EXHIBIT 2.1
ALLUME SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
BETWEEN
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.,
AND
SMITH MICRO SOFTWARE, INC.
DATED AS OF JULY 1, 2005
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.......................................................................1
Section 1.1. Definitions.............................................................1
Section 1.2. Accounting Terms and Determinations.....................................9
ARTICLE II. SALE AND PURCHASE...............................................................10
Section 2.1. Agreement to Sell and to Purchase......................................10
Section 2.2. Purchase Price.........................................................10
Section 2.3. Purchase Price Adjustment..............................................10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER...................................12
Section 3.1. Authority of the Seller................................................12
Section 3.2. Organization of the Company............................................12
Section 3.3. Capitalization of the Company..........................................13
Section 3.4. No Conflict or Violation; Consents.....................................13
Section 3.5. Subsidiaries and Investments...........................................14
Section 3.6. Financial Statements...................................................14
Section 3.7. Undisclosed Liabilities................................................14
Section 3.8. Material Adverse Effect................................................14
Section 3.9. Accounts Receivable....................................................14
Section 3.10. Inventory............................................................15
Section 3.11. Real Property........................................................15
Section 3.12. Condition and Compliance of Property.................................16
Section 3.13. Compliance with Legal Requirements...................................17
Section 3.14. Affiliate Agreements and Liabilities.................................18
Section 3.15. Contracts............................................................18
Section 3.16. Intellectual Property................................................20
Section 3.17. Software Products....................................................22
Section 3.18. Labor Relations......................................................22
Section 3.19. Employee Benefits....................................................23
Section 3.20. Insurance............................................................25
Section 3.21. Litigation...........................................................25
Section 3.22. Environmental Matters................................................25
Section 3.23. Tax Matters..........................................................26
Section 3.24. Interim Operations...................................................27
Section 3.25. Brokers..............................................................28
Section 3.26. Product Liability....................................................28
Section 3.27. Books and Records of the Company.....................................29
Section 3.28. Suppliers............................................................29
Section 3.29. Certain Payments.....................................................29
Section 3.30. Accounts.............................................................30
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Section 3.31. Disclosure...........................................................30
Section 3.32. Investment Intent; Status............................................30
Section 3.33. No Change to Business................................................30
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................................30
Section 4.1. Authority of Purchaser.................................................30
Section 4.2. No Conflict or Violation...............................................31
Section 4.3. Litigation.............................................................31
Section 4.4. Brokers................................................................31
Section 4.5. Stock Consideration....................................................32
Section 4.6. SEC Reports and Financial Statements...................................32
Section 4.7. Investment Intent; Status..............................................32
ARTICLE V. CERTAIN COVENANTS OF THE SELLER..................................................32
Section 5.1. Conduct of Business....................................................33
Section 5.2. Information and Access.................................................34
Section 5.3. Confidentiality Agreements.............................................34
Section 5.4. Best Efforts...........................................................34
Section 5.5. No Shop................................................................34
Section 5.6. Notices of Certain Events..............................................35
Section 5.7. No Duplicates..........................................................35
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS................................................35
Section 6.1. Transfer Taxes.........................................................35
Section 6.2. Obligation to File Tax Returns.........................................35
Section 6.3. Certain Provisions Relating to Consents................................36
Section 6.4. Reserved...............................................................36
Section 6.5. Section 338(h)(10) Election............................................36
Section 6.6. Ongoing Tax/Audit Cooperation..........................................37
Section 6.7. Tax Related Covenants..................................................40
Section 6.8. Further Assurances.....................................................40
ARTICLE VII. CONDITIONS TO SELLER'S OBLIGATIONS.............................................40
Section 7.1. Representations and Warranties.........................................40
Section 7.2. Compliance with Agreement..............................................40
Section 7.3. No Violation of Orders.................................................41
Section 7.4. Corporate Documents....................................................41
Section 7.5. Transaction Documents..................................................41
Section 7.6. Opinion of Counsel.....................................................41
ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS.........................................41
Section 8.1. Representations and Warranties.........................................41
Section 8.2. Compliance with Agreement..............................................42
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Section 8.3. Consents...............................................................42
Section 8.4. Corporate Documents....................................................42
Section 8.5. Material Adverse Effect................................................42
Section 8.6. No Claim Regarding Stock Ownership or Sale Proceeds....................42
Section 8.7. Opinion of Counsel.....................................................42
Section 8.8. No Violation of Orders.................................................43
Section 8.9. Due Diligence..........................................................43
Section 8.10. Transaction Documents................................................43
Section 8.11. Resignations.........................................................43
Section 8.12. No Liens.............................................................43
Section 8.13. Tax Sharing Agreements...............................................43
ARTICLE IX. THE CLOSING.....................................................................44
Section 9.1. The Closing............................................................44
Section 9.2. Deliveries by the Seller at the Closing................................44
Section 9.3. Deliveries by the Purchaser at the Closing.............................44
Section 9.4. Establishment of Escrow................................................45
ARTICLE X. INDEMNIFICATION..................................................................45
Section 10.1. Survival.............................................................45
Section 10.2. Indemnification Provisions for Benefit of Purchaser..................45
Section 10.3. Matters Involving Third Parties......................................46
Section 10.4. Certain Additional Provisions Relating to Indemnification............48
Section 10.5. Procedures Relating to Tax Claims....................................48
Section 10.6. Purchaser's Indemnification of Seller................................49
ARTICLE XI. TERMINATION.....................................................................49
Section 11.1. Termination..........................................................49
ARTICLE XII. MISCELLANEOUS PROVISIONS.......................................................50
Section 12.1. Notices..............................................................50
Section 12.2. Amendments...........................................................51
Section 12.3. Announcements........................................................51
Section 12.4. Expenses.............................................................51
Section 12.5. Entire Agreement.....................................................51
Section 12.6. Descriptive Headings.................................................52
Section 12.7. Counterparts.........................................................52
Section 12.8. Governing Law; Jurisdiction..........................................52
Section 12.9. Construction.........................................................52
Section 12.10. Severability........................................................52
Section 12.11. Specific Performance................................................53
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of July 1, 2005, between International Microcomputer Software,
Inc., a California corporation (the "SELLER") and Smith Micro Software, Inc., a
Delaware corporation (the "PURCHASER").
RECITALS
WHEREAS, the Seller owns 100% of the outstanding shares of
capital stock (the "STOCK") of Allume Systems, Inc., a California corporation
(the "COMPANY") and its wholly owned subsidiary Developer Depot, Inc., a
California corporation;
WHEREAS, the Purchaser desires to purchase the Stock from the
Seller, and the Seller desires to sell the Stock to the Purchaser, in each case
upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONS.
In addition to the terms defined elsewhere herein, the terms
defined in the introductory paragraph and the Recitals to this Agreement shall
have the respective meanings specified therein, and the following terms shall
have the meanings specified below when used herein with initial capital letters:
"ACCOUNTS RECEIVABLE" has the meaning set forth in Section 3.9.
"ADJUSTED NET ASSETS" as of any date means, with respect to the
Company and its Subsidiaries, current assets minus the sum of (i) current
liabilities (excluding deferred revenue and intercompany accounts payable) plus
(ii) long term liabilities plus (iii) eight hundred thousand Dollars ($800,000)
in each case as would be reflected in a balance sheet prepared in accordance
with GAAP Consistency, provided, however, that current assets, current
liabilities and long term liabilities shall exclude any amounts related to
income or similar Taxes.
"ADJUSTMENT REPORT" has the meaning set forth in Section 2.3(b).
"AFFILIATE" means "affiliate" as defined in Rule 405 promulgated
under the Securities Act.
"AFFILIATED GROUP" means any affiliated group within the meaning
of Code ss.1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"AGREEMENT" has the meaning set forth in the preamble, and shall
include all Schedules and Exhibits hereto.
"ARBITER" has the meaning set forth in Section 2.3(d).
"BALANCE SHEET" has the meaning set forth in Section 3.6.
"BALANCE SHEET DATE" means March 31, 2005.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that could reasonably be expected to
result in any specified consequence.
"BUSINESS" means the business and operations of the Company and
its Subsidiary as conducted on the Closing Date, including but not limited to
the development, sale and distribution (electronically or otherwise) of utility
and spam management software for the Windows, Macintosh, Palm operating
environments and other computer systems, including, but not limited to the
StuffIt line of products, Spring Cleaning, Internet Cleanup, SpamCatcher and
other software products.
"BUSINESS COMBINATION" has the meaning set forth in Section
11.1(e).
"BUSINESS DAY" means a day, other than a Saturday or a Sunday,
on which commercial banks are not required or authorized to close.
"CASH CONSIDERATION" has the meaning set forth in Section
2.2(a).
"CASH ESCROW AMOUNT" has the meaning set forth in Section
9.3(a).
"CLOSING" has the meaning set forth in Section 9.1.
"CLOSING DATE" has the meaning set forth in Section 9.1.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 2.3(a) as finally adjusted pursuant to Section 2.3(a).
"CLOSING DATE CASH PAYMENT" has the meaning set forth in Section
9.2.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the Recitals hereto and,
except where the context otherwise requires includes the Company and the
Company's Subsidiary.
"CONTRACTS" as of any date means, collectively, all contracts,
agreements, commitments, instruments and guaranties to which the Company is a
party as of such date, including those listed or required to be listed on
Schedule 3.15, all unfilled orders outstanding as of such date for the purchase
of raw materials, goods or services by the Company, and all unfilled orders
outstanding as of such date for the sale of goods or services by the Company.
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"COSTS OF REMEDIATION" means all losses, amounts paid in
settlement, investigation, removal, remediation, monitoring and reporting costs
and expenses, Taxes, claims, Damages, Liabilities, obligations, judgments,
settlements and out-of-pocket costs (including, without limitation, costs of
investigation or enforcement), expenses and attorneys' fees including, without
limitation, fees for services of attorneys, consultants, contractors, experts,
engineers and laboratories, and all other out-of-pocket costs, incurred in
connection with investigation, characterization, remediation, monitoring,
reporting or mitigation, arising out of or related to the presence or Release of
any Hazardous Materials existing as of or prior to the Closing Date at, on, or
emanating from any of the Leased Property or any real property at or to which
the Company, any Subsidiary or predecessor of any of the foregoing disposed,
Released, transported, stored, emitted, treated, or arranged to dispose of
Hazardous Materials prior to the Closing Date including, without limitation,
off-site liability under any Environmental Law arising from or in connection
with transportation, treatment, storage, disposal, Release, or arranging for
disposal of Hazardous Materials.
"DAMAGES" means any losses, amounts paid in settlement, claims,
damages, Liabilities, obligations, judgments, settlements and reasonable
out-of-pocket costs (including, without limitation, costs of investigation or
enforcement), expenses and attorneys' fees, including, without limitation, (i)
any consequential damages or (ii) any special or punitive damages which are
assessed against an Indemnified Party as a result of a third party action.
"DRAFT ADJUSTMENT REPORT" has the meaning set forth in Section
2.3(a).
"EMPLOYEE BENEFIT PLAN" means an Employee Pension Benefit Plan
or an Employee Welfare Benefit Plan, where no distinction is required by the
context in which the term is used.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
Section 3(2) of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
Section 3(1) of ERISA.
"EMPLOYEES" means each individual who, on the applicable date,
performs services as an employee primarily for the Company or any of its
Subsidiary (including such persons who are on an approved leave of absence,
vacation, short-term disability or otherwise treated as an active employee of
the Company or its Subsidiaries).
"ENVIRONMENTAL LAWS" means any Legal Requirement with respect to
the protection of the public health, safety or the environment, including,
without limitation, with respect to any Hazardous Materials, drinking water,
groundwater, wetlands, landfills, open dumps, storage tanks, solid waste, or
waste water, water, soil, air, pollution, the protection, preservation or
restoration of natural resources, plant and animal life or human health or the
environment, or waste management, regulation or control. Without limiting the
generality of the foregoing, the term shall encompass each of the following
statutes, and the regulations promulgated thereunder, in each case as in effect
as of Closing: (a) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (codified in scattered sections
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of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C.ss.9601 et seq.); (b) the
Resource Conservation and Recovery Act of 1976 (42 U.S.C.ss.6901 et seq.); (c)
the Hazardous Materials Transportation Act (49 U.S.C.ss.1801 et seq.); (d) the
Toxic Substances Control Act (15 U.S.C.ss.2061 et seq.); (e) the Federal Water
Pollution Control Act (33 U.S.C.ss. 1251 et seq.); (f) the Clean Air Act and
Amendments (42 U.S.C.ss.7401 et seq.); (g) the Safe Drinking Water Act (21
U.S.C.ss.349; 42 U.S.C.ss.201 andss.300 et seq.); (h) the Superfund Amendment
and Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C., 29
U.S.C., 33 U.S.C. and 42 U.S.C.); and (i) the Occupational, Health and Safety
Act (29 U.S.C. ss.651 et seq.).
"ENVIRONMENTAL REFERENCE DATE" has the meaning set forth in
Section 3.22.
"EQUITY DISTRIBUTIONS" as of any date means the following: (i)
all dividends, distributions, forgiveness of debt, transfer of value or similar
transactions with respect to the Stock, and (ii) with respect to each
transaction between the Company on the one hand and the Seller, its Affiliates,
or advisors on the other hand, the amount (measured on a transaction by
transaction basis, which amount shall never be deemed to be less than zero) by
which the cash value of the goods or services received by the Company was less
than the greater of (x) the amount which the Company would have had to pay in a
comparable transaction with an unaffiliated third party entered into on an arm's
length basis, or (y) the cash value of the goods and services paid by the
Company in the transactions.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which has been under common control or treated as a single
employer with the Company under Section 414(b), (c) or (m) of the Code.
"ESCROW AGREEMENT" has the meaning set forth in Section 9.3(a).
"EXCLUDED COSTS" has the meaning set forth in Section 3.6.
"FINAL NET ASSET ADJUSTMENT" means: (i) if the Seller does not
timely deliver an Objection Notice, the Net Asset Adjustment as set forth in the
Adjustment Report, or (ii) if the Seller timely delivers an Objection Notice,
the Net Asset Adjustment as determined pursuant to Section 2.3(d).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.6.
"FORMER EMPLOYEE" means each individual other than an Employee
on the Closing Date who at any time prior to the Closing Date performed services
as an employee primarily for the Company or any Subsidiary of the Company.
"GAAP" has the meaning set forth in Section 1.2.
"GAAP CONSISTENCY" means in accordance with GAAP applied on a
basis consistent with that used in the preparation of the Financial Statements.
