the date of termination and the unvested portion of the Equity Compensation shall immediately vest. As used herein, “Disability” shall have the meaning set forth in any long-term disability plan in which Employee participates, and in the absence thereof shall mean the determination in good faith by the Company’s board of directors (or comparable governing body) that, due to physical or mental illness, Employee shall have failed to perform his duties on a full-time basis hereunder for one hundred eighty (180) consecutive days and shall not have returned to the performance of his duties hereunder on a full-time basis before the end of such period, and if Disability has occurred termination shall occur within thirty (30) days after written notice of termination is given (which notice may be given before the end of the one hundred eighty (180) day period described above so as to cause termination of employment to occur as early as the last day of such period).
7.3 Termination Without Cause by Company/Severance; Change of Control.
(a) Company may terminate Employee’s employment under this Agreement without Cause at any time on thirty (30) days’ advance written notice to Employee for any reason or no reason , other than as a result of Employee’s death or Disability or for Cause. In the event of (i) such termination without Cause, or (ii) in the event of the termination of Employee without Cause following a “Change of Control” (as defined in Section 7.3(b) below), Employee will receive the Base Salary then in effect, prorated to the date of termination, and a “Severance Payment” equivalent to (a) payment of compensation for an additional twelve (12) months, payable in accordance with Company’s regular payroll cycle or lump sum, and (b) an additional provision of accelerating all unvested stock options, warrants and restricted stock provided that Employee: (i) complies with all surviving provisions of this Agreement as specified in Section 13.8 below; and (ii) executes a mutually agreeable separation agreement which includes a full general release, releasing all claims, known or unknown, that Employee may have against Company arising out of or any way related to Employee’s employment or termination of employment with Company. Notwithstanding the foregoing, in the event the Company’s securities are publicly traded on the date of Employee’s termination of employment, any portion of the aggregate salary continuation payments described in clause (ii)(a) of this Section 7.3, and any acceleration of unvested stock options, warrants and restricted stock pursuant to clause (ii)(b) of this Section 7.3 which, if paid, would exceed the Section 409A Safe Harbor Limit (as defined in Section 7.3(c) below), such excess portion shall be paid to Employee in a lump sum on the first day of the seventh calendar month immediately following the date of Employee’s termination.
(b) As used herein, “Change of Control” means: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity and in which the holders of the Company’s outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the entity surviving such transaction or, where the surviving entity is a wholly-owned subsidiary of another entity, the surviving entity’s parent; or (iii) a reverse merger in which the Company is the surviving entity but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities of the surviving entity’s parent, cash or otherwise, and in which the holders of the Company’s outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the Company or, where the Company is a wholly-owned subsidiary of another entity.
(c) As used herein, “Section 409A Safe Harbor Limit” means an amount equal to two (2) times the lesser of (i) Employee’s annual rate of compensation for the taxable year immediately preceding the taxable year in which Employee’s employment is terminated by the Company or (ii) the dollar amount in effect under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, for the taxable year in which Employee’s employment is terminated.
(d) In the event that the benefits provided to Employee under this Agreement, and any other agreements, plans or arrangements to which Employee may be a party with the Company, cause Employee to incur an excise tax under Section 4999 of the Internal Revenue Code of 1986 (the “Code”) or any corresponding provisions of applicable state tax law in connection with a Change of Control, then the Company will pay Employee an additional amount sufficient to reimburse Employee for (i) the excise tax imposed on such benefits, and (ii) the federal and state income, employment and excise taxes, determined on a fully “grossed-up” basis, imposed on the benefits payments provided. The Company shall be entitled to withhold from the payment required hereunder such taxes as it may be required to withhold under applicable tax law, and any such withheld taxes shall be treated as paid to Employee hereunder.
7.4 Voluntary Resignation by Employee Without Good Reason. Employee may voluntarily resign Employee’s position with Company without Good Reason, at any time after the Initial Term, on thirty (30) days’ advance written notice. In the event of Employee’s resignation without Good Reason, Employee will be entitled to receive only the Base Salary for the thirty-day notice period and no other amount for the remaining months of the current term, if any. All other Company obligations to Employee pursuant to this Agreement will become automatically terminated and completely extinguished. In addition, executive will not be entitled to receive the Severance Payment described in subparagraph 7.3 above and will forfeit any unvested shares of Common Stock granted to Employee pursuant to this Agreement, including without limitation the Equity Compensation.
