EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
THE SHAREHOLDERS OF
PWI TECHNOLOGIES, INC.
AND
INCENTRA SOLUTIONS, INC.
DATED AS OF MARCH 30, 2005
TABLE OF CONTENTS
PAGE
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RECITALS 8
ARTICLE I
PURCHASE AND SALE OF SHARES 8
SECTION 1.1. PURCHASE AND SALE OF SHARES 8
SECTION 1.2. CONSIDERATION 8
SECTION 1.3 CLOSING 11
ARTICLE II
REPRESENTATIONS AND WARANTIES OF THE COMPANY 12
SECTION 2.1 ORGANIZATION, STANDING AND CORPORATE POWER 12
SECTION 2.2 SUBSIDIARIES 12
SECTION 2.3 CAPITAL STRUCTURE 12
SECTION 2.4 AUTHORITY; NONCONTRAVENTION 13
SECTION 2.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES 14
SECTION 2.6 MATERIAL CONTRACTS 16
SECTION 2.7 PERMITS; COMPLIANCE WITH APPLICABLE LAWS 17
SECTION 2.8 ABSENCE OF LITIGATION 17
SECTION 2.9 TAX MATTERS 17
SECTION 2.10 EMPLOYEE BENEFIT PLANS 19
SECTION 2.11 LABOR MATTERS 22
SECTION 2.12 ENVIRONMENTAL MATTERS 23
SECTION 2.13 INTELLECTUAL PROPERTY 25
SECTION 2.14 INSURANCE MATTERS 27
SECTION 2.15 TRANSACTIONS WITH AFFILIATES 27
SECTION 2.16 VOTING REQUIREMENTS 27
SECTION 2.17 BROKERS 28
SECTION 2.18 REAL PROPERTY 28
SECTION 2.19 TANGIBLE PERSONAL PROPERTY 29
SECTION 2.20 INVESTMENT COMPANY 29
SECTION 2.21 BOARD APPROVAL 29
SECTION 2.22 BOOKS AND RECORDS 29
SECTION 2.23 STATUS OF SHARES BEING TRANSFERRED 29
SECTION 2.24 INVESTMENT IN PURCHASER COMMON STOCK 29
SECTION 2.25 DISCLOSURE 30
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER 31
SECTION 3.1 ORGANIZATION; STANDING AND CORPORATE POWER 31
Page 2
SECTION 3.2 CAPITAL STRUCTURE 31
SECTION 3.3 AUTHORITY; NONCONTRAVENTION 32
SECTION 3.4 PURCHASER DOCUMENTS 33
SECTION 3.5 VOTING REQUIREMENTS 33
SECTION 3.6 BROKERS 34
SECTION 3.7 BOARD APPROVAL 34
SECTION 3.8 BOOKS AND RECORDS 34
SECTION 3.9 SARBANES OXLEY ACT COMPLIANCE 34
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS 34
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY 34
SECTION 4.2 ADVICE OF CHANGES 36
SECTION 4.3 NO SOLICITATION BY THE COMPANY 36
SECTION 4.4 CONDUCT OF BUSINESS BY PURCHASER 37
SECTION 4.5 TRANSITION 37
ARTICLE V
ADDITIONAL AGREEMENTS 37
SECTION 5.1 ACCESS TO INFORMATION; CONFIDENTIALITY 37
SECTION 5.2 COMMERCIALLY REASONABLE EFFORTS 38
SECTION 5.3 FEES AND EXPENSES 38
SECTION 5.4 PUBLIC ANNOUNCEMENTS 38
SECTION 5.5 REGULATION D 38
SECTION 5.6 PURCHASER'S STOP TRANSFER ON ALLEGED BREACH OF
SHAREHOLDER REPRESENTATIONS AND WARRANTIES 39
SECTION 5.7 PURCHASER'S ASSUMPTION AND PAYMENT OF
OBLIGATIONS PERSONALLY GUARANTEED BY SHAREHOLDERS 39
SECTION 5.8 RULE 144 COMPLIANCE 37
SECTION 5.9 SHAREHOLDERS COVENANT NOT TO COMPETE 39
SECTION 5.10 SHAREHOLDER AFFILIATED COMPANIES TRADE PAYABLES
TO THE COMPANY; SECURITY INTEREST 40
ARTICLE VI
CONDITIONS PRECEDENT 40
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO
EFFECT THE PURCHASE 40
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER 41
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS 43
SECTION 6.4 FRUSTRATION OF CLOSING CONDITIONS 44
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ARTICLE VII
INDEMNIFICATION; ARBITRATION 44
SECTION 7.1 INDEMNIFICATION 44
SECTION 7.2 CLAIMS AND PROCEDURE 46
SECTION 7.3 ARBITRATION 47
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER 48
SECTION 8.1 TERMINATION 48
SECTION 8.2 EFFECT OF TERMINATION 49
SECTION 8.3 AMENDMENT 50
SECTION 8.4 EXTENSION; WAIVER 50
ARTICLE IX
GENERAL PROVISIONS 50
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS 50
SECTION 9.2 NOTICES 50
SECTION 9.3 DEFINITIONS 51
SECTION 9.4 INTERPRETATION 52
SECTION 9.5 COUNTERPARTS 52
SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES 52
SECTION 9.7 GOVERNING LAW 52
SECTION 9.8 ASSIGNMENT 53
SECTION 9.9 CONSENT TO JURISDICTION 53
SECTION 9.10 HEADINGS 53
SECTION 9.11 SEVERABILITY 53
SECTION 9.12 ENFORCEMENT 53
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EXHIBITS
Exhibit A - Form of Employment Agreements
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Security Agreement
Exhibit D - Form of Settlement Agreement
Exhibit E - Form of Debt Assignment
Exhibit F - Form of Debt Forgiveness
SCHEDULES
Company Disclosure Schedule
Addendum to Company Disclosure Schedule
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INDEX OF DEFINED TERMS
DEFINED TERMS
DEFINED SECTION
- ------------- -------
affiliate Section 9.3(a)
Agreement Preamble
AI Section 5.10
Closing Section 1.3
Closing Date Section 1.3
Closing Payment Section 1.2(a)
Code Section 2.9(e)
Company Preamble
Company Acquisition Proposal Section 4.3(a)
Company Certificate of Incorporation Section 2.2(b)
Company Common Stock Section 2.3(a)
Company Disclosure Schedule Article II
Company Financial Statements Section 2.5(a)
Company IP Agreements Section 2.13(g)
Company Material Contracts Section 2.6(b)
Company Permitted Lien Section 2.19
Competing Business Section 5.9
Dispute Section 7.3
Earn Out Payment Section 1.1
EBITDA Section 1.2(b)
Employee Plans Section 2.10(a)
Employment Agreements Section 6.2(h)
encumbrance Section 9.3(b)
Environmental Laws Section 2.12(d)(i)
Environmental Permits Section 2.12(d)(ii)
ERISA Section 2.10(a)
ERISA Affiliate Section 2.10(a)
Fiduciary Section 2.10(e)
GAAP Section 2.5(a)
Government Entities Section 2.4(c)
Governmental Entity Section 2.4(c)
Hazardous Substances Section 2.12(d)(iii)
indemnified party Section 7.2(a)
indemnifying party Section 7.2(a)
Initial Consideration Section 1.1
Intellectual Property Section 2.13(a)
IRS Section 2.10(g)
knowledge Section 9.3(c)
Liens Section 2.4(d)
material adverse change Section 9.3(d)
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material adverse effect Section 9.3(d)
Multi-Employer Plans Section 2.10(d)
Other Company Documents Section 2.7(c)
person Section 9.3(e)
Purchaser Preamble
Purchaser Common Stock Section 3.2(a)
Purchaser Employee Stock Options Section 3.2(a)
Purchaser Purchaser Indemnified Parties Section 7.1(a)
Purchaser Losses Section 7.1(a)
Purchaser SEC Documents Section 3.4(a)
Purchaser Preferred Stock Section 3.2(a)
Purchaser Stock Plans Section 3.2(a)
Permits Section 2.7(a)
Release Section 2.12(d)(iv)
Registration Rights Agreement Section 6.2(i)
Requisite Regulatory Approvals Section 6.1(b)
Restraints Section 6.1(c)
Sarbanes Oxley Act Section 3.9
SEC Section 3.4(a)
Securities Act Section 2.24(a)
Seller Indemnified Parties Section 7.1(b)
Seller Losses Section 7.1(b)
Shareholder Affiliated Companies Section 5.9
Shareholders Preamble
Shares Recitals
Software Section 2.13(a)
subsidiary Section 9.3(f)
Tangible Personal Property Section 2.18
Tax Section 2.9(i)(i)
Taxes Section 2.9(i)(i)
Tax Return Section 2.9(i)(ii)
Third Party Rights Section 2.13(d)
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of March ___,
2005, by and between INCENTRA SOLUTIONS, INC., a Nevada corporation
("Purchaser") and the persons whose names and signatures appear at the end of
this Agreement, all of whom are shareholders of PWI TECHNOLOGIES, INC., a
Washington corporation (the "Company"), referred to collectively as
"Shareholders" and individually as "Shareholder".
RECITALS
WHEREAS, Shareholders own all of the outstanding shares of capital
stock (the "Shares") of the Company;
WHEREAS, Shareholders intend to sell and Purchaser intends to purchase
the Shares;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. PURCHASE AND SALE OF THE SHARES. Upon the terms and
subject to the conditions of this Agreement, Shareholders agree to sell, convey,
assign and transfer, and Purchaser agrees to purchase, the Shares, free and
clear of all Encumbrances (as defined in Section 9.3(b) hereof) for the initial
aggregate sum of One Million One Hundred Thirty Five Thousand Dollars
($1,135,000.00), consisting of Three Hundred Thirty Five Thousand Dollars
($335,000.00) in cash and Eight Hundred Thousand Dollars ($800,000.00) in
Purchaser's unregistered common stock (together the "Initial Consideration");
together with further consideration consisting of the transfer to or retention
by the Shareholders of the receivables and debt instruments referenced in
Section 2.15 of the Company Disclosure Schedule, as described and limited in
Section 5.11. Purchaser shall pay Shareholders additional consideration pursuant
to the provisions of Section 1.2(b), if, and only if, the conditions of such
Section 1.2(b) are satisfied and only to the extent satisfied (the "Earn Out
Payment"). At the Closing (as defined in Section 1.3) each Shareholder will
transfer to Purchaser the Shares listed after his or her name in Section 1.1 of
the Company Disclosure Schedule, which together will constitute all of the
issued and outstanding Shares of the Company.
Page 8
SECTION 1.2. CONSIDERATION.
(a) Upon the terms and subject to the conditions of this Agreement, in
consideration of the sale, conveyance, assignment and transfer of the Shares to
Purchaser at the Closing, Purchaser agrees to:
(1) Pay to each Shareholder his or her pro rata share, as
defined below, of One Hundred Thousand Dollars ($100,000.00) at the Closing (the
"Closing Payment");
(2) As of the Closing Date, issue to each Shareholder, or to
his or her designee, his or her pro rata share, as defined below, of Eight
Hundred Thousand Dollars ($800,000.00) of Purchaser's unregistered common stock.
The total number of shares of Purchaser's unregistered common stock to be issued
pursuant to this Section 1.2(a)(2) shall be determined by dividing Eight Hundred
Thousand Dollars ($800,000.00) by the average closing price of Purchaser's
publicly traded common stock for the fifteen (15) trading day period ending, and
including, one day prior to the Closing Date.
(b) Purchaser shall pay Shareholder Gary Henderson ("Henderson") the
sum of Two Hundred Thirty Five Thousand Dollars ($235,000.00) in twelve (12)
equal monthly installments of Nineteen Thousand Five Hundred Eighty Three and
33/100 Dollars ($19,583.33) on the first day of each month beginning May 1, 2005
and ending April 1, 2006.
