Exhibit 2.1
Execution Copy
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STOCK PURCHASE AGREEMENT
by and among
MACE SECURITY INTERNATIONAL, INC.,
as Purchaser,
LINKSTAR INTERACTIVE, INC.
as the Company
and
MAURRY MENDELOVICH, COLIN McINTYRE, MICHAEL KATZ, SHAWN
MENDELOVICH, CHRISTINE McINTYRE AND EMILY PENDER
As the Shareholders
Dated as of July 12, 2007
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Execution Copy
Table of Contents
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Page
ARTICLE I SALE AND PURCHASE OF OUTSTANDING STOCK.........................................................1
Section 1.1 Sale and Purchase of Outstanding Stock...........................................1
Section 1.2 Purchase Price...................................................................1
Section 1.3 Payment Terms....................................................................2
Section 1.4 Cash; Indebtedness; and Working Capital..........................................2
Section 1.5 Excluded Assets..................................................................4
Section 1.6 Stock Options, Warrants and Capital Contribution.................................4
ARTICLE II CLOSING AND TERMINATION.......................................................................5
Section 2.1 Closing; Closing Date............................................................5
Section 2.2 Closing Deliveries...............................................................5
Section 2.3 Termination of the Agreement.....................................................6
Section 2.4 Procedure Upon Termination.......................................................7
Section 2.5 Effect of Termination............................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND COMPANY RELATING TO THE COMPANY...........8
Section 3.1 Corporate Organization; Subsidiaries.............................................8
Section 3.2 Capitalization...................................................................9
Section 3.3 No Violation.....................................................................9
Section 3.4 Consents and Approvals...........................................................9
Section 3.5 Financial Statements; Books and Records..........................................9
Section 3.6 Absence of Undisclosed Liabilities..............................................10
Section 3.7 Absence of Certain Changes or Events............................................10
Section 3.8 Legal Proceedings...............................................................12
Section 3.9 Taxes and Tax Returns...........................................................12
Section 3.10 Employee Plans..................................................................13
Section 3.11 Labor and Employment Matters....................................................14
Section 3.12 Certain Contracts...............................................................15
Section 3.13 Properties and Assets...........................................................16
Section 3.14 Accounts Receivable.............................................................16
Section 3.15 Permits; Compliance with Applicable Laws........................................16
Section 3.16 Intellectual Property...........................................................17
Section 3.17 Related Party Arrangements......................................................17
Section 3.18 Bank Accounts...................................................................18
Section 3.19 Insurance.......................................................................18
Section 3.20 Environmental Matters...........................................................18
Section 3.21 Substantial Suppliers/Vendors...................................................18
Section 3.22 Previous Sales; Warranties......................................................18
Section 3.23 Broker's Fees...................................................................18
Section 3.24 Updating Disclosure Schedules...................................................19
Section 3.25 No Material Untrue Statements or Omissions......................................19
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS RELATING TO SHAREHOLDERS......................19
Section 4.1 Authority and Validity..........................................................19
Section 4.2 No Violation....................................................................19
Section 4.3 Consents and Approvals..........................................................20
Section 4.4 Transfer of the Company Stock...................................................20
Section 4.5 Investment Intention............................................................20
Section 4.6 Brokers.........................................................................20
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................................20
Section 5.1 Corporate Organization..........................................................20
Section 5.2 Authority and Validity..........................................................21
Section 5.3 No Violation....................................................................21
Section 5.4 Consents and Approvals..........................................................21
Section 5.5 Investment Intention............................................................21
Section 5.6 Financial Capability............................................................22
Section 5.7 Filings of the Purchaser........................................................22
Section 5.8 Litigation......................................................................23
ARTICLE VI ADDITIONAL AGREEMENTS........................................................................23
Section 6.1 Further Assurances..............................................................23
Section 6.2 Confidentiality.................................................................23