7.5 Termination of Employment Upon Nonrenewal. In the event either party decides not to renew this Agreement for a subsequent twelve (12) months in accordance with subparagraph 3.2 above, the Agreement will expire, Employee’s employment with Company will terminate and Employee will only be entitled to Employee’s Base Salary paid through the last day of the current term. All other Company obligations to Employee pursuant to this Agreement will become automatically terminated and completely extinguished. If the Company delivers notice to Employee of Company’s intent to not renew this Agreement, the Equity Compensation to which Employee is entitled will immediately vest. Alternatively, if Employee delivers notice to Company of Employee’s intent to not renew this Agreement, the unvested Equity Compensation to which Employee is otherwise entitled will be forfeited.
7.6 Voluntary Resignation by Employee for Good Reason. Employee may voluntarily resign Employee’s position with Company for Good Reason, at any time on thirty (30) days’ advance written notice. In the event of Employee’s resignation for Good Reason, Employee will be entitled to receive the Base Salary to which Employee is entitled for the remainder of the then-current term, the Severance Payment described in Section 7.3(a), subject to the terms and conditions of Section 7.3(a), and all Equity Compensation to which Employee is entitled will immediately vest. All other Company obligations to Employee pursuant to this Agreement will become automatically terminated and completely extinguished. Employee will be deemed to have resigned for Good Reason in the following circumstances: (i) the Company reduces the amount of the Base Salary (as in effect on the date hereof and as the same may be increased from time to time) or potential incentive compensation without Employee ’s written consent, unless such reduction in salary or incentive compensation affects all executives of the Company, (ii) the Company changes Employee’s place of work to a location more than sixty (60) miles from the location in which Employee is providing services on the date of this
Agreement without Employee’s prior consent, or (iii) any other material breach by the Company (or its successors) of this Agreement, in each case set forth above which is not cured to Employee’s reasonable satisfaction within thirty (30) days after written notice thereof to the Company.
8. No Conflict of Interest. During the term of Employee’s employment with Company and during any period Employee is receiving payments from Company, Employee must not engage in any work, paid or unpaid, that creates an actual or potential conflict of interest with Company. Such work shall include, but is not limited to, directly or indirectly competing with Company in any way, or acting as an officer, director, employee, consultant, stockholder, volunteer, lender, or agent of any business enterprise of the same nature as, or which is in direct competition with, the business in which Company is now engaged or in which Company becomes engaged during the term of Employee’s employment with Company, as may be determined by the Company’s Chief Executive Officer in its sole discretion. If the Company’s Chief Executive Officer believes such a conflict exists during the term of this Agreement, the Company’s Chief Executive Officer may ask Employee to choose to discontinue the other work or resign employment with Company. If the Company’s Chief Executive Officer believes such a conflict exists during any period in which Employee is receiving payments pursuant to this Agreement, the Company’s Chief Executive Officer may ask Employee to choose to discontinue the other work or forfeit the remaining severance payments. In addition, Employee agrees not to refer any client or potential client of Company to competitors of Company, without obtaining Company’s prior written consent, during the term of Employee’s employment and during any period in which Employee is receiving payments from Company pursuant to this Agreement.
9. Confidentiality and Proprietary Rights. Employee agrees to read, sign and abide by [Company’s Employee Innovations and Proprietary Rights Assignment Agreement,] which is provided with this Agreement and incorporated herein by reference.
10. Non-Solicitation; Non-Competition. Employee and the Company understand and agree that the purpose of this Section 10 is solely to protect Company’s legitimate business interests, including, but not limited to confidential information and trade secrets, partner relationships and goodwill, and the Company’s competitive advantage in the operation of the Business or provision of Services (each as hereinafter defined). This Section 10 is not intended to impair, nor will it impair, Employee’s ability or right to work or earn a living. Employee and Company further understand and agree that this Section 10 represents an important element of this Agreement, and is a material inducement to Company entering into this Agreement, without which Company would not have entered into this Agreement and the Purchase Agreement (as hereinafter defined).