(c) On or before March 31, 2006, and subject to the conditions set
forth below, Purchaser will pay Shareholders an Earn Out Payment as follows:
(1) In the event Earnings Before Interest, Taxes, Depreciation
and Amortization, as defined below, ("EBITDA") of PWI
Technologies, Inc. for the twelve (12) month period beginning
February 1, 2005 and ending January 31, 2006 reaches Four
Hundred Fifty Thousand Dollars ($450,000.00), Purchaser shall
pay to each Shareholder his or her pro rata share, as defined
below, of One Hundred Thousand Dollars ($100,000.00) within
forty-five (45) days of the end of the month in which such
EBITDA level is reached; and,
(2) In the event Earnings Before Interest, Taxes, Depreciation
and Amortization, as defined below, ("EBITDA") of PWI
Technologies, Inc. for the twelve (12) month period beginning
February 1, 2005 and ending January 31, 2006 is equal to or
greater than Seven Hundred Fifty Thousand Dollars
($750,000.00), but less than One Million Dollars
($1,000,000.00), Purchaser shall issue to each Shareholder his
or her pro rata share, as defined below, of Five Hundred
Thousand Dollars ($500,000.00) of Purchaser's unregistered
common stock, with the total
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number of shares to be issued determined by dividing Five
Hundred Thousand Dollars ($500,000.00) by the average closing
price of Purchaser's publicly traded common stock for the
fifteen (15) trading day period ending, and including, one day
prior to the Closing Date, adjusted for any stock split,
reverse split, stock dividends or other adjustments to
Purchaser common stock; or,
(3) In the event EBITDA of PWI Technologies, Inc. for the
twelve (12) month period beginning February 1, 2005 and ending
January 31, 2006 is equal to or greater than One Million
Dollars ($1,000,000.00) but less than One Million Fifty
Thousand Dollars ($1,050,000.00), Purchaser shall and shall
issue to each Shareholder his or her pro rata share, as
defined below, of One Million Dollars ($1,000,000.00) of
Purchaser's unregistered common stock plus One Dollar ($1.00)
of Purchaser's unregistered common stock for each One Dollar
($1.00) of EBITDA in excess of One Million Dollars
($1,000,000.00) for such period, with the total number of
shares to be issued determined by dividing the sum of One
Million Dollars ($1,000,000.00) plus One Dollar ($1.00) of
Purchaser's unregistered common stock for each One Dollar
($1.00) of EBITDA in excess of One Million Dollars
($1,000,000.00) for such period by the average closing price
of Purchaser's publicly traded common stock for the fifteen
(15) trading day period ending, and including, one day prior
to the Closing Date; adjusted for any stock split, reverse
split, stock dividends or other adjustments to Purchaser
common stock; or,
(4) In the event EBITDA of PWI Technologies, Inc. for the
twelve (12) month period beginning February 1, 2005 and ending
January 31, 2006 is equal to or greater than One Million Fifty
Thousand Dollars ($1,050,000.00), Purchaser shall pay to each
Shareholder his or her pro rata share, as defined below, of
One Hundred Thousand Dollars ($100,000.00) and shall issue to
each Shareholder his or her pro rata share, as defined below,
of One Million Dollars ($1,000,000.00) of Purchaser's
unregistered common stock plus One Dollar ($1.00) of
Purchaser's unregistered common stock for each One Dollar
($1.00) of EBITDA in excess of One Million Dollars
($1,000,000.00) for such period, with the total number of
shares to be issued determined by dividing the sum of One
Million Dollars ($1,000,000.00) plus One Dollar ($1.00) of
Purchaser's unregistered common stock for each One Dollar
($1.00) of EBITDA in excess of One Million Dollars
($1,000,000.00) for such period by the average closing price
of Purchaser's publicly traded common stock for the fifteen
(15) trading day period ending, and including, one day prior
to the Closing Date; adjusted for any stock split, reverse
split, stock dividends or other adjustments to Purchaser
common stock.
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(5) For purposes of this Agreement, EBITDA shall be defined as
the net income of the Company, as determined by generally
accepted accounting principles, plus interest, taxes,
depreciation and amortization and subject to the other
restrictions or limitations on allocation of expenses as
provided in this Agreement. The parties agree that no
headquarters or overhead expenses or costs of Purchaser or its
affiliates or subsidiaries or other charges of or from
Purchaser will be allocated or charged to Company for purposes
of determining EBITDA under this Agreement.
Page 11
(c) For purposes of this Agreement, a Shareholder's pro rata share
shall be determined by dividing the number of Shares held and transferred by
such Shareholder by the total number of the Shares.
(d) For purposes of the Earn Out Payment only, the right of Shareholder
Barry Andersen ("Andersen") to receive his pro rata share of any such payment
shall be subject to his continued employment with the Company as follows:
(1) In the event Andersen terminates his employment with the
Company or such employment is terminated for cause, as defined in his employment
agreement with the Company, within 180 days of the Closing, Andersen shall not
be entitled to receive any portion of his pro rata share of any Earn Out Payment
that otherwise becomes due; and
(2) in the event Andersen terminates his employment with the
Company or such employment is terminated for cause, as defined in his employment
agreement with the Company, more than 180 days after the Closing but within 365
days of the Closing, then Andersen shall be entitled to receive a portion of any
Earn Out Payment that otherwise becomes due that is equal to his pro rata share
of such payment times a fraction the numerator of which is the number of days
employment he completed after the Closing and the denominator of which is 365
days.
(3) Notwithstanding anything herein to the contrary, the
termination of Andersen's employment by reason of his death or disability shall
not affect his entitlement to receive his pro rata share of any Earn Out
Payment.
SECTION 1.3 CLOSING. Subject to the satisfaction or, to the
extent permitted by applicable law, waiver of the conditions to consummation of
the Purchase contained in Article VI hereof, the closing of the Purchase (the
"Closing") shall take place at 10:00 a.m., Denver time, on a date specified by
the parties (the "Closing Date"), which date shall not be later than the third
business day following satisfaction or, to the extent permitted by applicable
law, waiver of the conditions to consummation of the Purchase contained in
Article VI (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the fulfillment or, to the extent permitted by
applicable law, waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at the offices of
Purchaser, located at 1140 Pearl Street, Boulder, CO 80302 or at such other
location as is agreed to by the parties hereto.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Disclosure Schedule delivered by the Company
to Purchaser prior to the execution of this Agreement which hereby is
incorporated by reference in and constitutes an integral part of this Agreement
(the "COMPANY DISCLOSURE SCHEDULE"), the Shareholders hereby represent and
warrant to Purchaser as follows:
SECTION 2.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(a) Each of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization and has the requisite corporate power and
authority to carry on its business as presently being conducted. Each of the
Company and its subsidiaries is duly qualified or licensed to conduct business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not reasonably be expected to have a material adverse
effect on the Company.
(b) The Company has delivered or made available to Purchaser prior to the
execution of this Agreement complete and correct copies of the certificate of
incorporation and by-laws of the Company and each of its subsidiaries, each as
in effect at the date of this Agreement. (c)
SECTION 2.2. SUBSIDIARIES. Section 2.2 of the Company Disclosure
Schedule lists the names and jurisdiction of incorporation or organization of
all the subsidiaries of the Company, whether consolidated or unconsolidated. The
outstanding securities of the subsidiaries of Company are set forth in Section
2.2 of the Company Disclosure Schedules and all outstanding shares of capital
stock of, or other equity interests in, each such subsidiary: (i) have been duly
authorized, validly issued and are fully paid and nonassessable and (ii) are
owned directly or indirectly by Company, free and clear of all Liens. Except as
set forth above or in Section 2.2 of the Company Disclosure Schedule, the
Company does not own, directly or indirectly, any capital stock of or other
equity or voting interests in any person.
SECTION 2.3. CAPITAL STRUCTURE. As of the date hereof:
(a) (i) The only class of capital stock authorized by the
Company is common stock ("Company Common Stock"); (ii) 1,000,000 shares of
Company Common Stock are authorized and 800,000 shares of Company Common Stock
are issued and outstanding, all held by Shareholders in the amounts set forth
next to their respective names in Section 2.3(a) of the Company Disclosure
Schedule; and (iii) no shares of
Page 13
Company Common Stock are held by the Company in its treasury and no shares of
Company Common Stock are held by subsidiaries of the Company
(b) Except as set forth on Section 2.3(b) of the Company
Disclosure Schedule, all outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable and
are not subject to preemptive rights created by statute, the Company's
Certificate of Incorporation (the "COMPANY CERTIFICATE OF INCORPORATION") or any
agreement to which the Company is a party or by which the Company may be bound.
(c) Except as set forth in Section 2.3(c) of the Company
Disclosure Schedule, there are outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, and (iii) no options or other rights to acquire from
the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock of the Company.
SECTION 2.4. AUTHORITY; NONCONTRAVENTION.
(a) Shareholders have the power and authority to execute,
deliver and perform this Agreement and the other agreements to be executed and
delivered by Shareholders in connection herewith and to consummate the
transactions contemplated hereby and thereby. All acts and proceedings required
to be taken by or on the part of Shareholders to authorize Shareholders to
execute, deliver and perform this Agreement and the other agreements to be
executed and delivered by Shareholders in connection herewith and to consummate
the transactions contemplated hereby and thereby have been duly and validly
taken. This Agreement constitutes a valid and binding agreement, and the other
agreements to be executed and delivered by Shareholders in connection herewith
when so executed and delivered will constitute valid and binding agreements, of
Shareholders.
(b) Except as set forth in Section 2.4(b) of the Company
Disclosure Schedule, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, conflict with
or result in a violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation under (i) any provision of the Company
Certificate of Incorporation or by-laws, (ii) any material loan or credit
agreement, note, mortgage, indenture, lease or other material agreement or (iii)
material instrument, permit, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets.
Page 14
(c) The execution, delivery and performance by the
Shareholders of this Agreement and the consummation of the purchase and sale of
the Shares by the Shareholders require no consent, approval, order or
authorization of, action by or in respect of, or registration or filing with,
any governmental body, court, agency, official or authority (each, a
"GOVERNMENTAL ENTITY", collectively "GOVERNMENT ENTITIES").
(d) The execution and delivery of this Agreement and the
consummation of the purchase and sale of the Shares will not result in the
creation of any pledges, claims, liens, charges, encumbrances, adverse claims,
mortgages and security interests of any kind or nature whatsoever (collectively,
"LIENS") upon any asset of the Company.
(e) Except as set forth in Section 2.4(e) of the Company
Disclosure Schedule, no consent, approval, waiver or other action by any person
(other than the Governmental Entities referred to in (d) above) under any
Company Material Contract is required or necessary for, or made necessary by
reason of, the execution, delivery and performance of this Agreement by the
Shareholders or the consummation of the purchase and sale of the Shares.
SECTION 2.5. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has furnished to the Purchaser true, correct
and complete copies of: (i) balance sheets of the Company as of December 31,
2001, December 31, 2002 and December 31, 2003 compiled by the Company; (ii)
income statements of the Company for the fiscal years ended December 31, 2001,
December 31, 2002 and December 31, 2003 compiled by the Company, (iii) a balance
sheet, income statement, statement of cash flow and statement of Shareholders'
equity of the Company for the fiscal year ended December 31, 2004 audited by the
Company's independent accountants, and (iv) an income statement and statement of
cash flows for the Company for the period from January 1, 2005 through and
including March 21, 2005, and a balance sheet for the Company as of March 21,
2005 (collectively, the "Company Financial Statements"). Except as set forth in
Section 2.5(a) of the Company Disclosure Schedule, the Company Financial
Statements have been prepared by the Company on the basis of the books and
records maintained by the Company in the ordinary course of business in a manner
consistently used and applied throughout the periods involved and the accounting
practices and procedures have been applied consistently for interim periods
after the periods of the Company Financial Statements. Except as set forth in
Section 2.5(a) of the Company Disclosure Schedule, The Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") and fairly present in all material respects the financial
condition of the Company and its subsidiaries as at the respective dates
thereof.
Page 15
(b) Except for liabilities (i) set forth in Section 2.5 of the
Company Disclosure Schedule, (ii) reflected in the Company Financial Statements
or described in any notes thereto (or for which neither accrual nor footnote
disclosure is required pursuant to GAAP), or (iii) incurred in the ordinary
course of business, consistent with past practice or in connection with this
Agreement or the transactions contemplated hereby, neither the Company nor any
of its subsidiaries has any material liabilities or obligations of any nature.
The Company is not in default in respect of any terms or conditions of any
indebtedness.
(c) Other than changes in the usual and ordinary conduct of
business since December 31, 2004, there have been, and at the Closing Date there
will be, no changes in the financial condition of the Company. None of these
changes is, and at the Closing Date none will be, materially adverse.
Specifically, but, not by way of limitation, since its balance sheet of December
31, 2004 the Company has not, and prior to the Closing Date will not have:
(i) Issued or sold any stock, bond, or other Company
securities;
(ii) Except for current liabilities incurred and obligations
under contracts entered into in the ordinary course of business and except as
set forth in Section 2.5(b)(ii) of the Company Disclosure Schedule, incurred any
obligation or liability, absolute or contingent;
(iii) Except for current liabilities shown on the balance
sheet and current liabilities incurred since that date in the ordinary course of
business and except as set forth in Section 2.5(b)(iii) of the Company
Disclosure Schedule, discharged or satisfied any lien or encumbrance, or paid
any obligation or liability, absolute or contingent;
(iv) Mortgaged, pledged or subjected to lien or any other
encumbrance, any of its assets, tangible or intangible;
(v) Except in the ordinary course of business, sold or
transferred any of its tangible assets or canceled any debts or claims;
(vi) Sold, assigned, or transferred any patents, formulas,
trademarks, trade names, copyrights, licenses, or other intangible assets;
(vii) Suffered any extraordinary losses, been subjected to any
strikes or other labor disturbances, or waived any rights of any substantial
value; or
Page 16
(viii) Except for transactions contemplated by this Agreement,
entered into any transaction other than in the ordinary course of business.
(d) Subject to any changes that may have occurred in the
ordinary and usual course of business, the assets of the Company at the Closing
Date will be substantially those owned by it and shown on the Company Financial
Statements.
(e) Except to the extent that an allowance for uncollectible
accounts has been established on its books and is reflected in the Company
Financial Statements, all accounts receivable and notes receivable of the
Company are current and collectible. Such accounts receivable of the Company
have arisen in the ordinary course of business in arms-length transactions for
goods actually sold and services actually performed or to be performed.
(f) All inventory to be transferred to Purchaser pursuant to
this Agreement is in saleable condition.
SECTION 2.6. MATERIAL CONTRACTS.