Section 6.3 Publicity.......................................................................23
Section 6.4 Employee Matters................................................................24
Section 6.5 Preservation of Records; Post-Closing Cooperation...............................24
Section 6.6 Tax Matters.....................................................................24
Section 6.7 Employment Agreements...........................................................25
Section 6.8 Registration Rights Agreement...................................................25
Section 6.9 Affirmative Covenants...........................................................25
Section 6.10 Negative Covenants Concerning the Company.......................................26
Section 6.11 Negative Covenants Concerning Shareholders......................................27
Section 6.12 Access to Information...........................................................27
Section 6.13 No Solicitation.................................................................27
Section 6.14 Bank Accounts...................................................................28
Section 6.15 Indemnification of Officers and Directors; Directors' and Officers'
Insurance.......................................................................28
Section 6.16 Purchaser Board Approval........................................................28
ARTICLE VII CONDITIONS PRECEDENT........................................................................29
Section 7.1 Conditions to Each Party's Obligation...........................................29
Section 7.2 Conditions to Obligation of Purchaser...........................................29
Section 7.3 Conditions to Obligation of the Shareholders....................................30
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ARTICLE VIII INDEMNIFICATION; CERTAIN REMEDIES..........................................................30
Section 8.1 Survival........................................................................30
Section 8.2 Indemnification by Shareholders.................................................31
Section 8.3 Indemnification by Purchaser and the Company....................................31
Section 8.4 Indemnification Procedures......................................................32
Section 8.5 Limitations on Indemnification for Breaches of Representations and
Warranties......................................................................33
Section 8.6 Calculation of Losses...........................................................34
Section 8.7 Tax Treatment of Indemnity Payments.............................................34
Section 8.8 Subrogation.....................................................................34
Section 8.9 Exclusive Remedy................................................................35
Section 8.10 Release.........................................................................35
Section 8.11 No Circular Recovery............................................................35
ARTICLE IX GENERAL PROVISIONS...........................................................................36
Section 9.1 Expenses........................................................................36
Section 9.2 Notices.........................................................................36
Section 9.3 Interpretation..................................................................37
Section 9.4 Counterparts....................................................................38
Section 9.5 Entire Agreement; Construction..................................................38
Section 9.6 Amendment; Shareholder Majority.................................................38
Section 9.7 Extension; Waiver...............................................................38
Section 9.8 Governing Law...................................................................39
Section 9.9 Consent to Jurisdiction.........................................................39
Section 9.10 Severability....................................................................39
Section 9.11 Assignment......................................................................39
Section 9.12 No Third Party Beneficiaries....................................................39
Section 9.13 Additional Definitions..........................................................40
Annex List
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Annex A Company Stock and Pro Rata Ownership
Annex B Form of Promissory Note
Annex C Form of Registration Rights Agreement (parties to finalize before Closing)
Annex D Form of Employment Agreements
Maurry Mendelovich
Colin McIntyre
Michael Katz
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Execution Copy
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered
into as of July 12, 2007, by and among MACE SECURITY INTERNATIONAL, INC., a
Delaware corporation ("Purchaser"), LINKSTAR INTERACTIVE, INC., a Delaware
corporation (the "Company") and MAURRY MENDELOVICH, COLIN McINTYRE, MICHAEL
KATZ, SHAWN MENDELOVICH, CHRISTINE McINTYRE AND EMILY PENDER (the
"Shareholders"). Capitalized terms used herein and not otherwise defined have
the meanings set forth in Section 9.13 hereof.
W I T N E S S E T H:
WHEREAS, after giving effect to the Redemption (as defined
below) which shall occur prior to the Closing, Shareholders collectively will
own one hundred percent (100%) of the outstanding capital stock issued by the
Company;
WHEREAS, Purchaser desires to acquire one hundred percent
(100%) of the outstanding capital stock issued by the Company; and
WHEREAS, Shareholders desire to sell and Purchaser desires to
purchase one hundred percent (100%) of the outstanding capital stock issued by
the Company at the price and upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, representations and warranties contained herein and intending
to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF OUTSTANDING STOCK
Section 1.1 Sale and Purchase of Outstanding Stock.