10.1 Nonsolicitation of Customers or Prospects. Employee acknowledges that information about Company’s customers and business methods is confidential and constitutes trade secrets and is essential to the goodwill of the Company. Accordingly, Employee agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Employee will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company’s relationship with any of its
customers or customer prospects by soliciting or encouraging others to solicit any of them for the purpose of diverting or taking away business from Company.
10.2 Nonsolicitation of Company’s Employees. Employee agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Employee will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company’s business by soliciting, encouraging or attempting to hire any of Company’s employees or causing others to solicit or encourage any of Company’s employees to discontinue their employment with Company.
10.3 Non-Competition. Employee agrees that during the term of this Agreement, and: (i) for a period of three (3) years after the termination of this Agreement, Employee shall not develop and/or sell risk management software or software solutions or any other form of intellectual property similar to any software solutions owned or used by the Company or any other intellectual property identified as “Intellectual Property” in the Purchase Agreement, to or for any person or entity in any industry; and (ii) for a period of six (6) months after termination of this Agreement, Employee shall not, directly or indirectly: (A) perform services in the information security business as it relates to the health care provider industry (the “Business”) anywhere in the United States of America (the “Restricted Territory”), including providing funds for the same; (B) provide services routinely performed for customers or clients (“Customers”) (directly or indirectly) in the operation of the Business (“Services”) in the Restricted Territory; (C) solicit any customer of the Business for purposes of providing Services; (D) accept as a customer any Customer for purposes of providing Services; (E) induce or attempt to induce any employee of the Company to terminate his or her employment with the Company; (F) employ, or engage as an independent contractor, any employee of the Company; (G) interfere with the business relationship between a Customer or employee and the Company; or (H) encourage any person to engage in any of the foregoing activities, including but not limited to providing financing, directly or indirectly, for any of the foregoing activities; provided, however, that the foregoing will not restrict the ability of the Employee to purchase or otherwise acquire up to five percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities have been registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934. Notwithstanding the foregoing, Employee, upon prior written notice to Company’s chief executive officer or chief financial officer, may continue the consulting, speaking and publishing business related to the CISOhandbook.com, provided such activities in no way limit or diminish the services Employee is to provide to Company pursuant to this Agreement.
10.4 Reasonable Restrictions. Employee hereby agrees that the covenants in this Agreement are reasonable given the real and potential competition encountered (and reasonably expected to be encountered) by the Company and the substantial knowledge and goodwill Employee has acquired with respect to the Business. Notwithstanding the foregoing, in the event that at the time of enforcement of any provision of this Section 10.4 a court or other tribunal will hold that the restrictions in this Section 10.4 are unreasonable or unenforceable under circumstances then existing, the parties agree that the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area. The period of any restriction set forth in this Section 10 shall be extended by any
period of time that Employee is or has been found to be in breach of any provision in this Section 10.
10.5 Purchase Agreement. This Agreement is entered into in connection with that certain Stock Purchase Agreement dated effective as of July 1, 2014 among the Auxilio, Inc., Delphiis, Inc. and certain stockholders of Delphiis, Inc. (the “Purchase Agreement”). Employee acknowledges that the foregoing covenant (i) is reasonable in its duration and scope and (ii) is of material importance to the Company, which would not have entered into the transactions contemplated by the Stock Purchase Agreement, but for obtaining such a covenant from the Employee. Notwithstanding the foregoing, however, Company is not entitled to offset amounts due Employee under this Agreement, against amounts owed by Employee to Company pursuant to the Purchase Agreement.
11. Injunctive Relief. Employee acknowledges that Employee’s breach of the covenants contained in Sections 8-10 would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security.
12. Agreement to Arbitrate. To the fullest extent permitted by law, Employee and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Employee and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law. Claims for workers’ compensation, unemployment insurance benefits and Company’s right to obtain injunctive relief pursuant to paragraph 11 above are excluded. For the purpose of this agreement to arbitrate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement shall apply to them to the extent Employee’s claims arise out of or relate to their actions on behalf of Company.