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"GOVERNMENTAL AGENCY" means (a) any international, foreign,
federal, state, county, local or municipal government or administrative agency
or political subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or entity
that is vested by a governmental agency with applicable jurisdiction, or (e) any
arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
"HAZARDOUS MATERIALS" means each and every element, compound,
chemical mixture, pollutant, contaminant, material, waste or other substance
which is defined, designated, regulated, determined, classified or identified as
of the Closing Date as hazardous, radioactive, harmful or toxic under any
Environmental Law, or the Release of which is prohibited or regulated under any
Environmental Law, or which to the knowledge of the Seller could reasonably be
expected to cause, whether now or with the passage of time, damage to Persons,
property, flora, fauna or the environment. Without limiting the generality of
the foregoing, the term shall include any "toxic substance," "hazardous
substance," "hazardous waste," or "hazardous material" as defined in any
Environmental Law as amended to date, and any explosive or radioactive material,
asbestos, asbestos-containing material, waste water, sludge, untreated dye,
other effluent, coal ash, polychlorinated biphenyls, special waste, petroleum or
any derivative or byproduct thereof, and toxic waste.
"INDEBTEDNESS" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
(i) the principal of and premium, if any, in respect of any indebtedness of such
Person for money borrowed, (ii) the principal, premium, if any, and interest of
such Person with respect to obligations evidenced by bonds, debentures, notes
or, except for accrued liabilities arising in the Ordinary Course of Business,
other similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses (other than trade payables which
are not overdue or in default), (iii) all obligations of such Person in respect
of letters of credit or other similar instruments (including reimbursement
obligations with respect thereto) but only to the extent of drawings thereunder,
(iv) every obligation of such Person issued or assumed as the deferred purchase
price of property or services (excluding trade accounts payable or accrued
liabilities arising in the Ordinary Course of Business which are not overdue or
in default), (v) every capital lease obligation (determined in accordance with
GAAP) of such Person, (vi) all Indebtedness of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons, (vii) the present
value (discounted using an interest rate of 5% per annum) as of the date of
determination of every obligation to pay rent or other payment amounts of such
Person with respect to any sale-leaseback transaction to which such Person is a
party, payable through the stated maturity of such sale-leaseback transaction,
and (viii) every obligation of the type referred to in clauses (i) through (vii)
of another Person the payment of which, in any case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
"INDEMNIFIED PARTY" has the meaning set forth in Section 10.3(a)
and in the case of Purchaser shall also include the Company and its
Subsidiaries.
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"INDEMNIFYING PARTY" has the meaning set forth in Section
10.3(a).
"INSURANCE POLICIES" has the meaning set forth in Section 3.20.
"INTELLECTUAL PROPERTY" shall mean all of the following, owned,
used or licensed by the Company and/or its Subsidiary as licensee or licensor:
(i) the names Allume, Allume Systems, Installermaker, StuffIt, StuffIt Deluxe,
Spring Cleaning, iClean, Allume Tuner, Gobar, SpamCatcher, Allume Expander, all
fictional business names, trademarks and service marks (registered or
unregistered), trade dress, trade names and other names and slogans embodying
business or product goodwill or indications of origin, all applications or
registrations in any jurisdiction pertaining to the foregoing and all goodwill
associated therewith (collectively "MARKS"); (ii) patents, patentable
inventions, discoveries, improvements, ideas, know-how, formula methodology,
processes, technology and computer programs, software and databases (including
source code, object code, development documentation, programming tools,
drawings, specifications and data) and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof (collectively
"PATENTS"); (iii) trade secrets, know-how, including confidential and other
non-public information, and the right in any jurisdiction to limit the use or
disclosure thereof (collectively, "TRADE SECRETS"), (iv) copyrights in writings,
artwork, clipart, webart, sounds, graphics, photographs, animations, images,
designs, mask works or other works, and registrations or applications for
registration of copyrights in any jurisdiction; (v) licenses, immunities,
covenants not to sue and the like relating to any of the foregoing; (vi)
Internet Web sites, domain names and registrations or applications for
registration thereof; (vii) books and records describing or used in connection
with any of the foregoing; and (viii) claims or causes of action arising out of
or related to infringement or misappropriation of any of the foregoing.
"INTELLECTUAL PROPERTY LICENSES" has the meaning set forth in
Section 3.16.
"IRS" means the Internal Revenue Service of the U.S. Department
of the Treasury.
"KNOWLEDGE" as applied to the Seller, means the actual
knowledge, after reasonable inquiry, of any person listed on Schedule 1.1
hereto.
"LEASED PROPERTY" has the meaning set forth in Section 3.11(b).
"LEASES" has the meaning set forth in Section 3.11(b).
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative Order,
constitution, law, rule, ordinance, permit, principle of common law, regulation,
statute, or treaty.
"LIABILITY" means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated and whether due or to
become due), including, without limitation, any liability for Taxes.
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"LIEN" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"LISTED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 3.16.
"MAJOR SUPPLIERS" has the meaning set forth in Section 3.28.
"MARK" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"MATERIAL ADVERSE EFFECT" means a material adverse change in or
effect with respect to the business, results of operations, properties,
financial condition or prospects of the Company and its Subsidiary.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3(37)
of ERISA.
"NET ASSET ADJUSTMENT" means the amount of Adjusted Net Assets
as of the Closing Date, it being understood that the Net Asset Adjustment may be
more or less than zero.
"OBJECTION NOTICE" has the meaning set forth in Section 2.3(c).
"ORDER" means any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Agency or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means an action which is both: (a)
consistent with the past practices of the Company and is taken in the ordinary
course of the normal day-to-day operations of the Company; and (b) similar in
nature and magnitude to actions customarily taken, without any authorization by
the board of directors, in the ordinary course of the normal day-to-day
operations of other Persons that are in a similar line of business as the
Company.
"PATENT" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMIT" means any permit, approval, consent, authorization,
license, variance, or permission required by a Governmental Agency under any
Legal Requirement.
"PERMITTED LIENS" means, with respect to any asset, (i)
covenants, conditions, restrictions, encroachments, encumbrances, easements,
rights of way, licenses, grants, building or use restrictions, exceptions,
reservations, limitations or other imperfections of title (other than a Lien
securing any Indebtedness) with respect to such asset which, individually or in
the aggregate, does not materially detract from the value of, or materially
interfere with the present occupancy or use of, such asset and the continuation
of the present occupancy or use of such asset; (ii) the matters set forth on
Schedule 1.2 hereto; (iii) unfiled mechanic's, materialmen's
7
and similar liens with respect to amounts not yet due and payable or which are
being contested in good faith through appropriate proceedings and, for those
existing on the Balance Sheet, for which adequate reserves in accordance with
GAAP are reflected on the Balance Sheet, as the case may be; (iv) liens for
Taxes not yet delinquent or which are being contested in good faith through
appropriate proceedings and, for those existing on the Balance Sheet, for which
adequate reserves in accordance with GAAP are reflected on the Balance Sheet, as
the case may be; and (v) liens securing rental payments under capital lease
arrangements, which capital lease arrangements existing as of the Closing Date
are in accordance with GAAP reflected as Indebtedness on the Balance Sheet.
"PERSON" means any individual, partnership, corporation, trust,
association, limited liability company, Governmental Agency or any other entity.
"PLAN" has the meaning set forth in Section 3.19(a).
"PRE CLOSING TAXES" has the meaning set forth in Section
10.2(b)(ii).
"PRODUCT" has the meaning set forth in Section 3.26.
"PRODUCT CLAIM" has the meaning set forth in Section 3.26.
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"PURCHASER" has the meaning set forth in the preamble hereto.
"PURCHASER SEC DOCUMENTS" has the meaning set forth in Section
4.6.
"RECALLS" has the meaning set forth in Section 3.26(b).
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in
Section 7.5.
"RELEASE" means any spilling, leaking, pumping, releasing,
depositing, pouring, emitting, emptying, migrating, discharging, injecting,
storing, escaping, leaching, dumping, burying, abandoning, disposing or moving
into the environment.
"SALARIED EMPLOYEE" has the meaning set forth in Section
3.24(h).
"SCHEDULES" means, collectively, the various Schedules referred
to in this Agreement delivered separately to Purchaser on or before the date of
this Agreement.
"SECTION 338(H)(10) ELECTION" has the meaning set forth in
Section 6.5(f).
"SECTION 338 FORMS" has the meaning set forth in Section 6.5(d).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
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"SELLER ENTITY" means the Seller and its respective Affiliates
(other than the Company and its Subsidiaries).
"SELLER" has the meaning set forth in the preamble hereto.
"SELLER'S OPINION OF COUNSEL" has the meaning set forth in
Section 8.7.
"SINGLE-EMPLOYER PLAN" means an Employee Pension Benefit Plan
which is described in Section 4001(a)(15) of ERISA and which is subject to Title
IV of ERISA.
"SOFTWARE PRODUCTS" has the meaning set forth in Section 3.17.
"STOCK" has the meaning set forth in the Recitals hereto.
"STOCK CONSIDERATION" has the meaning set forth in Section
2.2(a).
"STOCK ESCROW AMOUNT" means that number of shares of Purchaser's
Common Stock having a value of $750,000 as calculated in the manner set forth in
Section 2.2(a)(ii).
"SUBSIDIARY" means "subsidiary" as defined in Rule 405
promulgated under the Securities Act.
"TAX CLAIM" has the meaning set forth in Section 10.5.
"TAX RETURN" means any report, return, information return,
forms, declarations, claims for refund, statements or other information
(including any amendments thereto and including any schedule or statement
thereto) required to be supplied to a Governmental Agency in connection with
Taxes.
"TAXES" means all federal, state, local, foreign and other
taxes, assessments and water and sewer charges and rents, including without
limitation, income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, withholding, Social Security,
unemployment, real property, personal property, property gains, registration,
capital stock, value added, single business, occupation, workers' compensation,
alternative or add-on minimum, estimated, or other tax, including without
limitation any interest, penalties or additions thereto.
"TRADE SECRET" has the meaning set forth in this Section 1.1 in
the definition of "Intellectual Property."
"TRANSACTION DOCUMENTS" means this Agreement, the Registration
Rights Agreement, and the Escrow Agreement.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS.
All references in this Agreement to "generally accepted
accounting principles" or "GAAP" shall mean generally accepted accounting
principles in effect in the United States of America at the time of application
thereof, applied on a consistent basis. Unless otherwise
9
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a consistent basis.
ARTICLE II.
SALE AND PURCHASE
SECTION 2.1. AGREEMENT TO SELL AND TO PURCHASE.
On the terms and subject to the conditions set forth in this
Agreement, at the Closing, the Purchaser shall purchase from the Seller, and the
Seller shall sell, transfer, assign, convey and deliver to the Purchaser, the
Stock free and clear of liens, claims and encumbrances. At the Closing, the
Seller shall deliver to the Purchaser or its designees a certificate or
certificates representing the Stock, duly endorsed in blank for transfer or
accompanied by appropriate powers duly executed in blank.
SECTION 2.2. PURCHASE PRICE.
(a) The purchase price (the "PURCHASE PRICE") for the Stock
shall consist of the following:
(i) $11,000,000, in immediately available funds (the
"CASH CONSIDERATION"), which includes cash amounts deposited in
the Cash Escrow Amount provided in Section 9.3 hereof; and
(ii) the number of shares of the restricted common
stock, with a par value of $0.001 of the Purchaser as shall be
equal to $1,750,000 divided by the average of the closing price
of the Purchaser's stock on the ten (10) trading days ended June
29, 2005, as reported by the NASDAQ Small Cap, rounded up or
down to the nearest whole share (the "STOCK CONSIDERATION").
SECTION 2.3. PURCHASE PRICE ADJUSTMENT
(a) As soon as reasonably practical after the Closing, but in no
event more than sixty (60) days after the Closing Date, the Purchaser
shall prepare a consolidated balance sheet of the Company as of the
close of business on the Closing Date (the "Closing Date Balance
Sheet"), together with (ii) a draft schedule (the "Draft Adjustment
Report") showing the Purchaser's computation of the Net Asset Adjustment
as of the Closing Date and the Purchaser's proposed purchase price
adjustment to be made in accordance with this Section 2.3. The Closing
Date Balance Sheet shall be prepared in accordance with GAAP
Consistency. The Purchaser shall deliver the Closing Date Balance Sheet
and the Draft Adjustment Report to the Seller within such ninety (90)
day period after the Closing Date.
(b) During the thirty (30) day-period after the Seller's receipt
of the Closing Date Balance Sheet and the Draft Adjustment Report, the
Seller and the Purchaser shall
10
cooperate with each other to resolve any disagreements between them with
respect to the Draft Adjustment Report. In the event the Seller and the
Purchaser agree on the Draft Adjustment Report and the proposed Net
Asset Adjustment set forth therein (such agreement to be indicated in
writing by the Seller and the Purchaser by signing such Draft Adjustment
Report), then the Draft Adjustment Report shall be deemed to be the
final Adjustment Report (the "Adjustment Report"), and the Net Asset
Adjustment set forth therein shall be conclusive and binding upon the
Purchaser and the Seller and shall have the effect of adjusting the Cash
Consideration as set forth therein.
(c) In the event the Seller and the Purchaser shall not reach
agreement on all aspects of the Draft Adjustment Report, including with
respect to the Net Asset Adjustment set forth therein, within such
thirty (30) day period after the Seller's receipt of the Closing Date
Balance Sheet and the Draft Adjustment Report, the Seller shall promptly
(but in no event later than five (5) days following the expiration of
such thirty (30) day period) prepare a written notice of its objections
(the "Objection Notice"): (i) objecting in good faith to the Closing
Date Balance Sheet or the Net Asset Adjustment set forth in the Draft
Adjustment Report, (ii) setting forth the items being disputed and the
reasons therefor, and (iii) specifying the Seller's calculation of the
Net Asset Adjustment as of the Closing Date and the adjustment to be
made in accordance with this Section 2.3. In connection with the
preparation of the Objection Notice, the Purchaser shall grant the
Seller's accountants and other representatives reasonable access to all
of the books and records of the Company. If the Seller fails to deliver
timely notice of its objection to the Closing Date Balance Sheet or the
Net Asset Adjustment as set forth in the Draft Adjustment Report, then
the Draft Adjustment Report shall be deemed to be the Adjustment Report,
and the Net Asset Adjustment set forth therein shall be conclusive and
binding upon the Purchaser and the Seller and shall have the effect of
adjusting the Cash Consideration as set forth therein.
(d) The matters in dispute shall be determined by a nationally
recognized independent public accounting firm mutually satisfactory to
the Purchaser and the Seller (the "Arbiter"), and the Purchaser and the
Seller shall promptly deliver to the Arbiter the Closing Date Balance
Sheet, the Draft Adjustment Report and Seller's Objection Notice.