On the terms and subject to the conditions contained herein,
on the Closing Date, each Shareholder agrees to sell to Purchaser, and Purchaser
agrees to purchase from each Shareholder the common stock of the Company listed
on Annex A attached (the "Company Stock"), which common stock in the aggregate
will constitute at the Closing one hundred percent (100%) of all of the
Company's issued and outstanding capital stock, for the aggregate purchase price
specified in Section 1.2 and Section 1.3 (the "Purchase").
Section 1.2 Purchase Price.
The aggregate purchase price for the Company Stock being sold
hereunder shall be an amount equal to Ten Million Three Hundred Fifty Thousand
Dollars ($10,338,000) (the "Purchase Price"), payable as set forth in Section
1.3 below and subject to adjustment pursuant to Section 1.4(e) below.
Execution Copy
Section 1.3 Payment Terms.
On the terms and subject to the conditions set forth herein,
in consideration of the Company Stock being sold hereunder, on the Closing Date,
Purchaser shall pay each Shareholder such Shareholder's pro rata share of the
Purchase Price in the percentage set forth on Annex A (the "Pro Rata
Percentage"). The payment to each Shareholder at the Closing will be the Pro
Rata Percentage of the following:
(a) To each Shareholder, the Shareholder's Pro Rata Percentage
of Six Million Eight Hundred Fifty Thousand Dollars ($6,838,000), in cash (the
"Cash Consideration"), by wire transfer of immediately available United States
funds to such account as such Shareholder may designate to Purchaser at least
five (5) Business Days before the Closing Date;
(b) To each Shareholder, a promissory note in the original
principal amount equal to the Shareholder's Pro Rata Percentage of five hundred
thousand dollars ($500,000), which promissory note will be issued by Purchaser
bearing 5% interest per annum and due and payable, principal plus interest, on
January 3, 2008, in the form attached hereto as Annex B (the "Promissory
Notes");
(c) To each Shareholder, shares of the Purchaser's common
stock (the "MSI Common Stock") equal to the Shareholder's Pro Rata Percentage of
$3,000,000 in amount, with each share of the MSI Common Stock being valued at
the closing sales price of shares of Purchaser's common stock as reported by the
Nasdaq Global Market on the trading day which is the fifth trading day prior to
the Closing Date. Each Shareholder shall have registration rights for the MSI
Common Stock each receives as set forth in a separate Registration Rights
Agreement in form and substance to be agreed to by the parties as a condition to
Closing (the "Registration Rights Agreement") to be entered into by each
Shareholder and the Purchaser on the Closing Date. The MSI Common Stock shall
not be registered under the Securities Act of 1933 or any state securities laws.
The stock certificates to be delivered evidencing the MSI Common Stock will have
a restrictive legend stating the shares have not been registered under the
Securities Act of 1933. The Registration Rights Agreement each Shareholder is to
execute at Closing will have a provision providing that the Shareholder will not
sell the MSI Common Stock received at Closing for a period of one year from the
Closing Date and will agree to sell no more than one-half of the MSI Common
Stock such Shareholder received at the Closing during the period starting one
year from the Closing Date and ending two years from the Closing Date.
Section 1.4 Cash; Indebtedness; and Working Capital.
(a) On or prior to the Closing Date, prior to the calculation
of Working Capital under the provisions of Section 1.4(c) below, Shareholders
may cause the Company to distribute to the Shareholders and/or its employees any
and all cash of the Company and its Subsidiaries; provided that any distribution
shall be calculated in good faith to result in the Company having the Minimum
Working Capital after the distribution and payments described under Section
1.4(b) are made. Purchaser shall be given written notice of any distribution
prior to or promptly after it being made.
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(b) On or prior to the Closing Date, prior to the calculation
of Working Capital to be made under Section 1.4(c) below, Shareholders shall, or
shall cause the Company to: (i) repay any outstanding indebtedness for borrowed
money (including accrued and unpaid interest thereon) of the Company and its
Subsidiaries, except for the outstanding indebtedness for borrowed money set
forth in Section 1.4(b) of the Company Disclosure Schedules; and (ii) pay or
book any and all expenses relating to entering into and consummating this
Agreement, including without limitation, all travel expenses, legal expenses and
accounting fees.