12.1 Consideration. The mutual promise by Company and Employee to arbitrate any and all disputes between them rather than litigate them before the courts or other bodies, provides the consideration for this agreement to arbitrate.
12.2 Initiation of Arbitration. Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims. In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.
12.3 Arbitration Procedure. The arbitration will be conducted in Irvine, California by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association (“AAA”). The
parties are entitled to representation by an attorney or other representative of their choosing. The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law. In the event the arbitrator does not follow the law, the arbitrator will have exceeded the scope of his or her authority and the parties may, at their option, file a motion to vacate the award in court. The parties agree to abide by and perform any award rendered by the arbitrator. Judgment on the award may be entered in any court having jurisdiction thereof.
12.4 Costs of Arbitration. Each party shall bear one-half the cost of the arbitration filing and hearing fees, and the cost of the arbitrator.
13. General Provisions.
13.1 Successors and Assigns. The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company. Employee shall not be entitled to assign any of Employee’s rights or obligations under this Agreement.
13.2 Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.
13.3 Attorneys’ Fees. Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party.
13.4 Severability. In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.
13.5 Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing Company, but Employee has participated in the negotiation of its terms. Furthermore, Employee acknowledges that Employee has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
13.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California. Each party consents to the jurisdiction and venue of the state or federal courts in Irvine, California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.
13.7 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing.
13.8 Survival. Sections 8 (“No Conflict of Interest”), 9 (“Confidentiality and Proprietary Rights”), 10 (Non-solicitation; Non-competition), 11 (“Injunctive Relief”), 12 (“Agreement to Arbitrate”), 13 (“General Provisions”) and 14 (“Entire Agreement”) of this Agreement shall survive Employee’s employment by Company.
14. Entire Agreement. This Agreement, including the Employee Innovations and Proprietary Rights Assignment Agreement incorporated herein by reference, the Purchase Agreement, and Company’s stock option plan and related option documents described in this Agreement, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of Employee and the Board of Directors of Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.
[Signature Page Follows]
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.
Dated: 7/6/2014 | /s/ Mike Gentile |
| | ____________________________________ |
| | ____________________________________ |
| | Employee |
Dated: 7/7/2014 | By: /s/ Joseph Flynn |
| | Joseph Flynn |
| | President and Chief Executive Officer, AUXILIO, Inc. |
EXHIBIT A
INCENTIVE COMPENSATION PLAN
Bonus Plan
The Employee will be entitled to a Bonus Plan with a target compensation of $100,000 per year based on the four (4) performance metrics* within this Bonus Plan section. For calendar year 2014 employee will be eligible to earn half of the annual target bonus covering the period from July through December 2014. Payout is equal to the percentage achievement of performance metrics multiplied by the target compensation. A minimum achievement of 80% of the target performance metric is required for any bonus payout and a maximum payout of 120% of target. In the event of an achieved target over 100%, the total payout over 100% will be limited to the performance achieved on the EBITDA target.
| | 1. | 40% of bonus potential tied to revenue plus bookings totaling $620,000 for the six months July through December of 2014. |
| | 2. | 40% of bonus potential tied to EBITDA loss target of $84,000 for the six months July through December of 2014. |
| | 3. | 20% of bonus potential tied to leading the effort from the Delphiis side to integrate the company with Auxilio. Success will be measured by the completion of the items outlined in the integration checklist.* |
*These performance targets will be measured on a scale from 0-3.