Promptly, but not later than thirty (30) days after the acceptance of
its appointment, the Arbiter shall determine (based solely on
presentations by the Seller and the Purchaser to the Arbiter and not by
independent review) only those items in dispute and shall render a
report as to its resolution of such items and the resulting calculation
of the Net Asset Adjustment. For purposes of the Arbiter's
determination, the amounts to be included shall be the appropriate
amounts from the Closing Date Balance Sheet or the Draft Adjustment
Report, as the case may be, as to items that are not in dispute, and the
amounts determined by the Arbiter, as to items that are submitted for
resolution by the Arbiter. In resolving any disputed item, the Arbiter
may not assign a value to such item greater than the greatest value for
such item claimed by either party in the Closing Date Balance Sheet,
Draft Adjustment Report or Objection Notice or less than the lowest
value for such item claimed by either party in the Closing Date Balance
Sheet, Draft Adjustment Report or Objection Notice. The Purchaser and
the Seller shall cooperate with the Arbiter in making its determination
and such determination shall be conclusive and binding upon the
Purchaser and the Seller.
11
(e) The Purchaser and the Seller shall each bear one-half of the
fees and expenses of the Arbiter.
(f) Within five Business Days after the final determination of
the Net Asset Adjustment in accordance with this Section 2.3: either (x)
the Purchaser shall pay the Seller by wire transfer of immediately
available funds the amount, if any, by which the Final Net Asset
Adjustment is greater than zero; or (y) the Seller shall direct to the
Escrow Holder to pay the Purchaser from the Escrow Account by wire
transfer of immediately available funds the amount, if any, by which the
Final Net Asset Adjustment is less than zero.
(g) Nothing in this Section 2.3 or in the statements, reports or
documents contemplated hereby shall affect the parties' rights and
obligations in respect of a breach or alleged breach of any
representation or warranty herein.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as set forth
in this Article III:
SECTION 3.1. AUTHORITY OF THE SELLER.
The Seller is a corporation duly organized, validly existing and
before the Closing will be in good standing under the laws of the State of
California. The Seller has full corporate power and authority to execute and
deliver the Transaction Documents, and the execution and delivery by the Seller
of the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Seller. This Agreement
constitutes, and the other Transaction Documents when executed and delivered by
the parties thereto will constitute, the legal, valid and binding obligations of
the Seller enforceable against the Seller in accordance with their terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, or similar laws from time to time in effect which affect creditors'
rights generally and by legal and equitable limitations on the enforceability of
specific remedies.
SECTION 3.2. ORGANIZATION OF THE COMPANY.
As of the date hereof: (i) the Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California (ii) the Company is duly qualified to do business and is in good
standing in California, such states being each jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, and (iii) the Company has the requisite corporate power and authority to
own its properties and to conduct its business as presently conducted. Schedule
3.2 includes true and correct copies of the Articles of Incorporation and
By-Laws of the Company as in effect on the date hereof.
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SECTION 3.3. CAPITALIZATION OF THE COMPANY.
As of the date hereof, the authorized capital stock of the
Company consists of (i) five million (5,000,000) shares of common stock, at no
par value, of which one (1) share is outstanding and owned by the Seller and
(ii) no shares of preferred stock. There are or will be at Closing, no
outstanding options, warrants, agreements, conversion rights, preemptive rights
or other rights to subscribe for, purchase or otherwise acquire shares of
capital stock of the Company.
SECTION 3.4. NO CONFLICT OR VIOLATION; CONSENTS.
Except as set forth on Schedule 3.4, neither the execution and
delivery of this Agreement or any other Transaction Document nor the
consummation or performance of any of the transactions contemplated hereby or
thereby will, directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i)
any provision of the Articles of Incorporation or By-Laws of either the
Seller or the Company, or (ii) any resolution adopted by the board of
directors or the stockholders of either the Seller or the Company;
(b) contravene, conflict with, or result in a violation of, or
give any Governmental Agency or other Person the right to challenge any
of the transactions contemplated hereby or by any other Transaction
Document or to exercise any remedy or obtain any relief under, any Legal
Requirement to which the Company or the Seller, or any of the assets
owned or used by the Company, may be subject;
(c) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Agency the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Permit that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(d) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other Governmental
Agency;
(e) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract, Lease
or Permit;
(f) result in the imposition or creation of any Lien upon or
with respect to any of the assets owned or used by the Company; or
(g) except for filings under the Securities Act, and the
Securities Exchange Act, require the consent, approval, or authorization
of, or registration or filing with, any Governmental Agency or any other
Person.
13
SECTION 3.5. SUBSIDIARIES AND INVESTMENTS.
Except as set forth in Schedule 3.5, the Company does not own
any stock of, or any equity participation in, any Person and has no
Subsidiaries. The Company owns all the outstanding capital stock of Developer
Depot, Inc., a California corporation.
SECTION 3.6. FINANCIAL STATEMENTS.
The unaudited balance sheet of the Company as of the Balance
Sheet Date (the "BALANCE SHEET"), and related statements of income, retained
earnings and cash flow for the nine month period then ended and the notes
thereto (collectively, the "FINANCIAL Statements"), (i) are included as Schedule
3.6: (ii) were prepared in accordance with GAAP, (iii) present fairly the
financial condition and the results of operations of the Company as of the dates
and for the periods indicated thereon, (iv) are complete, correct and in
accordance with the books of account and records of the Company, (v) can be
legitimately reconciled with the financial statements and the financial records
maintained and the accounting methods applied by the Company for federal income
tax purposes, and (vi) reflect accurately all costs and expenses which the
Company incurred, but not necessarily all of the costs, or a pro-rata portion of
the costs, incurred by the Seller which may have been expenses of the Company if
the Company were independent and not affiliated with any other corporation or
business ("EXCLUDED COSTS", all of which are set forth in Schedule 3.6).
SECTION 3.7. UNDISCLOSED LIABILITIES.
As of the Balance Sheet Date, the Company has and will have no
material Liabilities, except for Liabilities: (a) reflected or reserved for on
the Balance Sheet, as the case may be, (b) relating to performance obligations,
under Leases, Contracts and Permitted Liens in accordance with the terms and
conditions thereof which are not required by GAAP to be reflected on the Balance
Sheet, or (c) as set forth on Schedule 3.7.
SECTION 3.8. MATERIAL ADVERSE EFFECT.
Other than changes resulting from general economic conditions
and except as provided on Schedule 3.8, since the Balance Sheet Date, there has
not been any Material Adverse Effect or Basis therefor, nor have any events
occurred nor do any circumstances exist which, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.9. ACCOUNTS RECEIVABLE.
All accounts receivable of the Company that are reflected on the
Balance Sheet or on the accounting records of the Company as of the Closing Date
(collectively, the "ACCOUNTS RECEIVABLE") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business and have been valued in accordance with GAAP.
There is no contest, claim, or right of set-off, other than returns or other
set-offs in the Ordinary Course of Business, under any Contract with any obligor
of an Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Schedule 3.9
14
contains a complete and accurate list of all Accounts Receivable as of the
Balance Sheet Date, which list sets forth the aging of such Accounts Receivable.
SECTION 3.10. INVENTORY.
The materials, supplies and work-in-process included in the
inventory of the Company as set forth on the Balance Sheet were (a)
substantially equivalent in quality and quantity, subject to seasonality, to the
materials, supplies and work-in-process, and additions thereto, generally
included in such inventory in the past; (b) reasonably suitable for the
manufacture and distribution of the Company's products in a manner substantially
equivalent in quality to that achieved generally by the Company in the past and
(c) valued in accordance with GAAP, in each case, subject to all reserves
reflected in the Balance Sheet with respect to such inventory existing on the
Balance Sheet Date. Such reserves on the Balance Sheet are adequate under GAAP
and are established in accordance with GAAP.
SECTION 3.11. REAL PROPERTY.
(a) The Company does not own any real property.
(b) Schedule 3.11(b) contains a list of all leases and
subleases, together with any amendments thereto and any subordination,
nondisturbance and attornment agreements (the "LEASES"), with respect to
all real property leased by the Company (the "LEASED PROPERTY"). Each
Lease is in full force and effect, the Company has performed all
material obligations required to be performed by it to date under each
of the Leases and neither the Company nor, to the Seller's Knowledge,
any other party thereto is in material default under any of the Leases
(and no event has occurred which, with due notice or lapse of time or
both, would constitute such a lapse or default). No amount due under the
Leases remains unpaid, no material controversy, claim, dispute or
disagreement exists between the parties to any of the Leases. The Seller
has delivered to the Purchaser a copy of each Lease, and all amendments
thereto, listed in Schedule 3.11(b), except to the extent otherwise
noted therein.
(c) The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or
use restrictions, exceptions, reservations, limitations or other
impediments affecting the Leased Property do not and will not, with
respect to each Leased Property, materially impair the Company's ability
to use any such Leased Property in the operation of the Company's
business as presently conducted. To Seller's Knowledge there are no
pending or threatened condemnation or similar proceedings affecting the
Leased Property. The Company has access to public roads, streets or the
like or valid easements over private streets, roads or other private
property for such ingress to and egress from the Leased Property, except
as would not materially impair the Company's ability to use any such
Leased Property in the operation of the Company's business as presently
conducted.
(d) All brokerage commissions and other compensation and fees
payable by reason of the Leases have been paid in full or are reflected
in the Balance Sheet except
15
for such commissions and other compensation related to options or
extensions in the Leases which are not yet exercised.
(e) To the Seller's Knowledge, all improvements on the Leased
Property and the operations therein conducted conform in all material
respects to all applicable Legal Requirements, including without
limitation, health, fire, environmental, safety, zoning and building
laws, ordinances and administrative regulations, except for possible
nonconforming uses or violations which do not and will not expose any
person or property to injury or damage, materially and adversely affect
any insurance coverage, give rise to strict liability, penalties or
fines, jeopardize any Permit or materially interfere with the present
use, operation or maintenance thereof by the Company as now used,
operated or maintained, and which do not and will not materially and
adversely affect the value thereof. To the Seller's Knowledge, all
buildings, structures, improvements and fixtures owned, leased or used
by the Company in the conduct of its business at the Leased Property
conform in all material respects to all applicable codes and rules
adopted by national and local associations and boards of insurance
underwriters; and all such buildings, structures, improvements and
fixtures are in good operating condition and repair.
(f) There are no outstanding requirements or recommendations by
any insurance company which has issued to the Company a policy covering
the Leased Property, or by any board of fire underwriters or other body
exercising similar functions, requiring or recommending any repairs or
work to be done on such property.
(g) All public utilities required for the operation of the
Leased Property and necessary for the conduct of the business of the
Company are installed and operating, and all installation and connection
charges, to the Seller's Knowledge, are paid in full.
(h) Except as set forth in Schedule 3.11(b), the Leased Property
is not subject to any lease, sublease, license or other agreement
granting to any Person any right to the use, occupancy or enjoyment of
such property or any portion thereof.
(i) The plumbing, electrical, heating, air conditioning,
elevator, ventilating and all other mechanical or structural systems for
which the Company is responsible under the Leases in the buildings or
improvements are in good working order and condition, and the roof,
basement and foundation walls of such buildings and improvements for
which the Company is responsible under said Leases are in good condition
and free of leaks and other material defects. All such mechanical and
structural systems and such roofs, basement and foundation walls for
which others are responsible under said Leases are, to the Seller's
Knowledge, in good working order and condition and free of leaks and
other material defects.
SECTION 3.12. CONDITION AND COMPLIANCE OF PROPERTY.
(a) Schedule 3.12(a) contains a list of owned computers,
information technology, hardware, software, facsimile machines and
copier machines with a value of over $500. As of such date, the Company
owned outright and had good and marketable
16
title to all such personal property subject to no Lien except Permitted
Liens and except as set forth on Schedule 3.12(a).
(b) Schedule 3.12(b) sets forth the name, parties and date of
all personal property leases to which the Company is a party or in
respect of the Business. Except as set forth in Schedule 3.12(b), the
Company holds good leaseholds in all of the personal property shown or
required to be shown on Schedule 3.12(b) as leased by the Company, in
each case under valid and enforceable leases. The Company is not, and to
Seller's Knowledge no other party to any such personal property lease
is, in material breach of or default under any lease of any item of
personal property listed on Schedule 3.12(b) (and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
lapse or default).
(c) The assets of the Company: (i) in the aggregate are adequate
to conduct the operations of the Company in substantially the manner
currently conducted, (ii) are suitable for the purposes for which they
are currently used, (iii) have been maintained in accordance with the
Company's historical practices since April 19, 2004, and (iv) are in
good condition, ordinary wear and tear excepted. Each plant, building,
office, shop and other structure and each item of personal property is
in good operating condition and is suitable and sufficient for the
operation of the business of the Company, as currently conducted and
currently proposed to be conducted.
SECTION 3.13. COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth on Schedule 3.13(a), the Company has
complied with, has not received any notice of violation of, and has no
Knowledge of any Basis which with or without notice could reasonably be
expected to constitute a violation of, any material Legal Requirements.
Since April 19, 2004, except as set forth on Schedule 3.13(a), neither
the Seller nor the Company has received any notice or other
communication (whether oral or written) from any Governmental Agency or
any other Person regarding (i) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Seller or the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any
nature, nor is there any Basis for any such notice or other
communication.
(b) Schedule 3.13(b) sets forth a list of each Permit that is
necessary or appropriate for the operations of the Company as currently
conducted or currently proposed to be conducted, including the issuing
Governmental Agency, the expiration date, and the permit number. All
Permits included on Schedule 3.13(b), except as noted therein, are in
full force and effect and no proceeding is pending or, to the Knowledge
of the Seller, threatened, to revoke or limit any such Permit, nor is
there a Basis for any such revocation. Except as set forth in Schedule
3.13(b):
(i) the Company is, and at all times since April 19,
2004has been, in full compliance with all of the terms and
requirements of each Permit listed in Schedule 3.13(b);
17
(ii) since April 19, 2004, neither the Seller nor the
Company has received any notice or other communication (whether
oral or written) from any Governmental Agency or any other
Person regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement
of any Permit, or (B) any actual, proposed, possible, or
potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Permit, nor is there any
Basis for such notice or other communication; and
(iii) all applications required to have been filed for
the renewal of the Permits have been duly filed on a timely
basis with the appropriate Governmental Agencies, and all other
filings required to have been made with respect to such Permits
have been duly made on a timely basis with the appropriate
Governmental Agencies.
SECTION 3.14. AFFILIATE AGREEMENTS AND LIABILITIES.
Except as set forth on Schedule 3.14:
(a) there are no written or oral Contracts between the Company
and any Seller Entity including, without limitation, any such Contracts
relating to the provision of any services by the Company to any such
Seller Entity, or by any such Seller Entity to the Company; and
(b) (i) since the Balance Sheet Date, there have been, (ii) from
the date hereof to the Closing Date there will be, and (iii) after the
Closing Date there will be, no transactions, agreements, arrangements or
indebtedness between the Company and (x) any Seller Entity, (y) any
director or officer of the Company or (z) any member of the immediate
family of any individual described in clause (x) or (y) of this
sentence.
SECTION 3.15. CONTRACTS.
(a) Schedule 3.15 hereto lists all of the Contracts,
commitments, arrangements and understandings which are material to the
properties, conduct, operations or financial condition of the Company or
are otherwise material.