(a) Each Company Material Contract is valid and binding on and
enforceable against the Company (or, to the extent a subsidiary is a party, such
subsidiary) and each other party thereto and is in full force and effect. Except
as set forth in Section 2.6 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries is in breach or default under any Company
Material Contract. Except as set forth in Section 2.6 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries knows of, and has not
received notice of, any violation or default under (nor, to the knowledge of the
Shareholders, does there exist any condition which with the passage of time or
the giving of notice or both would result in such a violation or default under)
any Company Material Contract by any other party thereto. Prior to the date
hereof, the Company has made available to Purchaser true and complete copies of
all Company Material Contracts.
(b) As used in this Agreement, "COMPANY MATERIAL CONTRACTS"
shall mean any contract, license agreement, commitment, lease, or restriction of
any kind to which the Company is a party or by which the Company or any of its
subsidiaries is bound or to which any of the Company's or any of its
subsidiaries' assets are subject which involve payments to or from the Company
of at least $50,000.
Page 17
SECTION 2.7. PERMITS; COMPLIANCE WITH APPLICABLE LAWS.
(a) The Company and its subsidiaries own and/or possess all
material permits, licenses, variances, authorizations, exemptions, orders,
registrations and approvals of all Governmental Entities which are required for
the operation of the business of the Company and its subsidiaries (the
"PERMITS") as presently conducted. The Company and its subsidiaries are in
compliance in all material respects with the terms of the Permits. All the
Permits are in full force and effect and no suspension, modification or
revocation of any of them is pending or threatened nor do grounds exist for any
such action.
(b) Except as set forth in Section 2.7(b) of the Company
Disclosure Schedule, each of the Company and its subsidiaries is in compliance
in all material respects with all applicable statutes, laws, regulations,
ordinances, Permits, rules, writs, judgments, orders, decrees and arbitration
awards of each Governmental Entity applicable to the Company or any of its
subsidiaries.
(c) Except for filings with respect to Taxes, which are the
subject of Section 2.9 and not covered by this Section 2.7(c) and except as set
forth in Section 2.7(c) of the Company Disclosure Schedule, the Company and each
of its subsidiaries has timely filed all regulatory reports, schedules, forms,
registrations and other documents, together with any amendments required to be
made with respect thereto, that they were required to file with each
Governmental Entity (the "OTHER COMPANY DOCUMENTS"), and have timely paid all
fees and assessments, if any, due and payable in connection therewith, except
where the failure to make such payments and filings individually or in the
aggregate would not have a material adverse effect on the Company.
SECTION 2.8. ABSENCE OF LITIGATION. Section 2.8 of the Company
Disclosure Schedule contains a true and current summary description of each
pending and, to the Shareholders' knowledge, threatened litigation, action,
suit, case, proceeding, investigation or arbitration. Except as set forth in
Section 2.8 of the Company Disclosure Schedule, no action, inquiry, demand,
charge, requirement or investigation by any Governmental Entity and no
litigation, action, suit, case, proceeding, investigation or arbitration by any
person or Governmental Entity, in each case with respect to the Company or any
of its subsidiaries or any of their respective properties or Permits, is pending
or, to the knowledge of the Shareholders, threatened.
SECTION 2.9. TAX MATTERS.
(a) Except as set forth in Section 2.9 of the Company
Disclosure Schedule, each of the Company and its subsidiaries has (i) filed with
the appropriate Governmental Entities all United States federal and state income
and other material Tax
Page 18
Returns required to be filed by it (giving effect to all extensions) and such
Tax Returns are true, correct and complete in all material respects; (ii) paid
in full all United States federal income and other material Taxes required to
have been paid by it; and (iii) made adequate provision for all accrued Taxes
not yet due. The accruals and provisions for Taxes reflected in the Company
Financial Statements are adequate in accordance with GAAP for all Taxes accrued
or accruable through the date of such statements.
(b) Except as set forth in Section 2.9 of the Company
Disclosure Schedule, as of the date of this Agreement, no Federal, state, local
or foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the Company or any
of its subsidiaries, and neither the Company nor any of its subsidiaries has
received a written notice of any material pending or proposed claims, audits or
proceedings with respect to Taxes.
(c) Except as set forth in Section 2.9 of the Company
Disclosure Schedule, no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed, asserted,
or assessed in writing by any Governmental Entity against, or with respect to,
the Company or any of its subsidiaries. There is no action, suit or audit now in
progress, pending or, to the knowledge of the Company, threatened against or
with respect to the Company or any of its subsidiaries with respect to any
material Tax.
(d) Neither the Company nor any of its subsidiaries has been
included in any "consolidated," "unitary" or "combined" Tax Return (other than
Tax Returns which include only the Company) provided for under the laws of the
United States, any foreign jurisdiction or any state or locality with respect to
Taxes for any taxable year.
(e) No election under Section 341(f) of the Internal Revenue
Code as from time to time amended (the "Code") has been made by the Company or
any of its subsidiaries.
(f) No claim has been made in writing by any Governmental
Entities in a jurisdiction where the Company or any of its subsidiaries does not
file Tax Returns that the Company is, or may be, subject to taxation by that
jurisdiction.
(g) Except as set forth in Section 2.9 of the Company
Disclosure Schedule, each of the Company and its subsidiaries has made available
to Purchaser correct and complete copies of (i) all of its material Tax Returns
filed within the past three (3) years, (ii) all audit reports, letter rulings,
technical advice memoranda and similar documents issued by a Governmental Entity
within the past three (3) years relating to the Federal, state, local or foreign
Taxes due from or with respect to the Company or any of its subsidiaries, and
(iii) any closing letters or agreements entered
Page 19
into by the Company with any Governmental Entities within the past three (3)
years with respect to Taxes.
(h) Except as set forth in Section 2.9 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries has
received any notice of deficiency or assessment from any Governmental Entity for
any amount of Tax that has not been fully settled or satisfied, and to the
knowledge of the Company, no such deficiency or assessment is proposed.
(i) For purposes of this Agreement:
(i) "TAX" or "TAXES" shall mean all federal, state,
county, local, foreign and other taxes of any kind whatsoever
(including, without limitation, income, profits, premium,
excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer,
license, stamp, environmental, withholding, employment,
unemployment compensation, payroll related and property taxes,
import duties and other governmental charges and assessments),
whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including
expenses associated with contesting any proposed adjustment
related to any of the foregoing.
(ii) "TAX RETURN" shall mean any return, information
report or filing with respect to Taxes, including any
schedules attached thereto and including any amendments
thereof.
SECTION 2.10. EMPLOYEE BENEFIT PLANS.
(a) Section 2.10 of the Company Disclosure Schedule contains a
true and complete list of all pension, stock option, stock purchase, benefit,
welfare, profit-sharing, retirement, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which (i) covers, is maintained
for the benefit of, or relates to any or all current or former employees of the
Company or any of its subsidiaries and any other entity ("ERISA AFFILIATE")
related to the Company under Section 414(b), (c), (m) and (o) of the Code and
(ii) is not a "multiemployer plan" as defined in Section 3(37) or Section
4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 414 of the Code (the "EMPLOYEE PLANS"). Section 2.10 of the
Company Disclosure Schedule identifies and includes but is not limited to, each
of the Employee Plans that is
Page 20
subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither
the Company, any of its subsidiaries nor any ERISA Affiliate of the Company or
any of its subsidiaries has any commitment or formal plan, whether or not
legally binding, to create any additional employee benefit plan or modify or
change any existing Employee Plan other than as may be required by the express
terms of such Employee Plan or applicable law.
(b) With respect to each Employee Plan that has been qualified
or is intended to be qualified under the Code or that is an "Employee Benefit
Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been
duly approved and adopted by all necessary and appropriate action of the Board
of Directors of the Company (or a duly constituted committee thereof).
(c) Except as set forth in Section 2.10 of the Company
Disclosure Schedule, with respect to the Employee Plans, all required
contributions for all periods ending before the Closing Date have been or will
be paid in full by the Closing Date. Subject only to normal retrospective
adjustments in the ordinary course, all required insurance premiums have been or
will be paid in full with regard to such Employee Plans for policy years or
other applicable policy periods ending on or before the Closing Date by the
Closing Date. As of the date hereof, none of the Employee Plans has unfunded
benefit liabilities, as defined in Section 4001(a)(16) of ERISA.
(d) The Company has no "multi-employer plans," as defined in
Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 ("MULTI-EMPLOYER
PLANS"), and never has had any such plans.
(e) With respect to each Employee Plan (i) no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code have
occurred or are expected to occur as a result of the Purchase or the
transactions contemplated by this Agreement, (ii) no action, suit, grievance,
arbitration or other type of litigation, or claim with respect to the assets of
any Employee Plan (other than routine claims for benefits made in the ordinary
course of plan administration for which plan administrative review procedures
have not been exhausted) is pending or, to the knowledge of the Company,
threatened or imminent against the Company, any ERISA Affiliate or any
fiduciary, as such term is defined in Section 3(21) of ERISA ("FIDUCIARY"),
including, but not limited to, any action, suit, grievance, arbitration or other
type of litigation, or claim regarding conduct that allegedly interferes with
the attainment of rights under any Employee Plan. To the knowledge of the
Company, neither the Company, nor its directors, officers, employees nor any
Fiduciary has any liability for failure to comply with ERISA or the Code for any
action or failure to act in connection with the administration or investment of
such plan. None of the Employee Plans is subject to any pending investigations
or to the knowledge of the Company threatened investigations from any
Governmental Agencies who enforce applicable laws under ERISA and the Code.
Page 21
(f) Each of the Employee Plans is, and has been, operated in
accordance with its terms and each of the Employee Plans, and administration
thereof, is, and has been, in all material respects in compliance with the
requirements of any and all applicable statutes, orders or governmental rules or
regulations currently in effect, including, but not limited to, ERISA and the
Code. Except as set forth in Section 2.10 of the Company Disclosure Schedule,
all required reports and descriptions of the Employee Plans (including but not
limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of
Exemption Under Section 501(a), Summary Annual Reports and Summary Plan
Descriptions) have been timely filed and distributed as required by ERISA and
the Code. Any notices required by ERISA or the Code or any other state or
federal law or any ruling or regulation of any state or federal administrative
agency with respect to the Employee Plans, including but not limited to any
notices required by Section 4980B of the Code, have been appropriately given.
(g) The Internal Revenue Service (the "IRS") has issued a
favorable determination letter or opinion letter with respect to each Employee
Plan intended to be "qualified" within the meaning of Section 401(a) of the Code
that has not been revoked and, to the knowledge of the Shareholders, no
circumstances exist that could adversely affect the qualified status of any such
plan and the exemption under Section 501(a) of the Code of the trust maintained
thereunder. Each Employee Plan intended to satisfy the requirements of Section
125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in all
material respects.
(h) With respect to each Employee Plan to which the Company or
any ERISA Affiliate made, or was required to make, contributions on behalf of
any employee during the five-year period ending on the last day of the most
recent plan year end prior to the Closing Date, (i) no liability under Title IV
or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate
that has not been satisfied in full, and (ii) to the knowledge of the
Shareholders, no condition exists that presents a material risk to the Company
or any ERISA Affiliate of incurring any such liability and (iii) the present
value of accrued benefits under such plan, based upon the actuarial assumptions
used for funding purposes in the most recent actuarial report prepared by such
plan's actuary with respect to such plan did not exceed, as of its latest
valuation date, the then current value of the assets of such plan allocable to
such accrued benefits. No Employee Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recently ended fiscal year.
(i) Except as set forth in Section 2.10 of the Company
Disclosure Schedule, no Employee Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by Section 4980B of the Code, Section
601 of ERISA or other applicable law, (ii) death benefits under any "pension
plan," (iii) benefits the full cost of which is borne by the employee
Page 22
(or his beneficiary) or (iv) Employee Plans that can be amended or terminated by
the Company without consent. The Company does not have any current or projected
liability with respect to post-employment or post-retirement welfare benefits
for retired, former, or current employees of the Company.
(j) No material amounts payable under the Employee Plans will
fail to be deductible for Federal income tax purposes by virtue of Section
162(m) of the Code.
(k) To the extent that the Company is deemed to be a fiduciary
with respect to any Plan that is subject to ERISA, the Company (i) during the
past five years has complied with the requirements of ERISA and the Code in the
performance of its duties and responsibilities with respect to such employee
benefit plan and (ii) has not knowingly caused any of the trusts for which it
serves as an investment manager, as defined in Section 3(38) of ERISA, to enter
into any transaction that would constitute a "prohibited transaction" under
Section 406 of ERISA or Section 4975 of the Code, with respect to any such
trusts, except for transactions that are the subject of a statutory or
administrative exemption.
(l) No person will be entitled to a "gross up" or other
similar payment in respect of excise taxes under Section 4999 of the Code with
respect to the transactions contemplated by this Agreement.
(m) None of the Employee Plans have been completely or
partially terminated and none has been the subject of a "reportable event" as
that term is defined in Section 4043 of ERISA. No amendment has been adopted
which would require the Company or any ERISA Affiliate to provide security
pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code.
SECTION 2.11. LABOR MATTERS.