| Scale | Performance | Earned score |
| 0 | did not contribute substantially to the achievement of the metric | 0% |
| 1 | did not meet expectations with at least 80% achievement | 80% |
| 2 | met expectations | 100% |
| 3 | exceeded expectations | 20% |
An example of the performance metric calculation follows:
| Performance Metric | Weight | Scale | Earned Score | Total |
| 1, Bookings | 40% | n/a | 110% | 44.0% |
| 2. EBITDA | 40% | n/a | 80% | 32.0% |
| 3. Integration | 20% | 2 | 100% | 20.0% |
| Percent of Target | | | | 96.0% |
EXHIBIT B
Independent Contractor Agreement
INDEPENDENT CONTRACTOR AGREEMENT
THIS INDEPENDENT CONTRACTOR AGREEMENT, consisting of the terms and conditions set forth below and in the attached Addendum, which is incorporated into and made a part hereof by this reference (the “Agreement”), is made by and between Auxilio, Inc., a Nevada corporation, having its principal place of business at 26300 La Alameda, Suite 100, Mission Viejo, CA 92691 (“Company”), and Blackbox Technology Consulting Corp., a Canadian Corporation , at 85 Hamilton St, Toronto, Ontario, Canada (“Contractor”). This Agreement shall be effective on the 1st day of July, 2014 (the “Effective Date”). For purposes of this Agreement, the term “Company” shall be deemed to include Auxilio, Inc. and its wholly-owned subsidiaries Auxilio Solutions, Inc. and Delphiis, Inc., each a California corporation.
| I. | Independent Contractor Engagement and Services. The Company hereby retains the services of Contractor to perform the work/projects/assignments described in Addendum A, as well as such other work/projects/assignments that the Company may assign and Contractor may accept during the term of this Agreement, subject to all of the following terms and conditions: |
| | A. | Standards. All projects/assignments assigned to Contractor shall be completed to the reasonable satisfaction of the Company in accordance with the specifications provided by the Company to Contractor in writing at the commencement of the project or assignment All materials and equipment supplied by Contractor shall be in conformity with the standards and specifications established by the Company. |
| | B. | Skill and Ability. Contractor represents that it possesses and will utilize the skill, ability, experience, equipment, materials, and availability necessary to properly and fully complete the assigned projects/assignments. |
| II. | Term of Agreement and Termination. This Agreement shall be effective as of July 1, 2014, and shall continue for a period of one (1) year, unless terminated sooner pursuant to the conditions set forth below. This Agreement will automatically renew for subsequent one (1) year terms unless either party provides advance written notice to the other that such party does not wish to renew the Agreement. In the event either party gives notice of nonrenewal pursuant to this section, this Agreement will expire at the end of the current term. |
| | A. | Either Contractor or the Company may terminate this Agreement immediately for cause, including any breach or default of this Agreement; and |
| | B. | Either Contractor or the Company may terminate this Agreement without cause or further liability upon thirty (30) days written notice to the other. |
III. Compensation.
| | A. | Compensation. In consideration for all services rendered under this Agreement, the Company shall pay Contractor a fee as described in Addendum A of this Agreement. |
| | B. | Expense Reimbursement, Benefits, or Insurance. The Company shall reimburse Contractor its actual out-of-pocket expenses as reasonably incurred by Contractor in connection with the performance of Services under this Agreement to the extent such expenses have been approved in advance by management of the Company. The Company shall not be required to reimburse any expenses not pre-approved in writing. Contractor shall not be entitled to any benefit which may be provided to any employee of the Company, such as paid sick leave, holiday pay, vacation pay, or health, dental, life or disability insurance. Furthermore, Contractor understands and agrees that Contractor is not eligible to receive workers’ compensation benefits in the event an injury, illness, or accident occurs while Contractor or its employees are performing services for the Company. |
| | C. | No Minimum. Except as set forth on Addendum A, nothing in this Agreement shall entitle Contractor to any minimum amount of work or compensation, or require the Company to utilize the services of Contractor. |