(b) Except as set forth on Schedule 3.15 (and for Leases and
Permitted Liens), the Company is not a party to or bound by any of the
following, which are material to the properties, conduct, operations or
financial condition of the Company or are otherwise material:
(i) mortgage, indenture, note, or installment
obligation, or other instrument for or relating to Indebtedness;
(ii) guaranty of any obligation for borrowings or
performance, or guaranty or warranty of products or services,
excluding endorsements or guaranties of instruments made in the
Ordinary Course of Business in connection with the deposit of
items for collection, and statutory warranties;
18
(iii) agreement or arrangement for the sale or lease of
any of its assets other than in the usual, regular and Ordinary
Course of Business;
(iv) agreement or other arrangement for the purchase of
any real estate, machinery, equipment, or other capital assets;
(v) Contract for the future purchase of materials,
supplies, services, merchandise, or equipment parts;
(vi) Contract pursuant to which it is or may be
obligated to make payments, contingent or otherwise, on account
of or arising out of prior acquisitions or sales of businesses,
assets, or stock of other companies;
(vii) distribution, dealership, representative, broker,
sales agency, advertising or consulting Contract excepting any
such contract that is terminable at will, or by giving notice of
30 days or less, without Liability;
(viii) lease or other agreement for the use of real or
personal property;
(ix) agreement imposing non-competition or exclusive
dealing obligations on it;
(x) agreement providing for payments to or by any Person
based on sales, purchases, or profits, other than direct
payments for goods;
(xi) license or royalty agreement with obligations
payable by or to the Company;
(xii) Contract or agreement for the employment of any
stockholder, director, officer, consultant or key employee not
terminable without penalty or Liability arising from such
termination or any severance or change-in-control contract or
arrangement;
(xiii) Contract relating to cleanup, abatement or other
actions in connection with environmental liabilities; or
(xiv) Contract which (A) involves future payment by or
to the Company or (B) is otherwise material to the extent
relating to the conduct of the business of the Company.
(c) Each Contract, including the Contracts listed or required to
be listed on Schedule 3.15, is valid, binding and enforceable against
the Company, and to the Seller's Knowledge the other parties thereto in
accordance with its terms, and is in full force and effect. The Company
has performed all material obligations required to be performed by it to
date under each of the Contracts. Except as set forth in Schedule 3.15,
neither the Company nor, to the Seller's Knowledge, any other party
thereto is in material breach of or default under any Contract to which
the Company is a party or by which it is bound or to which its assets
are subject (and no event has occurred which, with due notice or lapse
19
of time or both, would constitute such a lapse or default). The Seller
has delivered to the Purchaser a copy of each Contract or other written
evidence of the obligations, and all amendments thereto, listed or
required to be listed in Schedule 3.15, except to the extent otherwise
noted thereon.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) Set forth on Schedule 3.16(a) is a true and complete list of
all Intellectual Property and Software Products (as defined in Section
3.17 below) (collectively, the "LISTED INTELLECTUAL PROPERTY") now used
in the business of the Company except the mass- market third-party
software described in Section 3.16(d).
(b) Set forth on Schedule 3.16(b) is a complete list of all
licenses or agreements which in any way affect the rights of the Company
to any of the Listed Intellectual Property (the "INTELLECTUAL PROPERTY
LICENSES"); such list indicates the specific Listed Intellectual
Property affected by each such Intellectual Property License.
(c) Except as set forth on Schedules 3.16(a) and Schedule
3.16(b), neither the Listed Intellectual Property nor any Intellectual
Property License infringes or provides any basis to believe that the
Company's operations or any Listed Intellectual Property or Intellectual
Property License would infringe upon any validly issued trademark, trade
name, service mark, copyright or, any validly issued patent or other
right of any other third party. The manner in which the Company has
manufactured, packaged, shipped, advertised, labeled and sold its
products complies with all applicable laws and regulations pertaining
thereto, the failure to comply with which would have a Material Adverse
Effect.
(d) The Company has a valid license to use each copy of
mass-market third-party software used by it.
(e) Except as set forth on Schedule 3.16(a) and Schedule
3.16(b), each of the Intellectual Property Licenses is valid, binding
and enforceable in accordance with its terms against the parties
thereto, the Company has performed all obligations imposed upon it
thereunder, and neither the Company nor any other party thereto is in
default thereunder, nor is there any event which with notice or lapse of
time, or both, would constitute a default thereunder.
(f) All Marks, Patents and registered copyrights are valid,
subsisting, unexpired, in proper form and enforceable and all renewal
fees and other maintenance fees which have fallen due on or prior to the
effective date of this Agreement have been paid. The grants,
registrations and applications for such Marks, Patents and registered
copyrights have not lapsed, expired or been abandoned and, except for
the Trademark Opposition, no application or registration thereof is the
subject of any legal or governmental proceeding before any governmental,
registration or other authority in any jurisdiction. All products and
materials containing a Mark bear the proper notice where permitted by
law.
20
(g) Trade Secrets
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and
to allow its full and proper use without reliance on the
knowledge or memory of any individual.
(ii) The Seller and the Company has taken all reasonable
precautions to protect the secrecy, confidentiality, and value
of the Trade Secrets.
(iii) The Company has good title and an absolute (but
not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or
literature, and, to the Seller's Knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person
(other than the Company) or to the detriment of the Company. No
Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
(h) Except as set forth in Schedule 3.16, to the Knowledge of
the Seller, there are no conflicts with or infringements of any
Intellectual Property by any third party. No Mark has been or is now
involved in any opposition, invalidation or cancellation and, to the
Seller's Knowledge, no such action is threatened with respect to any of
the Marks. Except as set forth in Schedule 3.16, the conduct of the
Company's business as currently conducted does not conflict with or
infringe in any way with any proprietary right of any third party, which
conflict or infringement could have a material adverse effect on the
Company, the Intellectual Property or the business of the Company.
Except as set forth in Schedule 3.16, there is no claim, suit, action or
proceeding pending or threatened against the Company (i) alleging any
such conflict or infringement with any third party's proprietary rights
or (ii) challenging the ownership, use, validity or enforceability of
the Intellectual Property.
(i) No consents, filings or authorizations by or with
Governmental Agencies or third parties in respect of the Listed
Intellectual Property are necessary to consummate the transactions
contemplated hereby.
(j) Neither the Seller nor the Company has entered into any
material consent, indemnification, forbearance to sue, settlement
agreement or cross-licensing arrangement with any person relating to the
Intellectual Property or the intellectual property of any third party
other than as may be contained in the license agreements listed in
Schedule 3.16. Except as set forth in Schedule 3.16, the Company is not
under any obligation to pay royalties or similar payments in connection
with any license to any of its Affiliates.
(k) No former or present employees, officers or directors of the
Company hold any right, title or interest directly or indirectly, in
whole or in part, in or to any Intellectual Property.
21
SECTION 3.17. SOFTWARE PRODUCTS.
Except as specifically set forth on Schedule 3.17, the Company
is the sole and exclusive owner or licensee of:
(a) the Listed Intellectual Property, the Intellectual Property
Licenses and the technology, know-how and processes now used by the
Company, or used in connection with any product now being manufactured
and sold by the Company, in the manner that such product is now being
manufactured and sold; and
(b) all rights, title and interest of whatever kind or nature
throughout the world in and to the fully or partially developed computer
software products listed on Schedule 3.16(a) and Schedule 3.16(b), with
all modifications, enhancements and additions thereto, including,
without limitation, all rights in and to all versions thereof and all
source code, object code, manuals and other documentation and related
materials thereof (collectively, the "SOFTWARE PRODUCTS"). Without
limiting the generality of the above, the Software Products shall also
include all of the Company's related programs, trade secrets, algorithms
and processes relating to the Software Products or such programs, the
Company's copyright in and to each of the Software Products and all
works derivative therefrom, all current, previous, enhanced and
developmental versions of the source and object code and any variations
thereof, all user and programmer documentation, all design
specifications, all maintenance and installation routines, all system
documentation (including all flow charts, systems procedures and program
component descriptions), all procedures for modification and preparation
for the release of enhanced versions and all test data available
(excluding all proprietary information of third parties) with respect to
the Software Products.
(c) The transactions contemplated hereby will not result in the
termination of any publishing or license agreements with respect to
products or materials incorporated in the Software Products or otherwise
alter the Company's ability to sell the Software Products.
(d) The Software Products are free from any significant software
defect or programming or documentation error, conform to the
specifications thereof, and, with respect to owned Software Products,
the applications can be recreated from their associated source code.
(e) Except as set forth on Schedule 3.17 hereto, the Seller has
no Knowledge of the existence of any bugs or viruses contained in
CD-ROMs or in downloadable files on which the Software Products are
distributed which cause the Software Products to be uninstallable.
SECTION 3.18. LABOR RELATIONS.
Except as set forth on Schedule 3.18, the Company is not a party
to any collective bargaining agreement covering Employees, there are no
controversies or unfair labor practice proceedings pending or, to the Seller's
Knowledge, threatened between the Company and any of
22
its current or former Employees or any labor or other collective bargaining unit
representing any current or former Employee of the Company that could reasonably
be expected to result in a labor strike, dispute, slow-down or work stoppage or
otherwise have a Material Adverse Effect. To the Seller's Knowledge, except as
set forth on Schedule 3.18, no organizational effort is presently being made or
to the Knowledge of the Seller, threatened by or on behalf of any labor union.
SECTION 3.19. EMPLOYEE BENEFITS.
(a) Schedule 3.19(a) sets forth all Employee Benefit Plans and
all other employee benefit arrangements or payroll practices, including,
without limitation, any such arrangements or payroll practices providing
severance pay, sick leave, vacation pay, salary continuation for
disability, retirement benefits, deferred compensation, bonus pay,
incentive pay, stock options, hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements,
maintained by the Company or to which the Company is obligated to
contribute for Employees or Former Employees. Each of the employee
benefit plans, practices and arrangements set forth on Schedule 3.19(a)
shall hereafter be referred to as a "PLAN" (or "PLANS" as the context
may require).
(b) Except with respect to any Multiemployer Plan, copies of the
following documents, with respect to each of the Plans as applicable,
have been delivered to Purchaser by the Seller: (i) all plan and related
trust documents, and amendments thereto; (ii) the most recent IRS Form
5500; (iii) the last IRS determination letter; (iv) summary plan
descriptions; and (v) the most recent actuarial report. All reports
required by applicable law, including Form 5500, have been filed in a
timely manner, and each such report has been true, accurate and
complete.
(c) Except as set forth on Schedule 3.19(c), none of the Plans
is a Multiemployer Plan. Neither the Company nor any ERISA Affiliate has
incurred any Liability resulting from a complete or partial withdrawal
from any Multiemployer Plan, and none of them has incurred, or is
reasonably likely to incur, any Liability due to the termination or
reorganization of a Multiemployer Plan which has not been satisfied in
full, and to the Knowledge of the Seller, no event has occurred that
would subject the Company or any ERISA Affiliate to any such liability.
(d) Neither the Company nor any ERISA Affiliate has incurred, or
is reasonably likely to incur, any Liability under Section 4062, 4063 or
4064 of ERISA to the PBGC or to a trustee appointed under Section 4042
of ERISA with respect to any Single-Employer Plan, and to the Knowledge
of the Seller, no event has occurred that would subject the Company or
any ERISA Affiliate to any such Liability. All premiums due the PBGC
with respect to all Single-Employer Plans maintained by the Company and
its ERISA Affiliates have been timely paid. Neither the Company nor any
ERISA Affiliate has engaged in any transaction described in Section 4069
of ERISA. Except as set forth on Schedule 3.19(d), there has been no
"reportable event", within the meaning of Section 4043 of ERISA, with
respect to any Single-Employer Plan maintained by the Company or its
ERISA Affiliates which would require the giving of notice to the PBGC.
No Single-Employer Plan maintained by the Company or its ERISA
Affiliates has
23
incurred an accumulated funding deficiency within the meaning of Section
412 of the Code.
(e) Except with respect to any Multiemployer Plan, each Plan
complies with, and has been established, operated and administered in
accordance with its terms and the requirements of, ERISA, the Code and
other applicable laws.
(f) Except with respect to any Multiemployer Plan, there are no
material pending or, to Seller's Knowledge, threatened claims by, on
behalf of or involving any Plan Administrator or any Plan Trustee (other
than routine claims for benefits).
(g) Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax or penalty imposed by Section 4975 of the Code or
Section 502(i) of ERISA with respect to any Plan.
(h) With respect to each Plan that is a Single - Employer Plan,
the most recent actuarial report prepared by the Plan's actuary, using
the actuarial methods and assumptions contained in such report, fairly
presents the fair market value of the assets of each such Plan and the
present value of the Liabilities in respect of the benefits accrued
under each such Plan, and since the date of such actuarial report there
has been no material adverse change in the funded status of any such
Plan after taking into account the additional accrual of benefits by
participants since the date of such actuarial report through the Closing
Date.
(i) Each Plan which is intended to qualify under Section 401(a)
of the Code has received an IRS determination letter concluding that
such Plan so qualifies in form, and no event has occurred and no
condition exists that, to the Seller's Knowledge, would cause such Plan
to lose its qualified status.
(j) Except as set forth on Schedule 3.19(j) or as may be
required under Section 4980B of the Code, Section 601 of ERISA or other
applicable foreign, state or local law, the Company does not have any
Liability for post-retirement medical or life insurance benefits or
coverage for any Employee or Former Employee or any dependent of any
such employee. The reserve reflected in the Balance Sheet will be
adequate in accordance with GAAP for the payment or provision of all
such benefits.
(k) Except as set forth on Schedule 3.19(k), the consummation of
the transactions contemplated by the Transaction Documents will not
result in any increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any compensation or
benefits payable by the Company to or in respect of any Employee or
Former Employee or the beneficiary or dependent of any such employee
under any Plan.
(l) All payments (including all employer contributions and
employee contributions with respect to the Employee Benefit Plans)
required to have been made under the Plans or by law (without regard to
any waivers granted under Section 412 of the Code) have been made by the
due date thereof (including any valid extension), and all
24
payments for any period ending on or before the Closing which are not
yet due will have been paid or accrued by the Closing Date.
SECTION 3.20. INSURANCE.
Schedule 3.20(a) sets forth a list of all insurance policies and
all material fidelity bonds or other insurance service contracts (the "INSURANCE
POLICIES") providing coverage for the properties or operations of the Company,
the type and amount of coverage, and the expiration dates of the Insurance
Policies. Except as set forth on Schedule 3.20(b), there is no claim by the
Company pending under any of the Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies. All
premiums payable under all Insurance Policies have been paid, and the Company
has otherwise complied in all material respects with the terms and conditions of
all the Insurance Policies. The Insurance Policies are valid and enforceable in
accordance with their terms, are issued by an insurer that is reputable, are in
full force and effect and insure against risk and liabilities customary in the
industry and as required by Legal Requirements and the Contracts. Neither the
Seller nor the Company has received notice from any insurance carrier: (i)
threatening a suspension, revocation, modification or cancellation of any
Insurance Policy or a material increase in any premium in connection therewith,
or (ii) informing Seller that any coverage listed on Schedule 3.20 will or may
not be available in the future on substantially the same terms as now in effect.