(a) With respect to employees of the Company or its
subsidiaries: (i) to the knowledge of the Shareholders, no senior executive or
key employee has any plans to terminate employment with the Company or any of
its subsidiaries; (ii) there is no unfair labor practice charge or complaint
against the Company pending or, to the knowledge of the Shareholders, threatened
before the National Labor Relations Board or any other comparable Governmental
Entity; (iii) there is no demand for recognition made by any labor organization
or petition for election filed with the National Labor Relations Board or any
other comparable Governmental Entity; (iv) no grievance or any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and, to the knowledge of Shareholders, no claims therefor have been threatened
other than grievances or arbitrations incurred in the ordinary course of
business; (v) the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and
Page 23
thereby will not give rise to termination of any existing collective bargaining
agreement or permit any labor organization to commence or initiate any
negotiations in respect of wages, hours, benefits, severance or working
conditions under any such existing collective bargaining agreements; and (vi)
there is no litigation, arbitration proceeding, governmental investigation,
administrative charge, citation or action of any kind pending or, to the
knowledge of the Shareholders, proposed or threatened against the Company
relating to employment, employment practices, terms and conditions of employment
or wages, benefits, severance and hours.
(b) Section 2.11(b) of the Company Disclosure Schedule lists
the name, title, date of employment and current annual salary of each current
salaried employee whose annual salary exceeds $100,000. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby will not (i) result in any payment (including severance,
unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any
current or former director, employee or independent contractor of the Company or
any of its subsidiaries, from the Company or any of its subsidiaries under any
Employee Plan or other agreement, (ii) materially increase any benefits
otherwise payable under any Employee Plan or other agreement, or (iii) result in
the acceleration of the time of payment, exercise or vesting of any such
benefits.
(c) Section 2.11(c) of the Company Disclosure Schedule sets
forth all contracts, agreements, plans or arrangements covering any employee of
the Company or its subsidiaries containing "change of control," "stay-put,"
transition, retention, severance or similar provisions, and sets forth the names
and titles of all such employees, the amounts payable under such provisions,
whether such provisions would become payable as a result of the Purchase and the
transactions contemplated by this Agreement, and when such amounts would be
payable to such employees, all of which are in writing, have heretofore been
duly approved by the Company's Shareholders, and true and complete copies of all
of which have heretofore been delivered to Purchaser. There is no contract,
agreement, plan or arrangement (oral or written) covering any employee of the
Company that individually or collectively could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Section 280G of the
Code.
SECTION 2.12 ENVIRONMENTAL MATTERS. Except for such matters which would
not, individually or in the aggregate, reasonably be expected to result in a
material adverse effect on the Company or are listed in Section 2.12 of the
Company Disclosure Schedule, to the best of Shareholder's knowledge:
(a) COMPLIANCE. (i) The Company and its subsidiaries are in
compliance in all material respects with all applicable Environmental Laws; (ii)
neither the Company nor any of its subsidiaries has received any written
communication from any person or governmental entity that alleges that the
Company or any of its subsidiaries is not in compliance with applicable
Environmental Laws; and (iii) there have not been any
Page 24
Releases of Hazardous Substances by the Company or any of its subsidiaries, or,
by any other party, at any property currently or formerly owned or operated by
the Company or any of its subsidiaries that occurred during the period of the
Company's or any of its subsidiaries' ownership or operation of such property.
(b) ENVIRONMENTAL PERMITS. The Company and its subsidiaries
have all Environmental Permits necessary for the conduct and operation of its
business, and all such permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval, and
the Company or its subsidiaries are in compliance with all terms and conditions
of all such Environmental Permits and is not required to make any expenditure in
order to obtain or renew any Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. There are no Environmental Claims
pending or, to the Company's knowledge, threatened, against the Company, or
against any real or personal property or operation that the Company owns, leases
or manages.
(d) As used in this Agreement:
(i) "ENVIRONMENTAL LAWS" shall mean any and all binding and
applicable local, municipal, state, federal or international
law, statute, treaty, directive, decision, judgment, award,
regulation, decree, rule, code of practice, guidance, order,
direction, consent, authorization, permit or similar
requirement, approval or standard concerning (A)
occupational, consumer and/or public health and safety,
and/or (B) environmental matters (including clean-up
standards and practices), with respect to buildings,
equipment, soil, sub-surface strata, air, surface water, or
ground water, whether set forth in applicable law or applied
in practice, whether to facilities such as those of the
Company Properties in the jurisdictions in which the Company
Properties are located or to facilities such as those used
for the transportation, storage or disposal of Hazardous
Substances generated by the Company or otherwise.
(ii) "ENVIRONMENTAL PERMITS" shall mean Permits required by
Environmental Laws.
(iii) "HAZARDOUS SUBSTANCES" shall mean any and all
dangerous substances, hazardous substances, toxic
substances, radioactive substances, hazardous wastes,
special wastes, controlled wastes, oils, petroleum and
petroleum products, computer component parts, hazardous
chemicals and any other materials which are regulated by the
Environmental Laws or otherwise found or determined to be
potentially harmful to human health or the environment.
Page 25
(iv) "RELEASE" shall mean any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping,
leaching, migrating, dumping or disposing of Hazardous
Substances (including the abandonment or discarding of
barrels, containers or other closed receptacles containing
Hazardous Substances) into the environment.
SECTION 2.13 INTELLECTUAL PROPERTY.
(a) Section 2.13(a) of the Company Disclosure Schedule sets
forth, for the Intellectual Property (as defined below) owned or purported to be
owned by the Company or any of its subsidiaries, a complete and accurate list of
all U.S. and foreign (i) patents and patent applications, (ii) trademarks and
service marks which are registered or the subject of an application for
registration and material unregistered trademarks or service marks , (iii)
copyrights which are registered or the subject of an application for
registration, and (iv) Internet domain names. The Company or one of its
subsidiaries owns or has the valid right to use all patents and patent
applications, patent rights, trademarks, service marks, trademark or service
mark registrations and applications, trade names, logos, designs, Internet
domain names, slogans and general intangibles of like nature, together with all
goodwill related to the foregoing, copyrights, copyright registrations, renewals
and applications, Software (as defined below), technology, inventions,
discoveries, trade secrets and other confidential information, know-how,
proprietary processes, designs, processes, techniques, formulae, algorithms,
models and methodologies, licenses, and all other proprietary rights
(collectively, the "INTELLECTUAL PROPERTY") that it owns or purports to own or
is licensed to Company in a manner sufficient for the conduct of the business of
the Company as it currently is conducted. "SOFTWARE" means any and all (i)
computer programs, including any and all software implementations of algorithms,
models and methodologies, whether in source code or object code, (ii) databases
and compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, (iv)
the technology supporting and content contained on any owned or operated
Internet site(s), and (v) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(B) Except as set forth in Section 2.13(b) of the Company
Disclosure Schedule, all of the Intellectual Property owned or purported to be
owned by the Company or any of its subsidiaries is free and clear of all Liens.
The Company or one of its subsidiaries is listed in the records of the
appropriate United States, state or foreign agency as, the sole owner of record
for each patent and patent application and trademark, service mark and copyright
which is registered or the subject of an application for registration that is
listed in Section 2.13(a) of the Company Disclosure Schedule.
(c) All of the patents, patent applications, trademarks,
service marks and copyrights owned or purported to be owned by the Company which
have been
Page 26
issued by, or registered or the subject of an application filed with, as
applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or
in any similar office or agency anywhere in the world, including, but not
limited to the items listed in Section 2.13(a) of the Company Disclosure
Schedule are subsisting, enforceable, in full force and effect, and have not
been cancelled, expired, abandoned or otherwise terminated and all renewal fees
in respect thereof have been duly paid and are currently in compliance with all
formal legal requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications) and are, to the
Shareholders' knowledge, valid. There is no pending or, to the Shareholders'
knowledge, threatened opposition, interference, invalidation or cancellation
proceeding before any court or registration authority in any jurisdiction
against any of the items listed in Section 2.13(a) of the Company Disclosure
Schedule or, to the Shareholders' knowledge, against any other Intellectual
Property used by the Company or its subsidiaries.
(d) The conduct of the Company's or each of its subsidiaries'
business as currently conducted does not infringe upon (either directly or
indirectly such as through contributory infringement or inducement to infringe),
dilute, misappropriate or otherwise violate (i) any Intellectual Property owned
or controlled by any third party ("THIRD PARTY RIGHTS"), other than the rights
of any third party under any patent, or (ii) to the Shareholders' knowledge, the
rights of any third party under any patent. There are no pending, or, to the
knowledge of the Shareholders, threatened claims against the Company or any of
its subsidiaries alleging that the operation of the business as currently
conducted, infringes on or conflicts with any Third Party Rights.
(e) To the Shareholders' knowledge, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned or purported to be owned by or licensed to or by the Company or its
subsidiaries and no such claims have been made against a third party by the
Company or any of its subsidiaries.
(f) Each material item of Software, which is used by the
Company or any of its subsidiaries in connection with the operation of its
business as currently conducted, is either (i) owned by the Company or any of
its subsidiaries, (ii) currently in the public domain or otherwise available to
the Company without the need of a license, lease or consent of any third party,
or (iii) used under rights granted to the Company or any of its subsidiaries
pursuant to a written agreement, license or lease from a third party.
(g) Section 2.13(g) of the Company Disclosure Schedule sets
forth a complete list of all agreements under which the Company or any of its
subsidiaries is granted rights to acquire or use the Intellectual Property of a
third party (other than shrink-wrap or click on-downloadable general purpose
software) (the "COMPANY IP AGREEMENTS"). Except as set forth in Section 2.13(g)
of the Company Disclosure Schedule, the Company is not under any obligation to
pay royalties or other payments in connection with any Company IP Agreement, nor
Page 27
restricted from assigning its rights respecting Intellectual Property nor will
the Company otherwise be, as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any Company IP Agreement. Each Company IP Agreement is in full force and
effect and has not been amended. Neither the Company nor, to the knowledge of
the Shareholders, any other party thereto, is in default or breach under any
such Company IP Agreement. No event has occurred which, with the passage of time
or the giving of notice or both, would cause a breach of or default by the
Company under any of the Company IP Agreements and, to the knowledge of the
Company, there is no breach or anticipated breach by any other party to any
Company IP Agreement.
(h) To the Shareholders' knowledge, the Company does not sell
any products that intentionally contain any "viruses", "time-bombs",
"key-locks", or any other devices intentionally created that could disrupt or
interfere with the operation of the products or the integrity of the data,
information or signals they produce in a manner adverse to the Company, any of
its subsidiaries or any licensee or recipient.
(i) To the Shareholders' knowledge, neither the Company nor
any of its subsidiaries has embedded any open source, copyleft or community
source code in any of its Products which are generally available or in
development, including but not limited to any libraries or code licensed under
the GNU General Public License, GNU Lesser General Public License or similar
license arrangement.
SECTION 2.14 INSURANCE MATTERS. Subject to Section 2.14 of the
Company Disclosure Schedule, The Company and its subsidiaries have all material
primary insurance providing insurance coverage that is customary in amount and
scope for other companies in the industry in which the Company and its
subsidiaries operate. All such policies are in full force and effect, all
premiums due and payable thereon have been paid and no written or oral notice of
cancellation or termination has been received and is outstanding.
SECTION 2.15 TRANSACTIONS WITH AFFILIATES. Except as set forth
on Section 2.15 of the Company Disclosure Schedule, there are no outstanding
amounts payable to or receivable from, loans, leases or other existing
agreements between the Company or any of its subsidiaries, on the one hand, and
any member, officer, manager, employee or affiliate of the Company or any of its
subsidiaries or any of the Shareholder Affiliated Companies, as defined in
Section 5.9 below or any family member or affiliate of such member, officer,
manager, employee or affiliate on the other hand.
SECTION 2.16 VOTING REQUIREMENTS. The affirmative vote (in
person or by duly authorized and valid proxy at a Company Shareholders' meeting
or by written consent) of the holders of all of the outstanding Shares in favor
of the adoption of this Agreement is the only vote of the holders of any class
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or series of the Company's Shares required by applicable law and the Company's
organizational instruments to duly effect such adoption.
SECTION 2.17 BROKERS. No broker, investment banker, financial
advisor, finder, consultant or other person is entitled to any broker's,
finder's, financial advisor's or other similar fee, compensation or commission,
however and whenever payable, in connection with the Purchase and the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 2.18 REAL PROPERTY.
(a) Each of the Company and its subsidiaries has good and
marketable title in fee simple to all real properties owned by it and all
buildings, structures and other improvements located thereon and valid
leaseholds in all real estate leased by it, other than Company Permitted Liens.
Section 2.18(a) of the Company Disclosure Schedule sets forth a complete list of
all (i) real property owned by the Company or its subsidiaries as of the date
hereof and (ii) real property leased, subleased, or otherwise occupied or used
by the Company or any of its subsidiaries as lessee. With respect to each parcel
of real property leased, subleased, or otherwise occupied or used by the Company
or any of its subsidiaries as lessee: (i) the Company or the applicable
subsidiary has a valid leasehold interest or other right of use and occupancy,
free and clear of any Liens on such leasehold interest or other rights of use
and occupancy, or any covenants, easements or title defects known to or created
by the Company or the applicable subsidiary, except as do not materially affect
the occupancy or uses of such property. Each of the Company's and its
subsidiaries' agreement with respect to real property leased, subleased, or
otherwise occupied or used by the Company as lessee is in full force and effect
and has not been amended. Neither the Company nor the applicable subsidiary nor,
to the knowledge of the Shareholders or the applicable subsidiary, any other
party thereto, is in material default or material breach under any such
agreement. No event has occurred which, with the passage of time or the giving
of notice or both, would cause a breach of or default by the Company or the
applicable subsidiary under any of such agreement and, to the knowledge of the
Company or the applicable subsidiary, there is no breach or anticipated breach
by any other party to such agreements.