(c) The Cash Consideration has been agreed upon based on the
Company having as of the Closing Date the Minimum Working Capital. On the
Closing Date, the Working Capital as of the Closing Date will be estimated by
the Purchaser and the Company using a balance sheet prepared by the Company and
reviewed by the Purchaser ("Estimated Working Capital"). The Shareholders shall
cause the Company to use commercially reasonable efforts to have an Estimated
Working Capital of no less than the Minimum Working Capital. In the event that
the Estimated Working Capital is less than the Minimum Working Capital by more
than $100,000, the Cash Consideration payable at the Closing will be reduced on
a dollar-for-dollar basis to the extent less than the Minimum Working Capital.
As soon as practicable after the Closing Date, but in no event later than the
60th day after the Closing Date, a Shareholder Majority shall prepare or cause
to be prepared and shall deliver to Purchaser a worksheet (the "Final Working
Capital Worksheet") calculating the actual Working Capital of the Company as of
the Closing Date (the "Final Working Capital"), as determined on a consolidated
basis in accordance with GAAP by the Company consistent with the basis on which
it prepared its May 31, 2007 balance sheet, provided that any items of income
and expense that are reported on an aggregated monthly basis shall be pro rated
for the month of July through the Closing Date. The Shareholder Majority shall
provide to Purchaser all supporting work papers and other supporting information
used to prepare the Final Working Capital Worksheet as may be reasonably
requested by Purchaser.
(d) The Final Working Capital Worksheet and the Final Working
Capital shall be deemed conclusive and binding on the parties for purposes of
this Section 1.4 unless Purchaser notifies the Shareholders in writing within
thirty (30) days after receipt of the Final Working Capital Worksheet of
Purchaser's disagreement therewith, which notice shall state with reasonable
specificity the reasons for any disagreement and identify the items and amounts
in dispute (the "Objections"). Thereafter, Purchaser and a Shareholder Majority
shall endeavor in good faith, for a period not to exceed 30 days from the date
of delivery of such notice, to resolve the Objections. If at the end of the
30-day period there are any unresolved Objections, at the request of either
party, Purchaser and a Shareholder Majority shall promptly engage, on standard
terms and conditions for a matter of such nature, the Pittsburgh, Pennsylvania
office of Alpern Rosenthal (or another mutually acceptable recognized
independent accounting firm of regional standing who does not have a
pre-existing relationship with Purchaser, Shareholders or the Company) to
determine the Final Working Capital. The engagement agreement with the
independent accountants shall require the independent accountants to make their
determination with respect to the Objections and amount of the Final Working
Capital within forty-five (45) days following their engagement. Purchaser and
the Shareholders shall each pay one-half of the fees and expenses of such
independent accountants. The resolution by the independent accountants of any
dispute shall be final, binding and conclusive upon the parties and shall be the
parties' sole and exclusive remedy regarding any dispute concerning the
calculation of the Final Working Capital; provided, however, the limitations set
forth in this Section shall not impair or affect the rights of any of the
parties to seek equitable relief, including specific performance or injunctive
relief with respect hereto, or affect the rights of any of the parties to
redress any Losses arising out of fraud by any other party in connection
herewith.
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(e) The Purchase Price shall be adjusted on a
dollar-for-dollar basis upwards or downwards to the extent that the Final
Working Capital is greater or less than the Minimum Working Capital, as the case
may be. If the Final Working Capital as established pursuant to the preceding
Section varies from the Minimum Working Capital, the following shall occur, as
applicable, (i) Purchaser shall pay each Shareholder, in cash, an amount, if
any, equal to the Pro Rata Percentage by which the Final Working Capital exceeds
the Minimum Working Capital; or (ii) each Shareholder shall pay Purchaser the
amount, if any, equal to the Pro Rata Percentage by which the Final Working
Capital was less then the Minimum Working Capital. The payment, if any is owed
by the Shareholders, shall be paid to Purchaser by Purchaser receiving a credit
from each Shareholder against the Promissory Note held by such Shareholder in
the Pro Rata Percentage of the aggregate amount owed with the balance, if any,
being paid in cash. Neither party shall be liable for indemnification under
Article VIII with respect to the Working Capital to the extent that such party
has benefited from an adjustment to the Purchase Price under this Section 1.4.