SECTION 3.21. LITIGATION.
Except as set forth in Schedule 3.21, there are no claims,
actions, suits, proceedings, labor disputes or investigations pending or to the
Seller's Knowledge threatened before any Governmental Agency brought by or
against the Seller, the Company or any of their respective officers, directors,
Employees, agents or Affiliates involving, affecting or relating to any assets,
properties or operations of the Company or the transactions contemplated by the
Transaction Documents, nor to the Seller's Knowledge is there any Basis for any
such action, suit, proceeding or investigation. Schedule 3.21 sets forth a list
and a summary description of all such pending actions, suits, proceedings,
disputes or investigations. Neither the Company nor any of its assets or
properties is subject to any Order that affects or might affect its assets,
properties, operations, prospects, net income or financial condition or which
would or might interfere with the transactions contemplated by the Transaction
Documents.
SECTION 3.22. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 3.22, to its Knowledge:
(a) the Company is, and since April 19, 2004(the "ENVIRONMENTAL
REFERENCE DATE"), has been in compliance with all Environmental Laws;
(b) the Company has no Liability, whether contingent or
otherwise, under any Environmental Law;
(c) no request for information, notice, Governmental Agency
inquiry, demand letter, notice of violation or alleged violation of,
non-compliance or alleged non-compliance with or any Liability under,
any Environmental Law by or relating to
25
operations or properties of the Company has been received by or
threatened in writing against the Company since the Environmental
Reference Date, or, to Seller's Knowledge, before the Environmental
Reference Date;
(d) the Company has not entered into or been subject to, and is
not currently a party or respondent to, any Orders nor are any
administrative, civil or criminal actions, suits, proceedings or
investigations pending or, to Seller's Knowledge, threatened, relating
to any Environmental Law affecting the Company;
(e) the Company has neither expressly nor by operation of law,
assumed or undertaken any Liability, including without limitation any
obligation for Costs of Remediation, of any other Person;
(f) the Company has not, and the Seller has no Knowledge of any
other Person who has, caused any Release or threatened Release of any
Hazardous Material on, in, under, or from the Leased Property nor does
the Seller have Knowledge of any such Release; and
(g) the Company has not received any written or, to the Seller's
Knowledge, other communication indicating or claiming potential
Liability for Damages or Costs of Remediation with respect to a Release
or threatened Release of any Hazardous Material.
SECTION 3.23. TAX MATTERS.
(a) Except as otherwise disclosed in Schedule 3.23(a), (i) the
Company has filed (or joined in the filing of) when due all Tax Returns
required by applicable law to be filed with respect to the Company and
all Taxes shown to be due on such Tax Returns have been paid; (ii) all
such Tax Returns were true, correct and complete as of the time of each
such filing; (iii) all Taxes relating to periods ending on or before the
Closing Date owed by the Company (whether or not shown on any Tax
Return) or to which the Company may be liable under Treasury
Regulationsss.1.1502 6 (or analogous state or foreign provisions) by
virtue of having been a member of any Affiliated Group (or other group
filing on a combined or unitary basis) at any time on or prior to the
Closing Date, if required to have been paid, have been paid (except for
Taxes which are being contested in good faith); (iv) any liability of
the Company for Taxes not yet due and payable, or which are being
contested in good faith, has been provided for on the financial
statements of the Company in accordance with generally accepted
accounting principles; (v) there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to,
the Company in respect of any Tax or assessment, nor is any claim for
additional Tax or assessment asserted by any Governmental Agency; (vi)
since April 19, 2004, no claim has been made by any Governmental Agency
in a jurisdiction where the Company does not currently file a Tax Return
that it is or may be subject to Tax by such jurisdiction, nor to the
Seller's Knowledge is any such assertion threatened; (vii) there is no
outstanding request for any extension of time within which to pay any
Taxes or file any Tax Returns (viii) there has been no waiver or
extension of any applicable statute of limitations for the assessment or
collection of any Taxes of the Company; (ix) the Company is not a party
to any agreement, whether written or unwritten, providing for the
26
payment of Taxes, payment for Tax losses, entitlements to refunds or
similar Tax matters; (x) no ruling with respect to Taxes (other than a
request for determination of the status of a qualified pension plan) has
been requested by or on behalf of the Company; and (xi) the Company has
withheld and paid all material Taxes required to be withheld in
connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(b) (i) no property of the Company is "tax exempt use property"
within the meaning of Section 168(h) of the Code; (ii) the Company is
not a party to any lease made pursuant to former Section 168(f)(8) of
the Internal Revenue Code of 1954; (iii) the Company has not filed any
agreement or consent under Section 341(f) of the Code; (iv) the Seller
is not a "foreign person" within the meaning of Section 1445 of the
Code; (v) the Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
and (vi) the Company has withheld and paid all material Taxes required
to be withheld in connection with any amounts paid or owing to any
employee, creditor, independent contractor or other third party.
SECTION 3.24. INTERIM OPERATIONS.
Since the Balance Sheet Date, the Company has operated only in
the Ordinary Course of Business, and except as set forth in Schedule 3.24 the
Company has not:
(a) suffered any material adverse change in the assets,
properties, business, operations, prospects, net income or financial
condition of the Company or any Basis therefor;
(b) changed its authorized or issued capital stock; granted any
stock option or right to purchase shares of capital stock; issued any
security convertible into such capital stock; or made any Equity
Distributions;
(c) incurred or become subject to, or agreed to incur or become
subject to, any material obligation or Liability, except in the Ordinary
Course of Business;
(d) mortgaged or pledged any of its assets, tangible or
intangible, except for Permitted Liens;
(e) sold or transferred or agreed to sell or transfer any of its
assets, or canceled or agreed to cancel any debts or claims except in
the Ordinary Course of Business;
(f) suffered any extraordinary losses or, except in the Ordinary
Course of Business, waived any material rights;
(g) terminated any contract, agreement, license, or other
instrument to which it is a party, except in the Ordinary Course of
Business;
27
(h) increased the rate of compensation payable by it to any
employee, whose compensation is determined other than by multiplying the
number of hours worked by an hourly rate (a "SALARIED EMPLOYEE"), over
the rate being paid or accrued to them as of the Balance Sheet Date;
(i) made or agreed to make any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any of its
Salaried Employees; or general increase in the salary or bonus payable
or to become payable by the Company to any Employee other than Salaried
Employees (other than increases granted to individual employees for
merit, length of service, change in position or responsibility or other
reasons applicable to specific Employees and not generally to a class or
group thereof);
(j) entered into any agreement, written or oral, providing for
the employment of any Employee or any severance or termination benefits
payable or to become payable by the Company to any Employee;
(k) taken any action which would have constituted a breach of
any negative covenant of the Seller set forth in Article V or VI if such
negative covenant had applied since the Balance Sheet Date; or
(l) suffered any shortages of materials or supplies or any
casualty that individually or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.25. BROKERS.
All negotiations relative to the Transaction Documents and the
transactions contemplated hereby and thereby have been carried on by the Seller
without the intervention of any other Person acting on their behalf in such
manner as to give rise to any valid claim by any such Person against the Company
or Purchaser for a finder's fee, brokerage commission or other similar payment
based on an arrangement with the Seller.
SECTION 3.26. PRODUCT LIABILITY.
Except as disclosed in Schedule 3.26:
(a) to the Company's knowledge (without the requirement of due
inquiry) there has not been during the past six (6) years and there is
no notice, demand, claim, action, suit, inquiry, hearing, proceeding,
notice of violation or investigation of a civil, criminal or
administrative nature by or before any Governmental Agency against or
involving any product, substance or material (collectively, a
"PRODUCT"), or class of claims or lawsuits involving a Product
manufactured, produced, distributed or sold by or on behalf of the
Company which is pending or, to the Seller's Knowledge (without the
requirement of due inquiry), threatened, on behalf of the ultimate
retail purchaser of any Product, resulting from an alleged defect in
design, manufacture, materials or workmanship of any Product
manufactured, produced, distributed or sold by or on behalf of the
Company, or any alleged failure to warn, or from any breach of express
or implied specifications or warranties or representations (a "PRODUCT
CLAIM");
28
(b) there has not been, nor is there under consideration or
investigation by the Company, any Product recall, rework, retrofit or
post-sale warning (collectively, "Recalls") conducted by or on behalf of
the Company concerning any Products manufactured, produced, distributed
or sold by or on behalf of the Company or, to the Knowledge of the
Seller, any Recall conducted by or on behalf of any entity as a result
of any alleged defect in any Product supplied by the Company; and
(c) there is no Product Claim pending or, to the Seller's
Knowledge threatened, on behalf of a customer of the Company or any
Governmental Agency which individually or in the aggregate has had or
could reasonably be expected to have a Material Adverse Effect.
SECTION 3.27. BOOKS AND RECORDS OF THE COMPANY.
The books of account, minute books, stock record books, and
other records of the Company, all of which have been made available to the
Purchaser, are complete and correct, accurately reflect in reasonable detail the
transactions to which the Company is a party or by which its properties are
bound in accordance with GAAP and have been maintained in accordance with sound
business practices and the requirements of Section 13(b)(2) of the Securities
Exchange Act (regardless of the fact that the Company is not subject to that
Section), including the maintenance of an adequate system of internal controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the boards of
directors, and committees of the board of directors of the Company, and no
meeting of any such stockholders, board of directors, or committee has been held
for which minutes have not been prepared and are not contained in such minute
books. At the Closing, all of those books and records will be delivered to the
Purchaser.
SECTION 3.28. SUPPLIERS.
Schedule 3.28 lists the ten largest suppliers (measured by
dollar volume) of the Company during the nine month period ended March 31, 2005
("MAJOR SUPPLIERS") and the amount of business done with each Major Supplier in
such period. As of the date of this Agreement, except as set forth on Schedule
..28, (a) the Company is not engaged in a material dispute with any Major
Supplier, (b) there has been no material adverse change in the business
relationship of the Company with any Major Supplier since December 31, 2002, and
(c) no Major Supplier has threatened in writing any material modification or
change in the business relationship with the Company.
SECTION 3.29. CERTAIN PAYMENTS.
Since January 1, 2001, neither the Seller nor the Company nor
any of their respective directors, officers, agents, or Employees, or to the
Seller's Knowledge any other Person associated with or acting for or on behalf
of the Seller or the Company, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, (iii) to obtain
special concessions or for special concessions
29
already obtained, for or in respect of the Company, or (iv) in violation of any
Legal Requirement, or (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
SECTION 3.30. ACCOUNTS.
Schedule 3.30 hereto correctly identifies each bank account,
brokerage account and safety deposit box maintained by or on behalf or for the
benefit of the Company and the name of each person with any power or authority
to act with respect thereto.
SECTION 3.31. DISCLOSURE.
(a) No representation or warranty of the Seller in this
Agreement omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) There is no fact known to the Seller that has specific
application to either the Seller or the Company (other than general
economic or industry conditions) and that materially adversely affects
or, as far as the Seller can reasonably foresee, materially threatens
the assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this Agreement
or the Schedules hereto.
SECTION 3.32. INVESTMENT INTENT; STATUS.
The Stock Consideration will be acquired hereunder solely for
the account of the Seller for investment, and not with a view to the resale or
distribution thereof in violation of the Securities Act, subject to the right of
the Seller to sell, assign, transfer or distribute any or all of the Stock
Consideration to any Person which is an Affiliate of the Seller. Seller is an
"accredited investor" within the meaning of Regulation 501 promulgated under the
Securities Act.
SECTION 3.33. NO CHANGE TO BUSINESS.
Since the date of the Balance Sheet, there has been no material
change to the conduct or operation of the Business.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller as follows:
SECTION 4.1. AUTHORITY OF PURCHASER.
The Purchaser is a corporation duly organized, validly existing,
and in good standing under the laws of the State of California. The Purchaser
has full corporate power and authority to execute and deliver the Transaction
Documents, the execution and delivery by Purchaser of the Transaction Documents
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Purchaser, and this Agreement constitutes, and the other Transaction
Documents
30
when executed and delivered by the parties thereto will constitute, the legal,
valid and binding obligation of the Purchaser enforceable against the Purchaser
in accordance with their terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws from time to time
in effect which affect creditors' rights generally, and by legal and equitable
limitations on the enforceability of specific remedies. The Purchaser has the
requisite corporate power and authority to own its properties and to carry on
the business presently being conducted by it.
SECTION 4.2. NO CONFLICT OR VIOLATION.
Neither the execution and delivery of the Transaction Documents
by the Purchaser, nor the consummation or performance of any of the transactions
contemplated hereby or thereby will, directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i)
any provision of the Articles of Incorporation or By-Laws of the
Purchaser, or (ii) any resolution adopted by the board of directors or
the stockholders of the Purchaser;
(b) contravene, conflict with, or result in a violation of, or
give any Governmental Agency or other Person the right to challenge any
of the transactions contemplated hereby or to exercise any remedy or
obtain any relief under, any Legal Requirement to which the Purchaser
may be subject;
(c) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material
contract, lease, or permit of the Purchaser; or
(d) except for filings under the Securities Act, and the
Securities Exchange Act, require the consent, approval, or authorization
of, or registration or filing with, any Governmental Agency or any other
Person on behalf of Purchaser;
provided, however, that no representation or warranty is made hereby by the
Purchaser with respect to the effect of antitrust laws or regulations.
SECTION 4.3. LITIGATION.
There are no actions, causes of action, claims, suits,
proceedings or Orders pending or, to the actual knowledge, after reasonable
inquiry, of the executive officers of the Purchaser, threatened against the
Purchaser at law, in equity, in admiralty or otherwise, or before or by any
Governmental Agency, which seek to restrain or enjoin the consummation of the
transactions contemplated hereby.
SECTION 4.4. BROKERS.
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by the Purchaser without the
intervention of any other Person acting on its behalf in such manner as to give
rise to any valid claim by any such Person against the
31
Seller or its Affiliates for a finder's fee, brokerage commission or other
similar payment based on an arrangement with the Purchaser.
SECTION 4.5. STOCK CONSIDERATION.
The issuance of the Stock Consideration to the Seller has been
duly authorized and, when issued in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable.
SECTION 4.6. SEC REPORTS AND FINANCIAL STATEMENTS.
The Purchaser has filed with the Securities and Exchange
Commission true and complete copies of the Purchaser's Annual Report on Form
10K/A (Amendment No. 2) for the year ended December 31, 2004 and all forms,
reports, schedules, statements and other documents required to be filed by the
Purchaser under the Securities Act, or the Securities Exchange Act, from and
after the filing thereof (such annual report, forms, reports, schedules,
statements and other documents, including any financial statements or schedules
included therein, the "PURCHASER SEC DOCUMENTS"). The Purchaser SEC documents,
at the time filed, (a) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (b) complied in all material respects with
the applicable requirements of the Securities Exchange Act, and the Securities
Act, as the case may be, and the applicable rules and regulations promulgated
thereunder. Except as indicated, there have not been any amendments to the
Purchaser SEC Documents since the initial filing thereof. The financial
statements of the Purchaser contained in the Purchaser SEC Documents have been
prepared in accordance with GAAP applied on a consistent basis during the period
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated
by the Securities and Exchange Commission) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of the Purchaser and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
SECTION 4.7. INVESTMENT INTENT; STATUS.