(b) As used in this Agreement, Company Permitted Liens shall
mean: (i) Any Lien reflected in Section 2.18(b)(i) of the Company Disclosure
Schedule, (ii) Liens for Taxes not yet due or delinquent or as to which there is
a good faith dispute and for which there are adequate provisions on the books
and records of the Company in accordance with GAAP, (iii) with respect to real
property, any Lien, encumbrance or other title defect which is not in a
liquidated amount (whether material or immaterial) and which does not,
individually or in the aggregate, interfere materially with the current use or
materially detract from the value or marketability of such property (assuming
its continued use in the manner in which it is currently used) and (iv) inchoate
materialmen's, mechanics', carriers', workmen's and repairmen's liens arising in
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the ordinary course and not past due and payable or the payment of which is
being contested in good faith by appropriate proceedings.
SECTION 2.19 TANGIBLE PERSONAL PROPERTY. Except as would not
materially impair the Company and its operations, the machinery, equipment,
furniture, fixtures and other tangible personal property (the "Tangible Personal
Property") owned, leased or used by the Company or any of its subsidiaries is in
the aggregate sufficient and adequate to carry on business in all material
respects as presently conducted and is, in the aggregate and in all material
respects, in good operating condition and repair, normal wear and tear excepted.
The Company is in possession of and has good title to, or valid leasehold
interests in or valid rights under contract to use, the Tangible Personal
Property material to the Company, taken as a whole, free and clear of all Liens,
other than those set forth in Section 2.19 of the Company Disclosure Schedule
("Company Permitted Liens").
SECTION 2.20 INVESTMENT COMPANY. Neither the Company nor any
of its subsidiaries is an investment company required to be registered as an
investment company pursuant to the Investment Company Act.
SECTION 2.21 BOARD APPROVAL. Pursuant to meetings duly noticed
and convened in accordance with all applicable laws and at each of which a
quorum was present, the Board of Directors of the Company, after full and
deliberate consideration, unanimously (other than for directors who abstain) has
(i) duly approved this Agreement and resolved that the transactions contemplated
hereby are fair to, advisable and in the best interests of the Company's
shareholders, (ii) resolved to unanimously recommend that the Company's
shareholders approve the transactions contemplated hereby and (iii) directed
that the Purchase be submitted for consideration by the holders of the Shares.
SECTION 2.22 BOOKS AND RECORDS. Each of the Company and its
subsidiaries maintains and has maintained accurate books and records reflecting
its assets and liabilities and accounts, notes and other receivables and
inventory are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
SECTION 2.23 STATUS OF SHARES BEING TRANSFERRED. Subject to
Section 2.23 of the Company Disclosure Schedule, the Shareholders own all of the
issued and outstanding shares of capital stock of the Company. The Shareholders
have full power to convey good and marketable title to their Shares, free of any
liens, charges, or encumbrances of any nature.
SECTION 2.24 INVESTMENT IN PURCHASER COMMON STOCK.
(a) Each Shareholder is an "accredited investor" as defined in
Rule 501(a)(3) under the Securities Act of 1933, as amended (the "Securities
Act").
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(b) Except as to shares designated by Shareholders to be
issued to GE Access pursuant to the Settlement Agreement (as defined in Section
6.2(g)(i)), each Shareholder is acquiring the shares of common stock of
Purchaser to be issued hereunder for investment for his or her own account, and
not for the account of another Person, and not with a view to, or for sale in
connection with, any distribution, assignment, or resale of any part thereof in
violation of the Securities Act, nor with any present intention of any such
distribution, assignment, or resale. Except as to shares designated by
Shareholders to be issued to GE Access pursuant to the Settlement Agreement (as
defined in Section 6.2(g)(i)), each Shareholder understands that the shares of
Purchaser Common Stock to be issued to him or her hereunder have not, and will
not be, registered in the United States under the Securities Act or applicable
state securities laws, except as provided in the Registration Rights Agreement
and may not be sold, hypothecated or otherwise disposed of unless subsequently
registered under the Securities Act and applicable state securities laws or
unless disposed of in a transaction exempt from such laws, such as in compliance
with Rule 144 promulgated by the SEC, and that certificates representing the
shares of Purchaser Common Stock shall bear legends to this effect. Each
Shareholder understands that Purchaser's issuance of the shares of Purchaser
Common Stock contemplated by this Agreement is intended to be exempt from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Shareholders' representations as expressed herein. Each of
Shareholders is neither a party to nor bound by any agreement regarding the
ownership or disposition of the shares of Purchaser Common Stock other than this
Agreement, the Settlement Agreement.
(c) Shareholders, and each of them, have made independent
investigation of Purchaser and related matters as (i) he or she deems to be
necessary or advisable in connection with the his or her investment in and
acceptance of the shares of Purchaser Common Stock to be issued to him or her
hereunder and (ii) he or she believes to be necessary in order to reach an
informed decision as to the advisability of making an investment in and
accepting the shares of Purchaser Common Stock to be issued to him or her
hereunder. Without limiting the foregoing, each Shareholder has reviewed the
Purchaser SEC Documents (as hereinafter defined) and the Purchaser's other
publicly-available SEC filings. In evaluating his or her investment in and
acceptance of the shares of Purchaser Common Stock to be issued to them
hereunder, Shareholders have not relied upon any representation or other
information (oral or written) other than as set forth in this Agreement or in
such Purchaser SEC Documents and other SEC filings.
(d) Each Shareholder has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of his investment in the Purchaser Common Stock as contemplated by this
Agreement, and is able to bear the economic risk of such investment for an
indefinite period of time. Shareholders are not relying on Purchaser for advice
with respect to economic considerations involved in its acquisition and
acceptance of the shares of Purchaser Common Stock.
SECTION 2.25 DISCLOSURE. On the date of this Agreement, the
Shareholders have, and at the Closing Date they will have, disclosed all events,
conditions, and facts materially affecting the business and prospects of the
Company.
Page 31
Shareholders have not now and will not have, at the Closing Date, withheld
knowledge of any such events, conditions, and facts which they know, or have
reasonable ground to know, may materially affect the business and prospects of
the Company. None of the representations and warranties made by Shareholders in
this Agreement and contained in any certificate or other instrument furnished or
to be furnished to Purchaser pursuant to this Agreement contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary in order to make the statements contained in this
Agreement not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Shareholders as
follows:
SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(a) Each of Purchaser and its subsidiaries is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has the requisite
corporate power and requisite authority to carry on its business as presently
being conducted. Each of Purchaser and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be in good
standing individually or in the aggregate would not reasonably be expected to
have a material adverse effect on Purchaser.
(b) Purchaser has delivered or made available to the Company
prior to the execution of this Agreement complete and correct copies of the
certificate of incorporation and by-laws or other organizational documents of
Purchaser and its subsidiaries, each as in effect at the date of this Agreement.
SECTION 3.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of Purchaser consists of
200,000,000 shares of common stock, $.001 par value (the "Purchaser Common
Stock"), and 5,000,000 shares of Series A Preferred Stock, par value $.001 per
share, of Purchaser ("PURCHASER PREFERRED STOCK"). As of the date hereof: (i)
116,233,895 shares of Purchaser Common Stock were issued and outstanding; (ii)
1,433,639 shares of Purchaser Common Stock were held by Purchaser in its
treasury; (iii) no shares of Purchaser Common Stock were held by subsidiaries of
Purchaser; (iv) approximately 21,563,337 shares of Purchaser
Page 32
Common Stock were reserved for issuance pursuant to stock-based plans (such
plans, collectively, the "PURCHASER STOCK PLANS"), all of which are subject to
outstanding employee stock options or other rights to purchase or receive
Purchaser Common Stock granted under the Purchaser Stock Plans (collectively,
"PURCHASER EMPLOYEE STOCK OPTIONS"); (v) 21,143,333 shares of Purchaser Common
Stock are reserved for issuance pursuant to convertible notes, (vi) 15,101,026
shares of Purchaser Common Stock were reserved for issuance pursuant to
outstanding warrants. As of the date hereof, (w) 2,466,971 shares of Purchaser
Preferred Stock were issued and outstanding; (x) no shares of Purchaser
Preferred Stock were held by Purchaser in its treasury; (y) no shares of
Purchaser Preferred Stock were held by subsidiaries of Purchaser; and (z) 33,029
shares of Purchaser Preferred Stock were reserved for issuance pursuant to
outstanding warrants.
(b) All outstanding shares of capital stock of Purchaser have
been, and all shares thereof which may be issued pursuant to this Agreement or
otherwise (including upon the conversion of the Purchaser Series A Preferred
Stock) will be, when issued, duly authorized and validly issued and are fully
paid and nonassessable and are not subject to preemptive rights created by
statute, the Purchaser's articles of incorporation or any agreement to which
Purchaser is a party or by which Purchaser may be bound. Except as set forth in
this Section and except for changes since the date of this Agreement resulting
from the exercise of Purchaser's employee stock options outstanding on such
date, there are outstanding (i) no shares of capital stock or other voting
securities of Purchaser, (ii) no securities of Purchaser convertible into or
exchangeable for shares of capital stock or voting securities of Purchaser, and
(iii) no options or other rights to acquire from Purchaser, other than Employee
Stock Options, and no obligation of Purchaser to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock of Purchaser.
(c) Purchaser has a sufficient number of duly authorized but
unissued shares of Purchaser Common Stock to issue the maximum number of such
shares contemplated by Article I of this Agreement as the Purchase
Consideration. As soon as practicable after the Closing, Purchaser shall take
all necessary actions, including but not limited to, amending Purchaser's
articles of incorporation, to ensure that Purchaser will have sufficient shares
of duly authorized but unissued Purchaser Common Stock reserved to issue upon
any such shares being due as a part of the Earn Out Payment. The shares of
Purchaser common stock to be issued and delivered hereunder will be duly and
validly issued, fully paid and non-assessable, free and clear of all
Encumbrances.
SECTION 3.3 AUTHORITY; NONCONTRAVENTION. Purchaser has the
corporate power and authority to execute, deliver and perform this Agreement and
the other agreements to be executed and delivered by Purchaser in connection
herewith and to consummate the transactions contemplated hereby and thereby. All
corporate acts and proceedings required to be taken by or on the part of
Purchaser to authorize Purchaser to execute, deliver and perform this Agreement
and the other agreements to be executed and delivered by Purchaser in connection
herewith and to consummate the transactions
Page 33
contemplated hereby and thereby have been duly and validly taken. This Agreement
constitutes a valid and binding agreement, and the other agreements to be
executed and delivered by Purchaser in connection herewith when so executed and
delivered will constitute valid and binding agreements, of Purchaser.
SECTION 3.4 PURCHASER DOCUMENTS.
(a) As of their respective filing dates, (i) all reports filed
by Purchaser and which must be filed by Purchaser in the future with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act (the
"PURCHASER SEC DOCUMENTS") complied and, with respect to future filings, will
comply in all material respects with the requirements of the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Purchaser SEC Documents, and (ii) no Purchaser SEC Documents, as of
their respective dates contained any untrue statement of a material fact or
omitted, and no Purchaser SEC Document filed subsequent to the date hereof will
omit as of their respective dates, to state a material fact required to be
stated therein or necessary to make the statements therein (in the case of
registration statements of the Purchaser under the Securities Act, in light of
the circumstances under which they were made) not misleading.
(b) The financial statements of Purchaser included in the
Purchaser SEC Documents (including the related notes) complied as to form, as of
their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Quarterly Report
Form 10-Q of the SEC) applied on a consistent basis during the periods and at
the dates involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial condition of Purchaser and its subsidiaries
at the dates thereof and the consolidated results of operations and cash flows
of Purchaser and its subsidiaries for the periods then ended (subject, in the
case of unaudited statements, to notes and normal year-end audit adjustments
that were not material in amount or effect). Except for liabilities (i)
reflected in Purchaser's unaudited balance sheet as of December 31, 2004 or
described in any notes thereto (or for which neither accrual nor footnote
disclosure is required pursuant to GAAP), or (ii) incurred in the ordinary
course of business since December 31, 2004 consistent with past practice or in
connection with this Agreement or the transactions contemplated hereby, neither
Purchaser nor any of its subsidiaries has any material liabilities or
obligations of any nature.
SECTION 3.5 VOTING REQUIREMENTS. No consent or approval of the
holders of the outstanding shares of Purchaser Common Stock or any other class
of Purchaser capital stock is required to approve the Purchase and the
transactions contemplated by this Agreement under applicable law or the
Purchaser's organizational instruments.
Page 34
SECTION 3.6 BROKERS. Except for Inveraray Partners, LLC, no
broker, investment banker, financial advisor, finder, consultant or other person
is entitled to any broker's, finder's, financial advisor's or other similar fee,
compensation or commission, however and whenever payable, in connection with the
Purchase and the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Purchaser. Purchaser shall be solely
responsible for any fees charged by Inveraray Partners LLC. and such fees will
not be included as an expense of the Company for the purpose of computing
Company's EBITDA for 2005 pursuant to Section 1.2(b).