Section 1.5 Excluded Assets
The parties to this Agreement acknowledge that the
Shareholders have some personal possession at the Company's offices. The assets
listed in Section 1.5 of the Company Disclosure Schedules (the "Excluded
Assets"), are personal assets of the Shareholders as identified in Section 1.5
and are not owned by the Company.
Section 1.6 Stock Options, Warrants and Capital Contribution.
Prior to the Closing, the Company shall cause each stock
option granted by the Company or its Subsidiaries, including the options under
the Company's Stock Incentive Plan of 2007, as amended (the "Option Plan"), and
each warrant to purchase the Company's or the Subsidiaries' common stock, that
is outstanding immediately prior to the Closing, whether vested or unvested, to
be canceled (the "Option Cancellation"), and the Company shall pay each holder
of any such option or warrant as soon as practicable on or after the Closing
Date for each such option an amount in cash in the respective amounts set forth
on Schedule 1.7 attached hereto pursuant to the terms and conditions of a
cancellation agreement entered into between the Company and each such option
holder or warrant holder. The Company will also pay a cash bonus to certain
employees as also set forth on Schedule 1.7. The Shareholders agree that the
total payments set forth on Schedule 1.7 shall not exceed $162,000. On the
Closing Date, promptly after the Closing, Purchaser shall make a cash capital
contribution to the Company in an amount equal to the aggregate amount of such
cash payments for the Option Cancellation and the cash bonus (collectively, the
"Option Cash Out Contribution").
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ARTICLE II
CLOSING AND TERMINATION
Section 2.1 Closing; Closing Date.
Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place via physical or remote closing at 10:00 a.m., New York time, at the
offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st
Floor, Philadelphia, Pennsylvania, on July 20, 2007, provided, only that all
conditions precedent specified under Article III hereof have been satisfied or
waived by such date (except for those conditions which by their terms are to be
satisfied at Closing but subject to the satisfaction or waiver of such
conditions at Closing), or on such other date, place and time as the parties may
agree in writing (the "Closing Date").
Section 2.2 Closing Deliveries.
(a) At Closing, the Shareholders shall each deliver or cause
to be delivered to Purchaser:
(i) Certificates for the Company Stock
collectively representing one hundred percent (100%) of the
Company Stock, together with stock certificate transfer powers
duly endorsed to the Purchaser;
(ii) an officer's certificate of the Company
signed by the Chief Executive Officer, dated as of the Closing
Date, relating to the satisfaction of the Closing conditions
set for in Section 7.2(a) and Section 7.2(b);
(iii) a secretary's certificate, dated as of
the Closing Date, duly executed by the Secretary of the
Company and its Subsidiaries identifying the incumbent
officers of the Company and their signatures;
(iv) copies of the Organizational Documents
of the Company and the Subsidiaries certified by the
appropriate Governmental Entity (as to Organizational
Documents filed therewith) as of a date within forty-five (45)
days of the Closing Date;
(v) a good standing certificate for the
Company and its Subsidiaries for their jurisdictions of
organization, dated as of a date within forty-five (45) days
of the Closing Date;
(vi) written resignations of all officers
and directors of the Company and its Subsidiaries;
(vii) the Transaction Documents, duly
executed by the Shareholders;
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(viii) an officer's certificate (the
"Estimated Working Capital Certificate"), dated as of the
Closing Date, duly executed by an authorized officer of
Company, setting forth the amount of the Estimated Working
Capital pursuant to Section 1.4(c); and
(ix) such other documents or instruments in
form and substance reasonably acceptable to Shareholders and
Purchaser as are required by this Agreement to consummate the
transactions contemplated hereby.