The Stock will be acquired hereunder solely for the account of
the Purchaser for investment, and not with a view to the resale or distribution
thereof in violation of the Securities Act, subject to the right of the
Purchaser and any such designees to sell, assign, transfer or distribute any or
all of the Stock to any Person which is an Affiliate of the Purchaser. Purchaser
is an "accredited investor" within the meaning of Regulation 501 promulgated
under the Securities Act.
ARTICLE V.
CERTAIN COVENANTS OF THE SELLER
The Seller covenants with the Purchaser that from and after the
date hereof through the Closing Date (except as consented to or approved by the
Purchaser in writing):
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SECTION 5.1. CONDUCT OF BUSINESS.
The Seller shall cause the Company:
(a) to operate only in the Ordinary Course of Business and to
continue to maintain, in all material respects, its properties in
accordance with present practices in a condition suitable for their
current use;
(b) to use commercially reasonable efforts to keep available
generally the services of its present officers and Employees, and
preserve generally the present relationships with Persons having
business dealings with it;
(c) not to make any sale, assignment, transfer, abandonment, or
other conveyance of any of its assets or any part thereof;
(d) to keep in full force and effect insurance comparable in
amount and scope to coverage maintained by it (or on behalf of it) on
the date hereof;
(e) not to settle, release or forgive any material claim or
litigation or waive any material right;
(f) not to make, change or revoke, or permit to be made, changed
or revoked, without the consent of the Purchaser, which shall not be
unreasonably withheld, any material election or method of accounting
with respect to Taxes;
(g) not to enter into, or permit to be entered into, without the
consent of the Purchaser any closing or other agreement or settlement
with respect to Taxes affecting or relating to the Company;
(h) not to enter into or amend any Plan and not to grant any
increase in the salary or other compensation of any Employee, except as
would not constitute a breach of Section 3.24;
(i) Except as set forth in Schedule 5.1, not to enter into any
employment Contract with any director, executive officer or Employee of
the Company or make any loan to, or enter into any material transaction
of any other nature with, any director, executive officer or Employee of
the Company;
(j) Except as set forth in Schedule 5.1, not to acquire, lease
or dispose or agree to acquire, lease or dispose of any capital assets;
(k) not to change its authorized or issued capital stock; grant
any stock option or right to purchase shares of capital stock; issue any
security convertible into such capital stock; or make any Equity
Distribution;
(l) not to incur any Indebtedness other than working capital
borrowings in the Ordinary Course of Business;
33
(m) not to incur, or suffer to exist, any Lien on the assets of
the Company other than Permitted Liens;
(n) not to take any action that would cause any of the
representations and warranties made by the Seller in this Agreement not
to remain true and correct; and
(o) to inform the Purchaser of the occurrence of any event which
could reasonably be expected to result in a breach of any representation
or warranty contained in Article III.
SECTION 5.2. INFORMATION AND ACCESS.
The Seller shall permit and cause the Company to permit
representatives of the Purchaser to have reasonable access during normal
business hours, and in a manner so as not to interfere with the normal
operations of the Company, to all premises, properties, personnel, accountants,
books, records, contracts and documents of the Company.
SECTION 5.3. CONFIDENTIALITY AGREEMENTS.
At the Closing, the Seller shall assign to the Purchaser the
benefits of all confidentiality agreements, if any, relating to the possible
sale of the Company or any material portion of the assets thereof to the extent
such assignment is not expressly prohibited by the terms of such agreements.
SECTION 5.4. BEST EFFORTS.
Upon the terms and subject to the conditions of this Agreement,
each of the parties hereto shall use reasonable best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable consistent with applicable law to consummate and make
effective in the most expeditious manner practicable the transactions
contemplated hereby; provided, however, that nothing in this covenant or any
other provision of this Agreement or any other Transaction Document shall
require the Purchaser to agree to any divestiture, hold-separate or other
similar agreement or requirement.
SECTION 5.5. NO SHOP.
(a) The Seller shall not and shall cause the Company not to,
directly or indirectly, through any representative or otherwise, solicit
or entertain offers from, negotiate with or in any manner encourage,
discuss, accept, or consider any proposal of any other Person relating
to the acquisition of the Stock or the Company, its assets or business,
in whole or in part, whether directly or indirectly, through purchase,
merger, consolidation, or otherwise (other than sales of inventory in
the ordinary course); and
(b) The Seller shall immediately notify the Purchaser regarding
any contact between the Seller, the Company or their respective
representatives and any other Person regarding any such offer or
proposal or any related inquiry.
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SECTION 5.6. NOTICES OF CERTAIN EVENTS.
The Seller shall promptly notify the Purchaser of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement or any other Transaction
Document;
(b) any notice or other communication from any Governmental
Agency in connection with the transactions contemplated by this
Agreement or any other Transaction Document; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting the Seller or the Company if pending on
the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.21 or that relate to the consummation of
the transactions contemplated by this Agreement or any other Transaction
Document.
SECTION 5.7. NO DUPLICATES.
Neither the Seller nor any of its Affiliates shall directly or
indirectly retain, use or transfer any copies, duplicates or derivative versions
of any of the Company's databases or mailing lists (whether in postal or e-mail
form) from and after the Closing Date without the Purchaser's prior express
written consent; provided, however that the Seller may continue to use the
Seller's own databases and mailing lists which contain some limited overlap of
information with that contained in the Company's databases and mailing lists, so
long as the Seller does not take any action inconsistent with the Purchaser's
sole rights in the Company's databases and mailing lists.
ARTICLE VI.
CERTAIN COVENANTS AND AGREEMENTS
SECTION 6.1. TRANSFER TAXES.
All sales, recording, transfer, stamp, registration, conveyance,
value added, use, or other similar Taxes, duties, excise, governmental charges
or fees (including penalties and interest) imposed as a result of the sale of
the Stock to the Purchaser or the issuance of the Stock Consideration to the
Seller pursuant to this Agreement shall be borne by the Seller. The Purchaser
shall promptly remit any refunds of such items to the Seller. The Seller and the
Purchaser, to the extent required by Legal Requirements, shall prepare and file
all Tax Returns and other documentation on a timely basis with respect to any
such Taxes or fees.
SECTION 6.2. OBLIGATION TO FILE TAX RETURNS.
The Seller shall cause to be prepared and filed all Tax Returns
with the appropriate federal, state, local and foreign Governmental Agencies
relating to the Company and its Subsidiary for periods ending on or prior to the
Closing Date and shall pay all Taxes due with
35
respect to such Tax Returns. The Purchaser shall cause to be prepared and filed
all Tax Returns required to be filed by the Company for periods after to the
Closing Date and shall pay all Taxes due with respect to such Tax Returns.
SECTION 6.3. CERTAIN PROVISIONS RELATING TO CONSENTS.
The Seller shall use commercially reasonable efforts prior to
and after the Closing Date to obtain all consents that are required in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents. The Seller shall not obtain any consent that will affect
the Purchaser or the Company to the economic detriment of either, including any
modification of any Contract, Lease or Permit. The Purchaser shall cooperate as
reasonably necessary or desirable to secure the third party consents, including,
without limitation, providing to such third party information, including
financial information; provided, however, that neither the Purchaser nor the
Company shall be required to incur any liability or obligation in connection
therewith, other than for the underlying matter for which such consent was
obtained as in effect immediately prior to such consent.
SECTION 6.4. RESERVED.
SECTION 6.5. SECTION 338(h)(10) ELECTION.
(a) With respect to the sale of the Stock, if so requested by
the Purchaser upon notice to the Seller on or before the Closing Date,
the Seller and the Purchaser shall jointly make a Section 338(h)(10)
Election (as hereinafter defined) in accordance with applicable laws and
under any comparable provision of state, local or foreign law for which
a separate election is permissible and as set forth herein. The
Purchaser and the Seller shall take all necessary steps to properly make
a Section 338(h)(10) Election in accordance with applicable laws and
under any comparable provision of state, local or foreign law for which
a separate election is permissible. The Purchaser and the Seller agree
to cooperate in good faith with each other in the preparation and timely
filing of any Tax Returns required to be filed in connection with the
making of such an election, including the exchange of information and
the joint preparation and filing of Form 8023 and related schedules. The
Purchaser and the Seller agree to report the transfers under this
Agreement consistent with such elections and shall take no position
contrary thereto unless required to do so by applicable tax law pursuant
to a determination as defined in Section 1313(a) of the Code.
(b) The Purchaser shall be responsible for the preparation and
filing of all Section 338 Forms (as hereinafter defined) in accordance
with applicable tax laws and the terms of this Agreement and shall
deliver such Section 338 Forms to the Seller at least 30 days prior to
the date such Section 338 Forms are required to be filed. Seller shall
execute and deliver to the Purchaser such documents or forms (including
executed Section 338 Forms) as are requested and are required by any
laws in order to properly complete the Section 338 Forms at least 20
days prior to the date such Section 338 Forms are required to be filed.
The Seller shall provide the Purchaser with such information as
36
the Purchaser reasonably requests in order to prepare the Section 338
Forms by the later of 30 days after the Purchaser's request for such
information or 30 days prior to the date on which the Purchaser is
required to deliver such forms to the Seller.
(c) The Purchase Price, liabilities of the Company and other
relevant items shall be allocated in accordance with Section 338(b)(5)
of the Code and the Treasury Regulations thereunder. Purchaser shall, at
its option, determine the fair market value of the assets of the Company
(the "Valuation"). The Valuation shall be binding on the Purchaser and
the Seller unless the Seller shall, within 10 days of delivery to the
Seller of the Valuation, conclude in good faith that the Valuation is
manifestly unreasonable. The Purchaser shall be under no obligation to
have such Valuation prepared by an independent appraiser. All values
contained in the Valuation shall be used by each party in preparing the
forms referred to in Section 6.5(b) above and all other relevant Tax
Returns.
(d) "SECTION 338 FORMS" means all returns, documents,
statements, and other forms that are required to be submitted to any
federal, state, county or other local Tax authority in connection with a
Section 338(h)(10) Election. Section 338 Forms shall include, without
limitation, any "statement of section 338 election" and IRS Form 8023
(together with any schedules or attachments thereto) that are required
pursuant to Treas. Regs. Section 1.338 1 or Treas. Regs. Section
1.338(h)(10) 1 or any successor provisions.
(e) Notwithstanding any other provision of this Agreement to the
contrary, the Seller agrees that any income and gain recognized as a
result of, and in accordance with, the making of the Section 338(h)(10)
Election will be included in the consolidated federal income tax return
of the Seller's consolidated group and any resulting tax liability will
be paid by the Seller, as the common parent of the Seller's consolidated
group. The Purchaser agrees that it will pay and be responsible for, and
will indemnify and save the Seller harmless from, any reasonable costs
incurred by the Seller (including but not limited to costs incurred in
connection with the preparation or restatement of any Tax Return) or
Taxes imposed on the Seller by any federal, state or local Tax
authority, in each case resulting from the Purchaser's election to treat
the purchase of the Stock as an asset acquisition under the statutes of
any such Tax authority.
(f) "SECTION 338(h)(10) ELECTION" means an election described in
Section 338(h)(10) of the Code with respect to Purchaser's acquisition
of Shares pursuant to this Agreement. Section 338(h)(10) Election shall
include any corresponding election under state or local law pursuant to
which a separate election is permissible with respect to Purchaser's
acquisition of Shares pursuant to this Agreement.
SECTION 6.6. ONGOING TAX/AUDIT COOPERATION.
(a) If the Closing occurs, the Seller and the Purchaser shall
cooperate fully with each other and make available or cause to be made
available to each other in a timely fashion such Tax data, prior Tax
Returns and filings and other information as may be reasonably required
for the preparation by the Purchaser or the Seller of any Tax Returns,
elections, consents or certificates required to be prepared and filed by
the
37
Purchaser or the Seller and any audit or other examination by any
Governmental Agency, or judicial or administrative proceeding relating
to liability for Taxes. Without limiting the generality of the
foregoing, each of the Purchaser and the Seller shall retain copies of
all Tax Returns, supporting work schedules and other records relating to
tax periods or portions thereof ending prior to or including the Closing
Date until the later of (i) the expiration of the statute of limitations
for the taxable periods to which such Tax Returns and other documents
relate, without regard to extensions except for extensions obtained by
that party or its Affiliates or extensions regarding which such party
has received written notice from another party, or (ii) six years
following the due date (without extensions) for such Tax Returns;
provided, however, that no party will dispose of its copies without
first notifying the other parties and providing such other parties with
a reasonable period of time to assume possession of such copies. In
addition, without limiting the generality of the foregoing, each party
shall make its personnel and those of its Affiliates reasonably
available for deposition and testimony in any tax controversy or
proceeding. The Purchaser shall cooperate with the Seller to the extent
reasonably necessary for the Seller's preparation of its financial
statements and Tax Returns and in the sharing of financial and
accounting information with respect thereto or with respect to any
audit, examination, or other proceeding with respect thereto.
(b) If the Closing occurs, the Seller and the Purchaser shall
cooperate fully with each other and make available or cause to be made
available to each other in a timely fashion such financial data and
other information as may be reasonably required for the preparation by
the Purchaser and the Seller of their year-end audits and Form 10-K or
Form 10-KSB filings for their fiscal year ended December 31, 2005 and
June 30, 2005, respectively, and any other filings required to be
prepared and filed by the Seller or Purchaser by any Governmental
Agency. Without limiting the generality of the foregoing, the Purchaser
and the Seller shall retain copies of all financial data and other
financial records relating to the Company. The Purchaser and Seller
shall cooperate to the extent reasonably necessary for the preparation
of its financial statements and accounting information with respect
thereto or with respect to any audit.
(c) In order to enable the Purchaser to comply with its
obligation to file financial statements with the Securities and Exchange
Commission (the "SEC") with a Current Report on Form 8-K or any other
document required by the SEC, the Seller agrees to, as soon as practical
upon the execution of this Agreement, deliver the following financial
statements (the "COMPANY FINANCIAL STATEMENTS"): (1) consolidated
financial statements of the Company and its Subsidiary (and their
predecessor operations) as of and for the full and complete years ended
June 30, 2004, and June 30, 2005, which are to be audited in accordance
with the auditing standards generally accepted in the United States, and
which are to include an unqualified executed audit report of the
Seller's accountants (Burr, Pilger & Mayer, LLP), consolidated balance
sheets, income statements, statements of cash flows and stockholders'
equity, and footnotes thereto; (2) unaudited consolidated financial
statements of the Company and its Subsidiary (and their predecessor
operations) and which are to include consolidated balance sheets, income
statements, statements of cash flows and stockholders' equity as of the
end of each calendar quarter and for the three month periods then ended
from July 1, 2003 through June 30, 2005. The Seller shall deliver drafts
of the Company Financial Statements to the
38
Buyer in preliminary, unaudited form as soon as practicable after the
Closing Date. Within two (2) Business Days of the completion of the
audit, and, in any event, on or before September 2, 2005, the Seller
shall deliver the final Company Financial Statements to the Purchaser.