SECTION 3.7 BOARD APPROVAL. Pursuant to meetings duly noticed
and convened in accordance with all applicable laws and at each of which a
quorum was present, the Board of Directors of Purchaser, after full and
deliberate consideration, unanimously (other than for directors who abstain) has
duly adopted this Agreement and resolved that the Purchase and the transactions
contemplated hereby are fair to, advisable and in the best interests of
Purchaser's Shareholders. The Board of Directors of Purchaser unanimously has
duly approved this Agreement and has determined that the Purchase is advisable.
SECTION 3.8 BOOKS AND RECORDS. Each of Purchaser and its
subsidiaries maintains and has maintained accurate books and records reflecting
its assets and liabilities and accounts, notes and other receivables and
inventory are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
SECTION 3.9 SARBANES OXLEY ACT COMPLIANCE. Purchaser is in
compliance with all presently effective and applicable provisions of the
Sarbanes Oxley Act of 2002 (the "SARBANES OXLEY ACT") and is actively taking
steps to ensure that it will be in compliance with other provisions of the
Sarbanes Oxley Act upon the effectiveness or applicability to Purchaser of such
provisions. Purchaser is currently in compliance and will use its reasonable
efforts to continue to comply in all material respects with all public reporting
requirements necessary to permit sales of its restricted shares by Shareholders
pursuant to Rule 144.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as
required by applicable law or regulation and except as otherwise contemplated by
this Agreement, until the earlier of the termination of this Agreement or the
Closing Date, the Company shall, and shall cause each of its subsidiaries to,
conduct its and their respective businesses in the ordinary course and
consistent with past practices. Except as set forth in Section 4.1 of the
Company Disclosure Schedule, as required by applicable law or regulation and
except as otherwise contemplated by this Agreement or except as previously
consented to by Purchaser, in writing, after the date hereof and until the
earlier
Page 35
of the termination of this Agreement or the Closing Date, the Company shall not
and shall not permit any of its subsidiaries to:
(a) amend or otherwise change its Certificate of Incorporation
or by-laws;
(b) issue, sell, pledge, dispose of, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares
of any class, or options, warrants, convertible securities or other rights of
any kind to acquire shares, or any other ownership interest, thereof, or (ii)
any of its assets, tangible or intangible;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, property or otherwise, with respect to its
shares;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its shares;
(e) (i) acquire (including, without limitation, for cash or
shares of stock, by Purchase, consolidation, or acquisition of stock or assets)
any interest in any corporation, partnership or other business organization or
division thereof, or make any investment either by purchase of stock or
securities, contributions of capital or property transfer, or, except in the
ordinary course of business, consistent with past practice, purchase any
property or assets of any other person, (ii) except in the ordinary course of
business, incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or advances,
or (iii) enter into any Company Material Contract;
(f) make any capital expenditure in excess of $25,000 or enter
into any contract or commitment therefore;
(b) amend, terminate or extend any Company Material Contract;
(h) delay or accelerate payment of any account payable or
other liability of the Company beyond or in advance of its due date or the date
when such liability would have been paid in the ordinary course of business
consistent with past practice; or
Page 36
(i) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any representation or
warranty contained in Article III untrue or incorrect.
SECTION 4.2 ADVICE OF CHANGES. Each of the Shareholders and
the Company shall promptly advise the Purchaser orally and in writing to the
extent it has knowledge of (i) any representation or warranty made by them
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by any of them to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by them under this Agreement; (iii)
any suspension, termination, limitation, modification, change or other
alteration of any agreement, arrangement, business or other relationship with
any of the Company's customers, suppliers or sales or design personnel; or (iv)
any change or event having, or which, insofar as reasonably can be foreseen,
could have a material adverse effect on the Company or on the accuracy and
completeness of its representations and warranties or the ability of the
Shareholders or the Company to satisfy the conditions set forth in Article VII;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties (or remedies with respect
thereto) or the conditions to the obligations of the parties under this
Agreement; and PROVIDED FURTHER that a failure to comply with this Section 4.2
shall not constitute a failure to be satisfied of any condition set forth in
Article VII unless the underlying untruth, inaccuracy, failure to comply or
satisfy, or change or event would independently result in a failure of a
condition set forth in Article VII to be satisfied.
SECTION 4.3 NO SOLICITATION BY THE COMPANY.
(a) The Company will promptly notify Purchaser after receipt
of any offer or indication that any person is considering making an offer with
respect to a Company Acquisition Proposal or any request for nonpublic
information relating to the Company or for access to the properties, books or
records of the Company by any person that may be considering making, or has
made, an offer with respect to a Company Acquisition Proposal and will keep
Purchaser fully informed of the status and details of any such offer, indication
or request. "Company Acquisition Proposal" means any proposal for a Purchase or
other business combination involving the Company or the acquisition of any
equity interest in, or a substantial portion of the assets of, the Company,
other than the transactions contemplated by this Agreement.
(b) From the date hereof until the termination hereof pursuant
to Section 8.1, the Company and the officers of the Company will not and the
Company will use its best efforts to cause its directors, employees and agents
not to, directly or indirectly, (i) take any action to solicit, initiate or
encourage any offer or indication of interest from any person or entity with
respect to any Company Acquisition Proposal, (ii) engage in negotiations with,
or disclose any nonpublic information relating to the
Page 37
Company or (iii) afford access to the properties, books or records of the
Company to, any person or entity that may be considering making, or has made, an
offer with respect to a Company Acquisition Proposal.
SECTION 4.4 CONDUCT OF BUSINESS BY PURCHASER. Purchaser will
conduct its business in substantially the same manner as before.
SECTION 4.5 TRANSITION. To the extent permitted by applicable
law, Purchaser and the Company shall, and shall cause their respective
subsidiaries, affiliates, officers and employees to, use their commercially
reasonable efforts to facilitate the integration of the Company and its
subsidiaries with the businesses of Purchaser and its subsidiaries to be
effective as of the Closing Date.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 ACCESS TO INFORMATION; CONFIDENTIALITY.
(c) The Company and Shareholders shall, and shall cause the
Company's subsidiaries to, afford to Purchaser and to the officers, current
employees, accountants, counsel, financial advisors, agents, lenders and other
representatives of Purchaser, reasonable access during normal business hours
during the period prior to the Effective Date to all the Company's properties,
books, contracts, commitments, personnel and records and, during such period,
shall furnish promptly to Purchaser (i) a copy of each material report,
schedule, registration statement and other document filed by it with any
Governmental Entity, and (ii) all other information concerning its business,
properties and personnel as Purchaser may reasonably request.
(b) The parties will hold, and will use their best efforts to
cause their officers, directors, employees, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the other party and its subsidiaries furnished to it in
connection with the transactions contemplated hereby, except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by the receiving party, (ii) in the public domain through
no fault of the receiving party, or (iii) later lawfully acquired by the
receiving party from other sources; PROVIDED that each party may disclose such
information to its officers, directors, employees, consultants, advisors and
agents in connection with the Purchase so long as such persons are informed of
the confidential nature of such information and are directed to treat such
information confidentially. Each parties' obligation to hold such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would exercise to preserve the
Page 38
confidentiality of its own similar information. Notwithstanding any other
provision of this Agreement, if this Agreement is terminated, such
confidentiality shall be maintained and all confidential materials shall be
destroyed or delivered to their owner, upon request.
SECTION 5.2 COMMERCIALLY REASONABLE EFFORTS. Except where
otherwise provided in this Agreement, each party will use its commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Purchase as soon as practicable after the
satisfaction of the conditions set forth in Article VI hereof, PROVIDED that the
foregoing shall not require the Company or Purchaser to take any action or agree
to any condition that might, in the reasonable judgment of the Company or
Purchaser, as the case may be, have a material adverse effect on the Company or
Purchaser, respectively.
SECTION 5.3 FEES AND EXPENSES. All costs, fees and expenses
incurred in connection with the Purchase, this Agreement (including all
instruments and agreements prepared and delivered in connection herewith), and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses; provided, however, notwithstanding anything
herein to the contrary, Purchaser shall bear the expense of the audit of the
Company's financial statements for the year ended December 31, 2004, and all
such costs, fees and expenses will not be included as an expense of the Company
for the purpose of computing Company's EBITDA for 2005 pursuant to Section
1.2(b).
SECTION 5.4 PUBLIC ANNOUNCEMENTS. Purchaser, Shareholders and
the Company shall consult with each other before issuing, and shall provide each
other the opportunity to review, comment upon and concur with, and shall use
reasonable efforts to agree on, any press release or other public statements or
announcements (including pursuant to Rule 165 under the Securities Act and Rule
14a-12 under the Exchange Act) and any broadly distributed internal
communications with respect to the Purchase, this Agreement and the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement or announcement prior to such consultation,
except as either party may determine is required by applicable law or court
process (provided prior notice is given to the other party with a copy of any
such disclosure). The parties agree that the initial press releases (or joint
press release if the parties so determine) to be issued with respect to the
Purchase, this Agreement and the transactions contemplated by this Agreement
shall be in the form heretofore agreed to by the parties.
SECTION 5.5 REGULATION D. Each party hereto shall use all
reasonable efforts to cause the shares of Purchaser Common Stock to be issued
hereunder in connection with the Purchase to be issued in accordance with
Regulation D promulgated under the Securities Act. Each party hereto shall
cooperate with the other parties hereto with respect to all filings required
pursuant to Regulation D promulgated under the Securities Act and shall not
knowingly take any action or fail to act to the extent such
Page 39
action or failure to act would jeopardize the issuance of the shares of
Purchaser Common Stock hereunder in accordance with such Regulation D.
SECTION 5.6 PURCHASER'S STOP TRANSFER ON ALLEGED BREACH OF
SHAREHOLDER REPRESENTATIONS AND WARRANTIES. In the event of an alleged breach of
a Shareholder representation and warranty contained in Article II of this
Agreement, Purchaser shall be entitled to stop the transfer of Purchaser Common
Stock held by the Shareholders equal in value to the amount of the damages
alleged to have resulted from the such breach until such time as the dispute
over the breach is resolved by mutual agreement, binding arbitration, or entry
of a final non-appealable judgment by a court of competent jurisdiction. The
number of shares of Purchaser Common Stock subject to this provision shall be
determined by dividing the amount of the alleged damages by value per share as
determined pursuant to Section 1.2(a)(2) at the time of Closing.
SECTION 5.7 PURCHASER'S ASSUMPTION AND PAYMENTS OF OBLIGATIONS
PERSONALLY GUARANTEED BY SHAREHOLDERS. Purchaser shall use its reasonable
efforts to obtain the release at Closing of all Shareholder personal guarantees
of Company debts set forth in Section 5.7 of the Company Disclosure Schedule. If
after reasonable efforts such releases cannot be obtained, then Purchaser shall
indemnify and hold Shareholders harmless from any claims and/or liability
arising from such personal guarantees of Shareholders. Purchaser's obligation
under this Section to indemnify and hold Shareholder's harmless from such
guarantees shall not be subject to or limited by the minimum damage amounts and
time limitations for bringing claims which are described in Section 7.1 (b), (c)
and (e) below.
SECTION 5.8 RULE 144 COMPLIANCE. Until the earlier of
thirty-one (31) months after the Closing Date or such time as Shareholders have
sold all of the Purchaser Common Stock issued to them as consideration pursuant
to this Agreement, Purchaser shall use it reasonable efforts to ensure in all
material respects it meets the public reporting requirements necessary to permit
Shareholders to sell shares of Purchaser common stock in accordance with Rule
144 as promulgated by the SEC. Purchaser's obligation under Section 7.1 to
indemnify and hold Shareholder's harmless from the failure to maintain
Purchaser's reporting obligations shall be subject to and limited by a 33 month
(from the date of Closing) time limitation for bringing a claim rather than the
lesser time limitation described in Section 7.1 (c) and (e) below.
SECTION 5.9 SHAREHOLDERS COVENANT NOT TO COMPETE. Without the
prior written consent of the Purchaser's Chief Executive Officer, for two (2)
years after the Closing Date, Shareholders (i) will not, directly or indirectly,
whether as owner, partner, shareholder, consultant, agent, employee, co-venturer
or otherwise, engage, participate, assist or invest in any Competing Business
(as hereinafter defined); (ii) will refrain from directly or indirectly
employing, attempting to employ, recruiting or otherwise soliciting, inducing or
influencing any person to leave employment with the Company or Purchaser; and
(iii) will refrain from soliciting or encouraging any customer or supplier to
terminate or otherwise modify adversely its business relationship with the
Company or Purchaser. Each of the Shareholders understands that the restrictions
set forth in this Section 5.9 are intended to protect the Purchaser's and
Company's interests in
Page 40
their respective Confidential Information and established employee, customer and
supplier relationships and goodwill, and agrees that such restrictions are
reasonable and appropriate for this purpose. For purposes of this Agreement, the
term "Competing Business" shall mean any business that provides the same or
similar types of services or products as those currently provided by the Company
in any geographic area now served or targeted by the Company. Notwithstanding
the foregoing, each of Shareholders may own up to two percent (2%) of the
outstanding stock of a publicly held corporation that is engaged in a Competing
Business and Shareholders' ownership and involvement with the following
companies and the businesses and industries they are currently involved in as
and to the extent described in Section 5.9 of the Company Disclosure Schedule is
not a violation of this Section 5.9: TradeTrans, Inc., CAE Northwest, Inc., AI
Acquisition, Inc. d/b/a Arcessa and CAE Northwest Export, Inc. (together the
"Shareholder Affiliated Companies")
SECTION 5.10 SHAREHOLDER AFFILIATED COMPANIES TRADE PAYABLES
TO THE COMPANY; SECURITY Interest. (a) Shareholders shall cause the Shareholder
Affiliated Companies to pay their trade payables due the Company as follows:(i)
The commission due from AI Acquisition, Inc. d/b/a Arcessa ("AI") in the amount
of Seventy Thousand Dollars ($70,000.00) shall be paid to the Company not later
than May 15, 2005; and
(ii) The trade payable due from AI in the amount of Three
Hundred Eighty Three Thousand Dollars One Hundred Fourteen ($383,114.00) shall
be paid to the Company not later than March 31, 2006.