IV. Status, Taxes, Licenses, Insurance, Risk Assumption, Accounting, Indemnification.
| | A. | Independent Contractor. Contractor is and at all times during the term of this Agreement shall remain an independent contractor. Contractor shall operate strictly as an independent contractor and not as an agent or employee of Company. As such, Contractor shall have sole control over the manner and means of performing the services outlined in Paragraph I. above and Addendum A attached hereto. Nothing in this Agreement or in any subsequent modification hereto shall be interpreted to create any relationship of employer/employee, principal/agent, partnership, or joint venture. Contractor shall have no authority to obligate, commit or bind the Company in any manner whatsoever, and the Company shall have no liability to Contractor or to others for any acts or omissions of Contractor. |
| | B. | Taxes. Contractor shall be solely responsible for, and Company shall have no obligation to withhold or pay, any income, social security, unemployment, disability, or other taxes on amounts due or payable under this Agreement. |
| | C. | Licenses and Permits. Contractor represents it will comply fully with all applicable laws and regulations in performing the work assigned under this Agreement. |
| | D. | Accountings. Periodically, upon request, and at the time of termination Contractor shall render an accurate accounting to the Company of all services rendered or business transacted under this Agreement. |
| | E. | Indemnification. Each party shall defend, indemnify, and hold harmless the other party and its directors, officers, employees, agents, and contractors from any and all claims, losses, liabilities, suits, or expenses arising from Contractor’s performance or default of this Agreement. |
V. Company Property, Confidentiality, Proprietary Information, Non-Interference.
| | A.. | Company Property. Contractor shall exercise the highest level of due care in using and handling property or equipment of the Company. Upon conclusion of its services for any reason, Contractor shall immediately gather up and return all property of the Company in its possession or under its control, including but not limited to the confidential and proprietary information referred to in this Agreement and all copies thereof in whatever form. |
| | B. | Confidentiality. Contractor acknowledges that it may have access to information in various formats concerning the Company and its business plans, products, finances, sales and marketing, prices and costs, personnel, customers, vendors, and employees, all of which the Company considers highly confidential whether or not the information is so marked. Contractor agrees to keep all such information strictly confidential, and not disclose, use or exploit it for any purpose other than with the Company’s approval in the course of performing the services encompassed by this Agreement. |
| | C. | Proprietary Information. Contractor agrees that all trade secrets, patents, copyrights, and other proprietary information, as well as any inventions, discoveries, and improvements, that Contractor creates or contributes to during the course of rendering services , to the Company shall be the sole property of the Company, and Contractor hereby assigns and transfers all right, title, and interest it may have in any such trade secrets, patents, copyrights, proprietary information, inventions, discoveries, and improvements to the Company. Contractor shall keep and provide the Company with accurate records of all services rendered. Contractor shall cooperate with Company in obtaining patents, copyrights, or other legal protection under this Agreement, and hereby authorizes the Company to act as Contractor’s agent for such purposes if Contractor should become incapacitated for any reason. Notwithstanding the foregoing, however, this provision shall not apply to any creations or contributions that were not done at the request of the Company or utilizing the Company’s resources and within the scope of Contractor’s engagement pursuant to this Agreement, |
| | D. | Interference With Company Business. To the extent it is necessary for Contractor to perform services under this Agreement on the premises or equipment of the Company, Contractor shall not unduly interfere with the Company’s business operations and shall leave the premises and equipment clean and in working order upon completion of work. |
VI. Non-Solicitation; Non-Competition. Contractor and the Company understand and agree that the purpose of this Section VI is solely to protect Company’s legitimate business interests, including, but not limited to confidential information and trade secrets, partner relationships and goodwill, and the Company’s competitive advantage within the health care provider industry in the operation of the Business or provision of Services (each as hereinafter defined). This Section VI is not intended to impair, nor will it impair, Contractor’s ability or right to work or earn a living. Contractor and Company further understand and agree that this Section VI represents an important element of this Agreement, and is a material inducement to Company entering into this Agreement, without which Company would not have entered into this Agreement and the Purchase Agreement (as hereinafter defined).