In addition, the Purchaser and the Purchaser's Independent Registered
Public Accounting Firm shall have the right to review promptly upon
request, the workpapers of the Seller, the Company and Burr, Pilger &
Mayer, LLP utilized in the preparation of the Company Financial
Statements for purposes of verifying the accuracy thereof.
(d) The Seller covenants and agrees that the Company Financial
Statements (i) will be prepared based on the books and records of the
Company in accordance with GAAP and present fairly the financial
condition, results of operations and statements of cash flow of the
Company as of the dates indicated or the periods indicated in accordance
with GAAP, consistently applied with all prior periods; (ii) will
contain and reflect all necessary adjustments, accruals, provisions and
allowances for a fair presentation of the financial condition of the
Company and the results of operations of the Company for the periods
covered by such financial statement; and (iii) will comply as to form
and substance in all respects with the applicable provisions of the
Exchange Act and the Rules and Regulations thereunder.
(e) The Seller shall cause Burr, Pilger & Mayer, LLP to timely
deliver its consent to include its audit report on the Company Financial
Statements, in each periodic report under the Exchange Act of 1934 or
Registration Statement under the Securities Act of 1933 which Purchaser
may file hereafter for which such consent may be required.
(f) The Seller shall pay the fees and costs of Burr, Pilger &
Mayer, LLP in preparing the Company Financial Statements and the Seller
shall bear its own costs in preparing the Company Financial Statements.
(g) In the event that the Company Financial Statements are not
delivered to the Purchaser on or before September 2, 2005, and Purchaser
is unable to file its Current Report on Form 8-K concerning this
transaction as a result of such failure, the Seller shall pay to the
Purchaser liquidated damages in an amount equal to Five Hundred Thousand
Dollars ($500,000). The Seller and the Purchaser have expressly
negotiated this Section, and agree that in light of the circumstances
existing at the time of execution of this Agreement, the liquidated
damages expressed herein represent a reasonable estimate of the harm
likely to be suffered by the Purchaser in the event the Company
Financial Statements are not delivered to the Purchaser by September 2,
2005, and Purchaser is unable to timely file its Form 8-K as a result.
(h) The Seller agrees to indemnify, defend and hold harmless the
Purchaser and its past and present officers and directors from any debt,
damage, liability or obligation whatsoever arising from any failure to
properly prepare the Company Financial Statements.
(i) No information or documentation provided pursuant to this
Section 6.6 shall be disclosed by the recipient thereof to any Person
except its accountants and
39
relevant tax authorities or as required by applicable law (in which case
the disclosing party shall consult in good faith with the other party
prior to making any such disclosure).
SECTION 6.7. TAX RELATED COVENANTS.
Without the prior written consent of the Purchaser, neither the
Company nor any of its Subsidiaries shall make or change any election, change an
annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or any of its Subsidiaries, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating to the
Company or any of its Subsidiaries, or take any other similar action relating to
the filing of any Tax Return or the payment of any Tax, if such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action would have the effect of increasing the Tax liability of the Company or
any of its Subsidiaries for any period ending after the Closing Date or
decreasing any Tax attribute of the Company or any of its Subsidiaries existing
on the Closing Date.
SECTION 6.8. FURTHER ASSURANCES.
(i) Upon the request of the Purchaser at any time after
the Closing Date, the Seller shall forthwith execute and deliver
such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as
the Purchaser may reasonably request in order to perfect title
of the Purchaser and its successors and assigns to the Stock or
otherwise to effectuate the purposes of this Agreement.
ARTICLE VII.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by the Seller) of each of the following conditions on or prior to the
Closing Date:
SECTION 7.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser contained in
this Agreement which are qualified as to materiality shall be true and correct
on and as of the Closing Date as though such representations and warranties were
made anew on and as of the Closing Date, and all other representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made anew on and as of the Closing Date. The
Purchaser shall have delivered to the Seller a certificate of its President or a
Vice President, dated the Closing Date, to the foregoing effect.
SECTION 7.2. COMPLIANCE WITH AGREEMENT.
The Purchaser shall have performed and complied with all
covenants to be performed or complied with by it on or prior to the Closing
Date. The Purchaser shall have
40
delivered to the Seller a certificate of its President or a Vice President,
dated the Closing Date, to the foregoing effect.
SECTION 7.3. NO VIOLATION OF ORDERS.
No preliminary or permanent injunction or other order issued by
any court or Governmental Agency, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any Governmental Agency that declares
this Agreement or any other Transaction Document invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby or thereby shall be in effect; and no action or proceeding before any
court or Governmental Agency, shall have been instituted or threatened by any
Governmental Agency or by any other person or entity, which seeks to prevent or
delay the consummation of the transactions contemplated by this Agreement or any
other Transaction Document or which challenges the validity or enforceability
hereof or thereof.
SECTION 7.4. CORPORATE DOCUMENTS.
The Seller shall have received from the Purchaser certified
copies of the resolutions duly adopted by the board of directors of the
Purchaser approving the execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, and such resolutions shall be in full force and effect as of
the Closing Date.
SECTION 7.5. TRANSACTION DOCUMENTS.
The Purchaser shall have executed and delivered to the Seller an
Escrow Agreement in substantially the form set forth in Exhibit D (the "ESCROW
AGREEMENT"), and a Registration Rights Agreement in substantially the form
attached hereto as Exhibit E (the "REGISTRATION RIGHTS AGREEMENt").
SECTION 7.6. OPINION OF COUNSEL.
Seller shall have received an opinion of Dorsey & Whitney LLP,
counsel to the Purchaser, in the form of Exhibit I, with such customary changes
and modifications as the Purchaser shall reasonably request in light of the
nature of the transactions contemplated hereby.
ARTICLE VIII.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by the Purchaser) of each of the following conditions on or prior to the
Closing Date:
SECTION 8.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Seller contained in
this Agreement which are qualified as to materiality or Material Adverse Effect
shall be true and correct on and as of the Closing Date as though such
representations and warranties were made anew on and as
41
of the Closing Date (unless such representations are expressly made as of some
other date, in which case they shall be true and correct as of such date), and
all other representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though such representations and warranties were made anew on and
as of the Closing Date (unless such representations are expressly made as of
some other date, in which case they shall be true and correct as of such date).
The Seller shall have delivered to the Purchaser a certificate of its President
or Vice President, dated the Closing Date, to the foregoing effect.
SECTION 8.2. COMPLIANCE WITH AGREEMENT.
The Seller shall have performed and complied with all covenants
to be performed or complied with by it on or prior to the Closing Date. The
Seller shall have delivered to the Purchaser a certificate of its President or
Vice President, dated the Closing Date, to the foregoing effect.
SECTION 8.3. CONSENTS.
All consents, Permits, authorizations, approvals, waivers and
amendments which are listed on Schedule 8.3 hereto shall have been obtained.
SECTION 8.4. CORPORATE DOCUMENTS.
The Purchaser shall have received from the Seller certified
copies of the resolutions duly adopted by the board of directors of the Seller
approving the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, and such resolutions shall be in full force and effect as of the
Closing Date.
SECTION 8.5. MATERIAL ADVERSE EFFECT.
Since the date of this Agreement, there shall not have occurred
(i) a Material Adverse Effect or (ii) any event which could reasonably be
expected to result in a Material Adverse Effect.
SECTION 8.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE
PROCEEDS.
There must not have been made or threatened by any Person any
claim asserting that such Person (a) is the holder or the beneficial owner of,
or has the right to acquire or to obtain beneficial ownership of, any Stock of,
or any other voting, equity, or ownership interest in, the Company, or (b) is
entitled to all or any portion of the Purchase Price payable for the Stock.
SECTION 8.7. OPINION OF COUNSEL.
Purchaser shall have received an opinion of Niesar Curls
Bartling, LLP, counsel to the Seller, in the form attached as Exhibit J, with
such customary changes and modifications
42
as the Seller shall reasonably request in light of the nature of the
transactions contemplated hereby ("SELLER'S OPINION OF COUNSEL").
SECTION 8.8. NO VIOLATION OF ORDERS.
No preliminary or permanent injunction or other order issued by
any court or Governmental Agency, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any Governmental Agency that declares
this Agreement or any other Transaction Document invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby or thereby shall be in effect; and no action or proceeding before any
court or Governmental Agency, shall have been instituted or threatened by any
Governmental Agency or by any other person or entity, which seeks to prevent or
delay the consummation of the transactions contemplated by this Agreement or any
other Transaction Document or which challenges the validity or enforceability
hereof or thereof.
SECTION 8.9. DUE DILIGENCE.
The Purchaser shall have received all business, legal,
accounting and other due diligence materials requested from the Company and the
Seller, shall have completed the review of said due diligence to its
satisfaction, and such due diligence shall be reasonably satisfactory to the
Purchaser in its sole discretion.
SECTION 8.10. TRANSACTION DOCUMENTS.
The Seller shall have executed and delivered to the Purchaser
the Registration Rights Agreement and the Escrow Agreement.
SECTION 8.11. RESIGNATIONS.
The Purchaser shall have received the resignations, effective as
of the Closing Date, of each of the directors of the Company.
SECTION 8.12. NO LIENS.
There shall be no outstanding Liens on or in respect of any
assets of the Company or the Business, and the Seller shall have provided
evidence of such absence of Liens to the Purchaser in form acceptable to the
Purchaser in its sole discretion.
SECTION 8.13. TAX SHARING AGREEMENTS.
Any tax sharing agreements among the Company or any Subsidiaries
and any other Person shall have been terminated as of the Closing Date with no
further liability to the Purchaser, the Company or any such Subsidiary.
43
ARTICLE IX.
THE CLOSING
SECTION 9.1. THE CLOSING.
The Closing of the transactions contemplated hereby (the
"Closing") shall be held July 1, 2005, or at such other time as the parties may
mutually agree. The Closing shall be held at the offices of Niesar Curls
Bartling LLP, 90 New Montgomery Street, 9th Floor, San Francisco, CA 94105, or
at such other place as the parties may mutually agree.
At the Closing, the Seller shall deliver, or cause to be
delivered, to the Purchaser, the following items:
(a) the duly executed officer's certificates and certified
resolutions referred to in Sections 8.1, 8.2, and 8.4;
(b) the consents listed on Schedule 8.3;
(c) Seller's Opinion of Counsel;
(d) the resignations referred to in Section 8.11.
(e) the Escrow Agreement and the Registration Rights Agreement
duly executed by the Seller;
(f) a certificate or certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by appropriate powers duly
executed in blank; and
(g) all other previously undelivered documents that the Seller
is required to deliver to the Purchaser pursuant to this Agreement.
SECTION 9.2. DELIVERIES BY THE PURCHASER AT THE CLOSING.
At the Closing, the Purchaser shall deliver, or cause to be
delivered, to the Seller, the following items:
(a) by wire transfer of immediately available funds the amount
equal to the Cash Consideration less the Cash Escrow Amount (the
"CLOSING DATE CASH PAYMENT");
(b) the duly executed officer's certificates referred to in
Sections 7.1, 7.2, and 7.4;
(c) duly executed and acknowledged transfer tax and other
required tax forms reasonably required by the Seller to consummate the
transactions contemplated hereby, all in the form required by applicable
law;
(d) the Escrow Agreement and the Registration Rights Agreement
duly executed by the Purchaser;
44
(e) evidence of receipt by the Escrow Agent of the Stock Escrow
Amount and the Cash Escrow Amount; and
(f) all other previously undelivered documents that the
Purchaser is required to deliver to the Seller pursuant to this
Agreement.
SECTION 9.3. ESTABLISHMENT OF ESCROW.
Immediately upon the Closing, the Purchaser shall cause to be
delivered to the Escrow Agent, by wire transfer of immediately available funds,
the remaining amount of the Cash Consideration, constituting $1,250,000 (the
"CASH ESCROW AMOUNT") and shares having a value of $750,000 (the "STOCK ESCROW
AMOUNT") to be held in escrow in accordance with the terms of the Escrow
Agreement.
ARTICLE X.
INDEMNIFICATION
SECTION 10.1. SURVIVAL.
Except as otherwise set forth in Section 10.2(b), all of the
representations and warranties of the Seller contained in Article III of this
Agreement or in any certificate delivered by the Seller pursuant to this
Agreement shall survive the Closing and continue in full force and effect as
follows: (a) in the case of the representations and warranties of the Seller
contained in Section 3.23 (Tax Matters), until six months after the expiration
of the statute of limitations with respect to the matter to which the claim
relates (including any extension of the statute of limitation consented to by or
on behalf of the Company), (b) in the case of the representations and warranties
of the Seller contained in Section 3.22 (Environmental Matters), until the fifth
anniversary of the Closing Date, and (c) in the case of any other representation
or warranty of the Seller contained in this Agreement and any certificate
delivered by the Seller pursuant to this Agreement pertaining to any of the
Seller's representations and warranties, until the second anniversary of the
Closing Date. Notwithstanding the foregoing, any notice given in accordance with
Section 12.1 of this Agreement claiming an alleged breach of any representation
or warranty hereunder shall without further action extend the survival period
for the representation or warranty alleged to have been breached as applied to
the circumstances set forth in such notice until immediately after the final
resolution of the matter. All of the representations and warranties of the
Purchaser contained in Article IV of this Agreement or in any certificate
delivered by the Purchaser pursuant to this Agreement pertaining thereto shall
survive the Closing and continue in full force and effect until the second
anniversary of the Closing Date.
SECTION 10.2. INDEMNIFICATION PROVISIONS FOR BENEFIT OF
PURCHASER.
(a) In the event that the Seller breaches any of its
representations, warranties or covenants contained in this Agreement or
in any certificate delivered by the Seller pursuant hereto and provided
that, as to any claim for breach of representations or warranties, the
Purchaser makes a written claim for indemnification against the Seller
within the applicable survival period, if applicable, then the Seller
agrees to indemnify the Purchaser and its Affiliates from and against
all Damages the Purchaser and its
45
Affiliates suffer resulting from or arising out of such event; provided,
however, that the Seller shall not have any obligation to indemnify the
Purchaser from and against any Damages resulting from the breach of any
representation or warranty of the Seller (as opposed to any covenant of
the Seller) contained in Article III of this Agreement until the
Purchaser has suffered aggregate Damages, by reason of all such breaches
in excess of $25,000; provided further that (i) and Seller shall have no
obligation to indemnify the Purchaser for the initial $25,000 in
Damages, and (ii) no claim may be made by Purchaser under this Section
10.2(a) unless such claim exceeds $10,000 in value. In any event, the
maximum amount that Seller shall be required to pay as to all claims
made under this Section 10.2(a) shall be equal to the Cash Escrow Amount
as of the date on which each claim is made.