(b) Shareholders shall grant to the Company a security
interest in the form attached hereto as Exhibit C (the "Security Agreement"),
which shall be a first lien on all of the assets of AI, other than with respect
to the equipment leased from Puget Sound Leasing.
(c) All other payables due from the Shareholder Affiliated
Companies to the Company shall be paid prior to or at the Closing in accordance
with Section 6.2(g).
SECTION 5.11 PAYMENT OF DEBTS IN THE ORDINARY COURSE OF
BUSINESS; RECEIPT OR RETENTION OF CERTAIN RECEIVABLES BY SHAREHOLDERS. Incentra
shall perform all of its obligations under the Settlement Agreement.
Whether or not clearly described in the Company Disclosure
Sshecule, the parties acknowledge that the following receivables and debt
instruments will be transferred to or retained by the Shareholders and that the
Company will not have the right to enforce or collect such obligations, which
obligations were owed to Company, endorsed to GE Access and are being released
as provided in the Settlement Agreement: the Barry R. Andersen receivable of
approximately $591,596.37 owed to Company, the Gary L. Henderson receivable of
approximately $ 576,596.37 owed to Company, the TradeTrans, Inc. receivable of
approximately $821,967.17 owed to Company, the AI
Page 41
Acquisition, Inc. dba Arcessa receivable of approximately $508,422.93 owed to
Company and the H&A Associates receivable of approximately $176,298.00 owed to
Company.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE PURCHASE. The respective obligation of each party to affect the Purchase is
subject to the satisfaction or, to the extent permitted by applicable law,
waiver by each of Purchaser and the Company on or prior to the Closing Date of
the following conditions:
(a) SHAREHOLDER APPROVALS. Each of the Company and Purchaser
shall have obtained the consent of its Board of Directors to the Purchase, this
Agreement and the transactions contemplated hereby as in each case required.
(b) GOVERNMENTAL AND REGULATORY APPROVALS. All consents,
approvals and actions of, filings with and notices to any Governmental Entity
required by the Company, Purchaser or any of their subsidiaries under applicable
law or regulation to consummate the Purchase and the transactions contemplated
by this Agreement, the failure of which to be obtained or made would result in a
material adverse effect on Purchaser's ability to conduct the business of the
Company in substantially the same manner as presently conducted, shall have been
obtained or made (all such approvals and the expiration of all such waiting
periods, the "REQUISITE REGULATORY APPROVALS")
(c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order,
restraining order and/or injunction (temporary or otherwise), decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity or other legal restraint or
prohibition (collectively, "RESTRAINTS") shall be in effect preventing or
materially delaying the consummation of the Purchase; PROVIDED, HOWEVER, that
each of the parties shall have used its commercially reasonable efforts to have
such Restraint lifted, vacated or rescinded.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF PURCHASER . The
obligation of Purchaser to affect the Purchase is further subject to
satisfaction or waiver as part of Closing or on or prior to the Closing Date of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
representations and warranties of the Company set forth herein and in the
Company Disclosure Schedule shall be true and correct in all material respects
at and as of the
Page 42
Closing Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case such representations and warranties
shall be true and correct as of such date). Purchaser shall have received a
certificate of the Company's Chief Executive Officer and Treasurer to the
foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and
the Shareholders shall have performed in all material respects all obligations
required to be performed by them at or prior to the Closing Date under this
Agreement. Purchaser shall have received a certificate of the Company's Chief
Executive Officer and Treasurer to the foregoing effect.
(c) REGULATORY CONDITION. No condition or requirement shall
have been imposed by one or more Governmental Entities in connection with any
required approval by them of the Purchase that requires the Company or any of
its subsidiaries to be operated in a manner that would have a material adverse
effect on the Company.
(d) NO COMPANY MATERIAL ADVERSE EFFECT. There shall not be or
exist any change, effect, event, circumstance, occurrence or state of facts that
has had, has or which reasonably could be expected to have, a material adverse
effect on the Company.
(e) INTEREST TO GE ACCESS. Prior to the Closing, the Company
shall have paid all interest due to GE Access through the day immediately prior
to the Closing Date.
(f) GE ACCESS AND SHAREHOLDER AFFILIATED COMPANIES DEBT.
The Shareholders, the Company, each of the Shareholder
Affiliated Companies, Purchaser and GE Access shall have executed a Settlement
Agreement in the form attached hereto as Exhibit D and made a part hereof (the
"Settlement Agreement") which provides in substantial part that as part of
Closing and at the Closing, the Company debt to GE Access shall be satisfied in
full.
Page 43
(g) EMPLOYMENT AGREEMENTS. Each of the Company employees
designated below shall have executed Employment Agreements in the respective
forms attached hereto as EXHIBIT A (the "Employment Agreements"):
(1) Barry R. Andersen
(h) REGISTRATION RIGHTS AGREEMENT. Purchaser and the
Shareholders shall have entered into a Registration Rights Agreement in the form
attached hereto as Exhibit B (the "Registration Rights Agreement").
(i) SATISFACTORY COMPLETION OF DUE DILIGENCE. Purchaser shall
have completed to its satisfaction legal, accounting and business due diligence
as to the Company.
(j) RESIGNATION OF DIRECTORS. There shall have been delivered
to Purchaser the written resignations of the directors of the Company.
(k) REMOVAL OF SHAREHOLDER AFFILIATED COMPANY EMPLOYEES FROM
COMPANY BENEFITS AND COMPANY PAYROLL. In accordance with the Addendum to Company
Disclosure Schedule, on or prior to April 1, 2005, all employee benefits of
Shareholder Affiliated Companies shall have been removed and separated from
those of the Company and all employees of Shareholder Affiliated Companies shall
have been removed from the Company payroll system.
(l) PAYMENT OF GENERAL ELECTRIC CAPITAL CORPORATION JUDGMENT.
AI shall have paid the balance due on those judgments entered against AI and the
Company in connection with King County Superior Court Cause No. 04-13562-1SEA
and that Forbearance Agreement by and among General Electric Capital
Corporation, AI and the Company on or about September 24, 2004.
(m) SECURITY AGREEMENT. AI shall have executed the Security
Agreement as defined in Section 5.10(b) above.
(n) CERTIFICATE OF GOOD STANDING. Purchaser shall have
received prior to or at the Closing a certificate of good standing regarding the
Company from the Secretary of State of the State of Washington dated not more
than fifteen (15) days prior to Closing.
Page 44
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The
obligation of the Shareholders to affect the Purchase is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser set forth herein and in the Purchaser Disclosure
Schedule shall be true and correct in all material respects at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case such representations and warranties
shall be true and correct as of such date). The Company shall have received a
certificate of Purchaser's Chief Executive Officer and Chief Financial Officer
to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER. Purchaser shall
have performed in all material respects all obligations required to be performed
by it at or prior to the Closing Date under this Agreement. The Company shall
have received a certificate of Purchaser's Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
(c) REGULATORY CONDITION. No condition or requirement shall
have been imposed by one or more Governmental Entities in connection with any
required approval by them of the Purchase that requires Purchaser or any of its
subsidiaries to be operated in a manner that would have a material adverse
effect on Purchaser.
(d) NO PURCHASER MATERIAL ADVERSE EFFECT. There shall not be
or exist any change, effect, event, circumstance, occurrence or state of facts
that has had, has or which reasonably could be expected to have, a material
adverse effect on Purchaser.
(e) REGISTRATION RIGHTS AGREEMENT. Purchaser and the
Shareholders shall have entered into the Registration Rights Agreement.
SECTION 6.4 FRUSTRATION OF CLOSING CONDITIONS. Neither
Purchaser nor the Company may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use its own commercially reasonable efforts to
consummate the Purchase and the other transactions contemplated by this
Agreement, as required by and subject to Section 5.2.
Page 45
ARTICLE VII
INDEMNIFICATION; ARBITRATION
SECTION 7.1. INDEMNIFICATION.
(a) Subject to the limitations and compliance with the
procedure set forth herein and in Section 7.2 below, Purchaser and its officers,
directors and Affiliates (the "Purchaser Indemnified Parties") shall be
indemnified and held harmless by the Shareholders, and each of them, jointly and
severally, against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
(hereinafter individually a "Purchaser Loss" and collectively "Purchaser
Losses") incurred by the Purchaser Indemnified Parties directly or indirectly as
a result of: (i) any inaccuracy of a representation or warranty of Shareholders
contained in this Agreement, (ii) any failure by Shareholders to perform or
comply with any covenant contained in this Agreement, (iii) the settlement
agreement by and between General Electric Capital, Arcessa, Inc, and the Company
dated as of September 24, 2004 and the stipulated judgment entered against the
Company in King County Superior Court Case No. 04-2-13562-1SEA, (iv) any and all
liability which may arise from any automobile leases to which the Company is a
party at the Closing and/or the operation of the automobiles that are the
subject of such leases, whether such liability arises from breach of contract
negligence or otherwise, and (v) liability of the Company in excess of Ten
Thousand Dollars ($10,000.00) for sales tax liability currently being reviewed
by the State of Washington ; PROVIDED that, except as specifically provided
above, no Purchaser Indemnified Party shall be entitled to receive
indemnification payments under clause (i) above with respect to any Purchaser
Loss unless and until the aggregate deductible amount of the Purchaser Losses
exceeds $25,000 and then only to the extent of the Purchaser Losses in excess of
such aggregate amount; and PROVIDED FURTHER that in determining the amount of
any Purchaser Losses suffered by any Purchaser Indemnified Party which give rise
to liability of Shareholders hereunder, there shall have been taken into account
(x) the amount of any tax benefits actually realized by such Purchaser
Indemnified Party attributable to such Purchaser Losses or derived therefrom in
any period to and including the end of the taxable year following the year in
which the Loss was incurred; and (y) the amount of any insurance benefits
actually realized by such Purchaser Indemnified Party attributable to such
Purchaser Losses or derived therefrom. In the event liability for any Purchaser
Losses hereunder shall be incurred prior to the payment of the cash portion of
any Earn Out Payment that may become due under this Agreement, such Purchaser
Losses shall, at the option of Purchaser, be satisfied first from and to the
extent of such cash portion of the Earn Out Payment that becomes due.
(b) Shareholders (the "Seller Indemnified Parties") shall be
indemnified and held harmless by Purchaser against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation (hereinafter individually a
"Seller Loss" and collectively "Seller Losses") incurred by the Seller
Indemnified Parties directly or indirectly as a result of: (i) any inaccuracy of
a representation or warranty of Purchaser contained in this Agreement or (ii)
any failure by Purchaser to perform or comply with any covenant
Page 46
contained in this Agreement; PROVIDED that the Seller Indemnifies Parties shall
not be entitled to receive indemnification payments with respect to any Seller
Loss under (i) above unless and until the aggregate deductible amount of the
Seller Losses incurred by any Seller Indemnified Parties exceeds $25,000 and
then only to the extent of the Seller Losses in excess of such aggregate amount;
and PROVIDED FURTHER that, in determining the amount of any Seller Losses
suffered by any Seller Indemnified Party which give rise to liability of
Purchaser hereunder, there shall have been taken into account (x) the amount of
any tax benefits actually realized by such Seller Indemnified Party attributable
to such Seller Losses or derived therefrom in any period to and including the
end of the taxable year following the year in which the Seller Loss was
incurred; and (y) the amount of any insurance benefits actually realized by such
Seller Indemnified Party attributable to such Seller Losses or derived
therefrom.
(c) Notwithstanding anything to the contrary herein,
Shareholders' indemnification obligations for Purchaser Losses incurred by the
Purchaser Indemnified Parties directly or indirectly as a result of any
inaccuracy of a representation or warranty of Shareholders contained in this
Agreement or any failure by Shareholders to perform or comply with any covenant
contained in this Agreement shall terminate on April 1, 2007 and the aggregate
of all claims for indemnity by Purchaser Indemnified Parties under this
Agreement shall be limited to and not exceed the actual purchase price paid to
Shareholders. Notwithstanding anything to the contrary herein, Purchaser's
indemnification obligations for Seller Losses incurred by the Seller Indemnified
Parties directly or indirectly as a result of any inaccuracy of a representation
or warranty of Purchaser contained in this Agreement shall terminate on April 1,
2007.