| | A. | Nonsolicitation of Customers or Prospects. Contractor acknowledges that information about Company’s customers and business methods is confidential and constitutes trade secrets. Accordingly, Contractor agrees that during the term of this Agreement and for a period of one (1) year after the termination of this Agreement, Contractor will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company’s relationship with any of its current customers or customer prospects by soliciting or encouraging others to solicit any of them for the purpose of diverting or taking away business from Company. For purposes of this Agreement, “prospects” shall mean opportunities that both Company and Contractor are aware of and that are being pursued by Delphiis, Inc. or Auxilio, Inc. |
| | B. | Nonsolicitation of Company’s Employees. Contractor agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Contractor will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company’s business by soliciting, encouraging or attempting to hire any of Company’s employees, or causing others to solicit or encourage any of Company’s employees to discontinue their employment with Company. |
| | C. | Non-Competition. Contractor agrees that during the term of this Agreement, and: (i) for a period of three (3) years from the date of this Agreement, Contractor shall not develop and/or sell risk management software to or for any person or entity in any industry; and (ii) for a period of two (2) years from the date of this Agreement, Contractor shall not, directly or indirectly: (A) perform services in the information security business as it relates to the health care provider industry (the “Business”) anywhere in the United States of America (the “Restricted Territory”), including providing funds for the same; (B) provide services routinely performed for customers or clients (“Customers”) (directly or indirectly) in the operation of the Business (“Services”) in the Restricted Territory; (C) solicit any customer of the Business for purposes of providing Services; (D) accept as a customer any Customer for purposes of providing Services; (E) induce or attempt to induce any employee of the Company to terminate his or her employment with the Company; (F) employ, or engage as an independent contractor, any employee of the Company; (G) interfere with the business relationship between a Customer or employee and the Company; or (H) encourage any person to engage in any of the foregoing activities, including but not limited to providing financing, directly or indirectly, for any of the foregoing activities; provided, however, that the foregoing will not restrict the ability of the Contractor to purchase or otherwise acquire up to five percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities have been registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934. Provided, further, that, subject to the foregoing and the terms of the Purchase Agreement, if Jason Houlden is presented with an unsolicited opportunity to perform services which would potentially be in violation of this Section or the Purchase Agreement, Mr. Houlden shall notify the Company, at which point the parties shall work together in good faith to develop a workable solution. |
| | D. | Reasonable Restrictions. Contractor hereby agrees that the covenants in this Agreement are reasonable given the real and potential competition encountered (and reasonably expected to be encountered) by the Company and the substantial knowledge and goodwill Contractor has acquired with respect to the Business. Notwithstanding the foregoing, in the event that at the time of enforcement of any provision of this Section a court or other tribunal will hold that the restrictions in this Section are unreasonable or unenforceable under circumstances then existing, the parties agree that the maximum period, scope or geographical area reasonable under such circumstances will be substituted for the stated period, scope or area. |
| | E. | Purchase Agreement. This Agreement is entered into in connection with that certain Stock Purchase Agreement dated effective as of July 1, 2014 among the Auxilio, Inc., Delphiis, Inc. and certain stockholders of Delphiis, Inc. (the “Purchase Agreement”). Contractor acknowledges that the foregoing covenant (i) is reasonable in its duration and scope and (ii) is of material importance to the Company, which would not have entered into the transactions contemplated by the Stock Purchase Agreement, but for obtaining such a covenant from the Contractor. |
VII. Miscellaneous Provisions.
| | A. | Construction and Severability. No provision of this Agreement shall be construed against any party merely because that party or its/his/her attorney drafted or revised the provision in question. The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other provisions shall remain fully valid and enforceable. |
| | B. | Governing Law. This Agreement shall be governed by the laws of the State of California. |
| | C. | Voluntariness. The parties have entered into this Agreement freely and voluntarily, with a full understanding of its terms, and after having had full opportunity to secure independent advice and counsel. |
| | D. | Entire Agreement. This Agreement constitutes the sole and entire agreement and understanding of the parties relating to the subject matter hereof. This Agreement supersedes and automatically cancels any and all prior discussions, negotiations, commitments and understandings between the parties, whether oral, written, or otherwise, relating to the subject matter of this Agreement. This Agreement shall not be modified, changed or supplemented in any way except by a written document signed by the parties. |
IN WITNESS WHEREOF, the parties have executed this Independent Contractor Agreement on the dates written below.
Dated: 7/6/2014 | By: | /s/ Jason Houlden Independent Contractor |
| | | |
Dated: 7/7/2014 | By: | /s/ Joseph J. Flynn Auxilio Supervisor |
| | | |
Dated: 7/7/2014 | By: | /s/ Paul T. Anthony Auxilio Finance Department |