(b) Notwithstanding the foregoing, the Seller shall indemnify,
defend and hold harmless the Company, the Purchaser and any of their
respective Affiliates from and against any and all Damages resulting
from or arising out of any of the following (which indemnification,
defense and hold harmless shall not be subject to any of the limitations
set forth in Section 10.2(a)):
(i) The pending threatened claim of a former employee
identified in Schedule 3.21, any claim arising from any
employment agreement heretofore entered into by the Company, and
any claim of any creditor or beneficiary of the Seller or any of
its Affiliates (other than the Company), whether arising prior
to, on or after the Closing Date;
(ii) Pre Closing Taxes. For purposes of this Agreement,
"PRE CLOSING TAXES" shall mean, except to the extent included in
the determination of Adjusted Net Assets, (a) all liability for
Taxes of the Company for tax periods ending prior to the Closing
Date; (b) all liability for Taxes described in Section 6.1; (c)
all liability attributable to any misrepresentation or breach of
warranty made by the Seller in Section 3.23 of this Agreement;
(d) all liability for Taxes attributable to any failure to
comply with any of the covenants or agreements of the Seller or
the Company under this Agreement; and (e) all liability for
Taxes of any other person pursuant to any contractual agreement
entered into on or before the Closing Date; and
(iii) Any claim based upon fraud, or intentional
misrepresentation or intentional omission.
SECTION 10.3. MATTERS INVOLVING THIRD PARTIES.
(a) If any third party notifies the Purchaser (the "Indemnified
Party") with respect to any matter which may give rise to a claim (other
than a Tax Claim) for indemnification against the Seller (the
"Indemnifying Party") under Section 10.2, then the Indemnified Party
shall use reasonable efforts to notify the Indemnifying Party thereof
promptly and in any event within ten days after receiving any written
notice from a third party; provided, however, that no delay on the part
of the Indemnified Party in notifying the Indemnifying Party shall
relieve the Indemnifying Party from any
46
obligation hereunder unless, and then solely to the extent that, the
Indemnifying Party is actually prejudiced thereby.
(b) Once the Indemnified Party has given notice of the matter to
the Indemnifying Party, the Indemnified Party may, subject to the
Indemnifying Party's rights to assume the defense of such matter
pursuant to paragraph (c) below, defend against the matter in any manner
it deems appropriate.
(c) The Indemnifying Party may at any point in time choose to
assume the defense of all of such matter, in which event:
(i) the Indemnifying Party shall defend the Indemnified
Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party,
(ii) the Indemnified Party may retain separate counsel
at its sole cost and expense (except that the Indemnifying Party
shall be responsible for the fees and expenses of one separate
co-counsel for all Indemnified Parties to the extent the
Indemnified Party is advised, in writing by its counsel, that
either (x) the counsel the Indemnifying Party has selected has a
conflict of interest, or (y) there are legal defenses available
to the Indemnified Party that are different from or additional
to those available to the Indemnifying Party), and
(iii) the Indemnifying Party shall reimburse the
Indemnified Party for the reasonable costs of defense or
investigation for the period prior to the assumption of the
defense.
(d) Assumption of the defense of any matter by the Indemnifying
Party shall without further action constitute an irrevocable waiver by
the Indemnifying Party of its right to claim at a later date that such
third party action for which the defense was assumed is not a proper
matter for indemnification pursuant to this Article X.
(e) The Indemnified Party shall not consent to the entry of a
judgment or enter into any settlement with respect to any matter which
may give rise to a claim for indemnification without the written consent
of the Indemnifying Party, which consent may not be unreasonably
withheld or delayed; provided, however, that if the Indemnifying Party
has failed to provide indemnification required to be provided pursuant
to this Article X for fifteen days after a request therefor, then the
Indemnified Party may take any such action without the consent of the
Indemnifying Party.
(f) The Indemnifying Party shall not consent to the entry of a
judgment with respect to any matter which may give rise to a claim for
indemnification or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the
written consent of the Indemnified Party (not to be unreasonably
withheld or delayed).
47
SECTION 10.4. CERTAIN ADDITIONAL PROVISIONS RELATING TO
INDEMNIFICATION.
(a) Notwithstanding Section 12.11, after the Closing Date, the
indemnification provisions set forth in this Article X shall constitute
the sole and exclusive recourse and remedy available to the Purchaser
with respect to the breach of any representation or warranty contained
in this Agreement or in any certificate delivered pursuant to this
Agreement except for actual fraud.
(b) Notwithstanding anything in this Agreement to the contrary,
for purposes of this Article X, in determining the existence of a breach
of any representation, warranty, covenant or agreement and the amount of
Damages, no effect shall be given to any qualification as to materiality
or Material Adverse Effect.
(c) All payments by an Indemnifying Party under Article X shall
be treated as an adjustment to the Purchase Price for all foreign,
federal, state and local income tax purposes.
(d) Purchaser's right to indemnification, reimbursement or other
remedy based upon the representations, warranties, covenants and
obligations herein shall not be affected by any investigation (including
any environmental investigation or assessment) conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty,
covenant or obligation.
SECTION 10.5. PROCEDURES RELATING TO TAX CLAIMS.
If a claim is made by any Tax authority which, if successful, is
likely to result in an indemnity payment to the Purchaser or any of its
Affiliates pursuant to this Article X, the Purchaser shall notify the Seller of
such claim (a "Tax Claim"), stating the nature and basis of such claim and the
amount thereof, to the extent known. Failure to give such notice shall not
relieve the Seller from any liability which it may have on account of this
indemnification or otherwise, except to the extent that the Seller is materially
prejudiced thereby. The Seller will have the right, at its option, upon timely
notice to the Purchaser, to assume control of any defense of any Tax Claim
(other than a Tax Claim relating solely to Taxes of the Company for a Straddle
Period) with its own counsel, provided, however, such counsel is reasonable
satisfactory to the Purchaser. The Seller's right to control a Tax Claim will be
limited to amounts in dispute which would be paid by the Seller or for which the
Seller would be liable pursuant to this Article X. Costs of such Tax Claims are
to be borne by the Seller unless the Tax Claim relates to taxable periods ending
after the Closing Date, in which event such costs will be fairly apportioned.
The Purchaser and the Company shall cooperate with the Seller in contesting any
Tax Claim, which cooperation shall include the retention and, upon the Seller's
request, the provision of records and information which are reasonably relevant
to such Tax Claim and making employees available on a mutually convenient basis
to provide additional information or explanation of any material provided
hereunder. Notwithstanding the foregoing, the Seller shall neither consent nor
agree (nor cause the Company to consent or agree) to the settlement of any Tax
Claim with respect to any liability for Taxes that may affect the liability for
any state or
48
federal income tax of the Company or any Affiliated Group of which the Company
is a member for any taxable period ending subsequent to the Closing Date without
the prior written consent of the Purchaser, and neither the Seller, nor any
Seller Entity, shall file an amended Tax Return that may affect the liability
for Taxes of the Company without the prior written consent of the Purchaser. The
Purchaser and the Seller shall jointly control all proceedings taken in
connection with any claims for Taxes relating solely to a Straddle Period of the
Company.
SECTION 10.6. PURCHASER'S INDEMNIFICATION OF SELLER.
In the event that the Purchaser breaches any of its
representations, warranties or covenants contained in this Agreement or in any
certificate delivered by the Purchaser pursuant hereto and provided that, as to
any claim for breach of representations or warranties, the Seller makes a
written claim for indemnification against the Purchaser within the applicable
survival period, if applicable, then the Purchaser agrees to indemnify the
Seller and its Affiliates from and against all Damages the Seller and its
Affiliates suffer resulting from or arising out of such event; provided,
however, that the Seller shall not have any obligation to indemnify the
Purchaser from and against any Damages resulting from the breach of any
representation or warranty of the Purchaser (as opposed to any covenant of the
Purchaser) contained in Article IV of this Agreement until the Seller has
suffered aggregate Damages, by reason of all such breaches in excess of $25,000;
provided further that (i) and Purchaser shall have no obligation to indemnify
the Seller for the initial $25,000 in Damages, and (ii) no claim may be made by
Seller under this Section unless such claim exceeds $10,000 in value. In any
event, the maximum amount that Purchaser shall be required to pay as to all
claims made under this Section shall be the maximum indemnification amount set
forth in Section 10.2(a) for Seller's indemnification of Purchaser. For the
purposes of this Section 10.5, the representations and warranties of Purchaser
hereunder shall survive for a period of two (2) years after the Closing Date.
ARTICLE XI.
TERMINATION
SECTION 11.1. TERMINATION.
Anything in this Agreement to the contrary notwithstanding, this
Agreement and the transactions contemplated hereby may be terminated in any of
the following ways at any time before the Closing and in no other manner:
(a) By mutual written consent of the Purchaser and the Seller;
(b) By the Purchaser upon five (5) Business Days notice if, at
or before the Closing Date, satisfaction of any condition set forth in
Article VIII is or becomes impossible (other than through the breach by
the Purchaser of any of its representations or warranties or the failure
of the Purchaser to perform any of its obligations pursuant to this
Agreement) and the Purchaser shall not have waived such condition in
writing at or before the Closing Date;
(c) By the Seller upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in
Article VII is or becomes
49
impossible (other than through the breach by the Seller of any of its
representations or warranties or the failure of the Seller to perform
any of its obligations pursuant to this Agreement) and the Seller shall
not have waived such condition in writing at or before the Closing Date;
(d) By the Purchaser or the Seller (if such terminating party is
not then in default of any obligation hereunder), [if the Closing has
not occurred within 40 days following the date first set forth above;
provided, however, that such date shall be extended for ten (10)
Business Days after any notice given pursuant to Section 11.1(b) on or
prior to such date;] or
(e) By the Purchaser if the Purchaser has reasonable grounds to
believe that the Seller has violated the terms of Section 5.5.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
SECTION 12.1. NOTICES.
All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one Business Day
after the date when sent to the recipient by reputable express courier service
(charges prepaid), or (d) seven Business Days after the date when mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Seller and to the Purchaser at the addresses indicated below:
If to the Seller: International Microcomputer Software, Inc.
100 Rowland Way
Novato, CA 94945-5037
Attn: Gordon Landies, President
Fax: (415) 897-2544
With a copy to: Niesar Curls Bartling LLP
(which shall not constitute notice) 90 New Montgomery Street, 9th Floor
San Francisco, CA 94105
Attn: Gerald V. Niesar, Esq.
Fax: (415) 882-5400
If to the Purchaser: Smith Micro Software, Inc.
51 Columbia, Suite 200
Aliso Viejo, CA 92656
Attn: William W. Smith, Jr.
Fax: (949) 362-2300
50
With a copy to: Dorsey & Whitney LLP
(which shall not constitute notice) 38 Technology Drive
Irvine, CA 92618
Attn: Patrick Arrington
Fax: (949) 932-3688
or to such other address as either party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section.
SECTION 12.2. AMENDMENTS.
The terms, provisions and conditions of this Agreement may not
be changed, modified or amended in any manner except by an instrument in writing
duly executed by both of the parties hereto.
SECTION 12.3. ANNOUNCEMENTS.
All press releases, notices to customers and suppliers and
similar public announcements prior to or within five days after the Closing Date
with respect to this Agreement and the transactions contemplated by this
Agreement shall be approved by both the Purchaser and the Seller prior to the
issuance thereof; provided that either party may make any public disclosure it
believes in good faith is required by law, regulation or rule of any stock
exchange on which its securities are traded (in which case the disclosing party
shall use reasonable efforts to advise the other party prior to making such
disclosure and to provide the other party a reasonable opportunity to review the
proposed disclosure).
SECTION 12.4. EXPENSES.
Except as expressly set forth in this Agreement, each party to
this Agreement shall bear all of its legal, accounting, investment banking, and
other expenses incurred by it or on its behalf in connection with the
transactions contemplated by this Agreement, whether or not such transactions
are consummated.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof, supersedes and is in
full substitution for any and all prior agreements and understandings among them
relating to such subject matter, and no party shall be liable or bound to the
other party hereto in any manner with respect to such subject matter by any
warranties, representations, indemnities, covenants, or agreements except as
specifically set forth herein. The Exhibits and Schedules to this Agreement are
hereby incorporated and made a part hereof and are an integral part of this
Agreement.
51
SECTION 12.6. DESCRIPTIVE HEADINGS.
The descriptive headings of the several sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
SECTION 12.7. COUNTERPARTS.
For the convenience of the parties, any number of counterparts
of this Agreement may be executed by any one or more parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original, but
all of which shall constitute, and shall be deemed to constitute, in the
aggregate but one and the same instrument.
SECTION 12.8. GOVERNING LAW; JURISDICTION.
(a) This Agreement and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts made and performed
therein without regard to principles of conflicts of law.
(b) Any legal action or proceeding with respect to this
Agreement shall be brought in the courts of the State of California or
of the United States of America for the Northern District of California,
and, by execution and delivery of this Agreement, the parties hereto
hereby accept for themselves and in respect of their property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The
parties hereto hereby irrevocably waive any objection, including any
objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing
of any such action or proceeding in such respective jurisdictions.
SECTION 12.9. CONSTRUCTION.
The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction will be applied against any party. Any references to any
federal, state, local or foreign statute or law will also refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Unless the context otherwise requires: (a) a term has the meaning assigned to it
by this Agreement; (b) including means "including but not limited to"; (c) "or"
is disjunctive but not exclusive; (d) words in the singular include the plural,
and in the plural include the singular; and (e) "$" means the currency of the
United States of America.
SECTION 12.10. SEVERABILITY.
In the event that any one or more of the provisions contained in
this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, then to
the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument. Furthermore, in lieu of any such invalid or unenforceable
term or provision, the parties hereto intend that there shall be added as a part
of this Agreement a provision as similar
52
in terms to such invalid or unenforceable provision as may be possible and be
valid and enforceable.
SECTION 12.11. SPECIFIC PERFORMANCE.
Without limiting or waiving in any respect any rights or
remedies of Purchaser under this Agreement now or hereinafter existing at law or
in equity or by statute, each of the parties hereto shall be entitled to seek
specific performance of the obligations to be performed by the other in
accordance with the provisions of this Agreement.
[Remainder of page intentionally left blank.]
53
IN WITNESS WHEREOF, the Seller and the Purchaser have executed
and delivered this Agreement as of the day and year first written above.
SELLER INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By:
-------------------------------------
Name: Gordon Landies
Title: President
PURCHASER SMITH MICRO SOFTWARE, INC.
By:
-------------------------------------
Name: William W. Smith, Jr.
Title: Chairman & CEO