(d) Notwithstanding anything to the contrary herein, the
existence of this Article VII and of the rights and restrictions set forth
herein do not limit any legal remedy for claims based on common law fraud.
(e) Any claim for the recovery of Seller Losses or Purchaser
Losses shall be made by giving notice thereof in accordance with Section 7.2
below and, such notice shall be given prior to April 1, 2007.
SECTION 7.2 CLAIMS AND PROCEDURE
(a) Claims. Whenever any claim shall arise for indemnification, the
party seeking indemnification hereunder (the "INDEMNIFIED PARTY") shall notify
the party or parties from whom indemnification is sought (collectively, the
"INDEMNIFYING PARTY") of the claim pursuant to SECTION 7.2 (C) hereunder and,
when known, the facts constituting the basis for such claim and the amount or
estimate of the amount of the liability arising from such claim. The indemnified
party shall not settle or compromise any claim by a third party for which the
indemnified party is entitled to indemnification hereunder without the prior
written consent of the indemnifying party (which shall not be unreasonably
withheld or delayed) unless (i) suit shall have been instituted against the
indemnified party and (ii) the indemnifying party shall not have taken control
of such suit as provided in SECTION 7.2 (B) within 25 days after notification
thereof.
Page 47
(b) Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a third party, the indemnifying party, at its sole cost and
expense, may, upon written notice to the indemnified party, assume the defense
of any such claim or legal proceeding. If the indemnifying party assumes the
defense of any such claim or legal proceeding, the indemnifying party shall
select counsel reasonably acceptable to the indemnified party to conduct the
defense of such claims or legal proceedings and at the indemnifying party's sole
cost and expense shall take all reasonable steps necessary in the defense or
settlement thereof. The indemnifying party shall not consent to a settlement of,
or the entry of any judgment arising from, any such claim or legal proceeding,
without the prior written consent of the indemnified party, which consent shall
not be unreasonably withheld, conditioned or delayed, unless (a) the
indemnifying party admits in writing its liability to hold the indemnified party
harmless from and against any losses, damages, expenses and liabilities arising
out of such settlement, (b) concurrently with such settlement the indemnifying
party pays into court the full amount of all losses, damages, expenses and
liabilities to be paid by the indemnifying party in connection with such
settlement and obtains a full release of any liability of the indemnified party
which is not conditioned upon any further payment and (c) such settlement would
not otherwise have a material adverse effect on the indemnified party. The
indemnified party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. If the
indemnifying party does not assume the defense of any such claim or litigation
resulting therefrom in accordance with the terms hereof, the indemnified party
may defend against such claim or litigation in such manner as it may deem
appropriate including, but not limited to, settling such claim or litigation,
after giving notice of the same to the indemnifying party, on such terms as the
indemnified party may deem appropriate. The indemnifying party shall be entitled
to participate in the defense of any action by the indemnified party, which
participation shall be limited to contributing information to the defense and
being advised of its status. In any action by the indemnified party seeking
indemnification from the indemnifying party in accordance with the provisions of
this Section, if the indemnifying party did not assume the defense of any such
claim or litigation, the indemnifying party shall not be entitled to question
the manner in which the indemnified party defended such claim or litigation or
the amount or nature of any such settlement.
(c) Notice. In the event of any occurrence which may give rise to a
claim by an indemnified party against an indemnifying party hereunder, the
indemnified party will give notice thereof to the indemnifying party within 20
days of the indemnified party becoming aware of events giving rise to the
possibility of a right to indemnification and the first opportunity to reduce,
remedy or incur the damages or potential damages caused by such occurrence;
PROVIDED, HOWEVER, that failure of the indemnified party to timely give the
notice provided in this SECTION 7.2 (C) shall not be a defense to the liability
of an indemnifying party for such claim, but such indemnifying party may recover
from the indemnified party any actual damages arising from the indemnified
party's failure to give such timely notice; provided, further that Purchaser may
take preemptive legal action of a pressing nature, with respect to a third party
Claim, without first contacting the Shareholders, if reasonable to do so.
Page 48
(d) Manner of Indemnification. All claims by Purchaser Indemnified
Parties for indemnification shall be recovered first by way of set-off from or
against any contingent payments due Shareholders pursuant to Section_1.2(b)
before such parties may recover from Shareholders directly. If EBITDA for
calendar year 2005, as described in Section 1.2 (b) above, has not yet been
computed at the time a claim is made by Purchaser Indemnified Parties, Purchaser
Indemnified Parties agree that collection or indemnity enforcement activity
against Shareholders shall be suspended until EBITDA is calculated and the
additional consideration, if any, described in Section 1.2 (b) is also
calculated, at which time Purchaser Indemnified Parties would have to first set
off the amount of any claims against such consideration before pursuing
Shareholders for claims in excess of the value of such additional consideration
(as such value is determined at Closing).
(e) Access to Information. Regardless of which party shall assume the
defense of a claim, each party shall provide to the other parties, upon written
request, all information and documentation in the possession or control of such
party and reasonably necessary to support and verify any Purchaser or Seller
Losses which give rise to such claim for indemnification and shall provide
reasonable access to all books, records and personnel in such party's possession
or control which would have a bearing on such claim.
SECTION 7.3 ARBITRATION. Any dispute, controversy or claim
arising out of or relating to this Agreement (a "Dispute"), shall be settled by
binding arbitration. Any such arbitration proceeding shall be conducted by one
arbitrator mutually agreeable to Shareholders and Purchaser. In the event that
within 45 days after submission of any Dispute to arbitration, Shareholders and
Purchaser cannot mutually agree on one arbitrator, Shareholders and Purchaser
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator who will arbitrate the case on his own. The agreed
upon arbitrator or the third arbitrator , as the case may be, shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator or third arbitrator, as the case may be, to
discover relevant information from the opposing parties about the subject matter
of the Dispute. The arbitrator or the third arbitrator, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the same
extent as a competent court of law or equity, should the arbitrator or third
arbitrator, as the case may be, determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator shall be binding and
conclusive upon the parties to this Agreement. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrator(s).
Judgment upon any award rendered by the arbitrator(s) may be entered in any
court having jurisdiction. Any such arbitration shall be held in Seattle, WA
under the rules then in effect of Judicial Arbitration and Mediation Services.
The substantially non-prevailing party shall pay all expenses relating to the
arbitration, including without limitation, the respective expenses of each
party, the fees of each arbitrator and applicable administrative fees.
Page 49
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written consent of Purchaser and the
Shareholders;
(b) by either Purchaser or the Shareholders;
(i) if the Purchase shall not have been consummated at or
prior to 5:00 p.m., Denver, CO, time, on April 1, 2005,
PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to this Section 8.1(b)(i) shall not be available to
any party whose failure to perform any of its obligations
under this Agreement results in the failure of the Purchase to
be consummated by such time and date; provided further that
either party may extend the Closing Date by notice to the
other to a date not later than April 10, 2005.
(ii) if any Restraint having any of the effects set forth in
Section 6.1(c) shall be in effect and shall have become final
and nonappealable; PROVIDED, HOWEVER, that the party seeking
to terminate this Agreement pursuant to this Section 8.1(b)
(ii) shall have used its commercially reasonable efforts to
prevent the entry of such Restraint and to have such Restraint
vacated or removed;
(iii) if any Governmental Entity that must grant a Requisite
Regulatory Approval shall have denied the applicable Requisite
Regulatory Approval and such denial shall have become final
and nonappealable; or
(c) by Purchaser, if the Shareholders or the Company shall
have breached any of their respective representations, warranties, covenants or
other agreements contained in this Agreement, which breach (i) would give rise
to the failure of a condition set forth in Section 6.2(a) or (b), and (ii) is
either incapable of being cured by the Company or the Shareholders, or if
curable, is not cured within 15 days of receipt from Purchaser of written notice
thereof; or
(d) by the Shareholders, if Purchaser shall have breached any
of its representations, warranties, covenants or other agreements contained in
this Agreement, which breach (i) would give rise to the failure of a condition
set forth in Section 6.3(a) or
Page 50
(b), and (ii) is either incapable of being cured by Purchaser or, if curable, is
not cured within 15 days of receipt from the Company of written notice thereof.
The party desiring to terminate this Agreement pursuant to
this Section 8.1 shall provide written notice of such termination to the other
party in accordance with Section 8.2, specifying in reasonable detail the
provision hereof pursuant to which such termination is effected.
SECTION 8.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated by either the Shareholders
or Purchaser as provided in Section 8.1, this Agreement forthwith shall become
void and have no effect, without any liability or obligation on the part of
Purchaser or the Shareholders; PROVIDED, HOWEVER, that nothing herein shall
relieve any party from any liability (in contract, tort or otherwise, and
whether pursuant to an action at law or in equity) for any knowing or willful
breach by such party of any of its representations, warranties, covenants or
agreements set forth in this Agreement or in respect of fraud by any party.
Notwithstanding the foregoing, the provisions of this Article VIII, Section
5.1(b), Section 5.3, Section 5.4, Section 9.8 and Section 9.11 shall survive any
termination of this Agreement.
(b) Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article VI hereof for its
benefit have not been satisfied, Purchaser and/or the Shareholders (as
applicable) shall have the right to waive the satisfaction thereof and to
proceed with the transactions contemplated hereby.
SECTION 8.3 AMENDMENT. This Agreement may be amended by the
parties at any time. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties to be bound thereby.
SECTION 8.4 EXTENSION; WAIVER. At any time prior to the
Closing, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement or (c) subject to the
provisions of Section 8.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES
ANDAGREEMENTS. The representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing Date
for a period of one (1) year. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Closing Date.
SECTION 9.2 NOTICES. All notices, requests, claims, demands
and other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Purchaser, to:
Incentra Solutions, Inc.
1140 Pearl Street
Boulder, Colorado 80302
Fax No.: (303) 440-7114
Attention: Thomas P. Sweeney III
with a copy (which shall not constitute notice pursuant to
this Section 9.2 to:
Reed Guest, Esq.
94 Underhill Road
Orinda, CA 94563
Fax No.: (925) 254-9226.
(b) if to the Shareholders, to:
Barry Andersen
10508 Exeter Ave. NE.
Seattle WA 98125
and to: Gary Henderson
5511 105th Ave NE
Kirkland WA 98033
with a copy (which shall not constitute notice pursuant to
this Section 9.2) to:
Daniel M. Hendrickson
O'Shea Barnard Martin P.S.
Suite 1500
10900 NE 4th Street
Bellevue WA 98004
Fax No.: 425-454-6575
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SECTION 9.3 DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of a person, whether through
the ownership of voting securities, by contract, as trustee or executor, or
otherwise.
(b) "ENCUMBRANCES" shall mean Liens, security interests, deeds
of trust, encroachments, reservations, orders of Governmental Entities, decrees,
judgments, contract rights, claims or equity of any kind.
(c) "KNOWLEDGE" means, (i) with respect to the Shareholders,
the actual knowledge, of either of the Shareholders or of the Company's
executive officers and (ii) with respect to Purchaser, the actual knowledge, of
any of Purchaser's executive officers.
(d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT"
means, when used in reference to the Company or Purchaser, any change, effect,
event, circumstance, occurrence or state of facts that is, or which reasonably
could be expected to be, materially adverse to the business, assets,
liabilities, condition (financial or otherwise), cash flows or results of
operations of such party and its subsidiaries, considered as an entirety.
(e) "PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) a "SUBSIDIARY" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect not less than a majority of its Board
of Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person.
SECTION 9.4 INTERPRETATION. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this
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Agreement as a whole and not to any particular provision of this Agreement. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
SECTION 9.5 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties. A facsimile
copy of a signature page shall be deemed to be an original signature page.
SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement (including the documents and instruments referred to herein) (a)
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Section
6.4 which shall inure to the benefit of and be enforceable by the persons
referred to therein, are not intended to confer upon any person other than the
parties any rights or remedies and (c) all Exhibits and Schedules to this
Agreement are incorporated into this Agreement by reference.
SECTION 9.7 GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the internal substantive and procedural
laws of the State of Washington, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law of such state.
SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.9 CONSENT TO JURISDICTION. Each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any State
or Federal court located in the State of Washington in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement and arbitration is first demanded or suit is first filed by Purchaser,
(b) consents to submit itself to the personal jurisdiction of any Federal court
located in the State of Colorado in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement and
arbitration is first demanded or suit is first filed by Shareholders, (c) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, and (d) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a court as provided in
(a) above with respect to claims by Purchaser or (b) with respect to claims by
Shareholders. The parties irrevocably and unconditionally waive any objection to
the
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laying of venue of any action, suit or proceeding arising out of this Agreement
or any of the transactions contemplated by this Agreement in any State or
Federal court as provided above, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 9.10 HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.11 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.12 ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which they are entitled at law or in equity.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Shareholders, and Purchaser have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
INCENTRA SOLUTIONS, INC.
By: /s/ THOMAS P. SWEENEY III
-------------------------
Name: Thomas P. Sweeney III
Title: Chief Executive Officer
SHAREHOLDERS:
/s/ BARRY R. ANDERSEN
---------------------
Barry R. Andersen
/s/ GARY L. HENDERSON
---------------------
Gary L. Henderson
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