(b) At Closing, Purchaser, shall deliver or cause to be
delivered to Shareholders:
(i) evidence reasonably satisfactory to
Shareholders of payment of the Cash Consideration;
(ii) delivery of the Promissory Notes to
each of the Shareholders, duly executed by an officer of the
Purchaser;
(iii) delivery of certificates for the MSI
Common Stock to each of the Shareholders, duly executed by an
officer of the Purchaser and properly issued;
(iv) an officer's certificate, dated as of
the Closing Date, duly executed by an authorized officer of
Purchaser, relating to the satisfaction of the Closing
conditions set forth in Section 7.3(a) and Section 7.3(b);
(v) a secretary's certificate, dated as of
the Closing Date, duly executed by the Secretary of Purchaser,
relating to: (A) the incumbent officers of Purchaser; and (B)
resolutions of the board of directors or similar governing
body of Purchaser approving the transactions contemplated by
this Agreement;
(vi) the Transaction Documents, duly
executed by a duly authorized officer of Purchaser; and
(vii) such other documents or instruments in
form and substance reasonably acceptable to Shareholders and
Purchaser as are required by this Agreement to consummate the
transactions contemplated hereby.
Section 2.3 Termination of the Agreement.
This Agreement may be terminated prior to Closing, as follows:
(a) At the written election of either Shareholders holding at
least 50% of the Company Stock (a "Shareholder Majority") or Purchaser after
August 15, 2007 (the "Termination Date"), if the Closing shall not have occurred
by the close of business on such date, provided, however, that the terminating
party is not in breach in any material respect of any of its obligations
hereunder;
(b) by mutual written consent of a Shareholder Majority and
Purchaser;
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(c) by Purchaser, if there has been a material breach of any
of the representations, warranties, agreements or covenants set forth in this
Agreement on the part of Shareholders or the Company which, if not cured, would
reasonably be expected to render the satisfaction of any of the conditions set
forth in Section 7.2 impossible and such breach has not been cured within ten
(10) days following Purchaser's written notice of such breach; provided,
however, that the right to terminate this Agreement under this Section 2.3(c)
shall not be available to Purchaser, if Purchaser is in material breach of this
Agreement; or
(d) by a Shareholder Majority, if there has been a material
breach of any of the representations, warranties, agreements or covenants set
forth in this Agreement on the part of Purchaser which, if not cured, would
reasonably be expected to render the satisfaction of any of the conditions set
forth in Section 7.3 impossible and such breach has not been cured within ten
(10) days following Shareholders' written notice of such breach; provided,
however, that the right to terminate this Agreement under this Section 2.3(d)
shall not be available to the Shareholders, if the Shareholders or the Company
is in material breach of this Agreement.
(e) By Purchaser, by written notice delivered to the
Shareholders by fax and email on or before midnight on July 18, 2007, if
Purchaser after reviewing the Company Disclosure Schedules is not satisfied with
any item disclosed thereon.
(f) By a Shareholder Majority or Purchaser, by written notice
delivered to Purchaser or the Shareholders, as applicable, by fax and email on
or before midnight on July 18, 2007, if Purchaser's board of directors has not
approved this Agreement, the Purchase and the other Transaction Documents by
such time.
Section 2.4 Procedure Upon Termination.
In the event of termination and abandonment by Shareholders or
Purchaser, or both, pursuant to Section 2.3 hereof, written notice thereof shall
forthwith be given to the other party or parties, and this Agreement shall
terminate, and the purchase of the Company Stock hereunder shall be abandoned,
without further action by Purchaser or Shareholders.
Section 2.5 Effect of Termination.
(a) In the event that this Agreement is validly terminated in
accordance with Section 2.3 and Section 2.4, then, subject to the provisions of
this Section 2.5, each of the Shareholders, Company and Purchaser shall be
relieved of their respective duties and obligations arising under this Agreement
after the date of such termination, and such termination shall be without
liability to Purchaser, Shareholders or the Company; provided, however, that no
such termination shall relieve any party hereto from liability for any breach of
this Agreement as provided in Section 2.5(b) below; provided, further, that the
obligations of the parties set forth in this Section 2.5 and in Article IX
hereof shall survive any such termination and shall be enforceable hereunder.
(b) Except as otherwise provided herein, nothing in this
Section 2.5 shall relieve the Shareholders, the Company or Purchaser of any
liability for a breach of any of their respective covenants or agreements or
breach of their respective representations and warranties contained in this
Agreement prior to the date of termination. The damages recoverable by a
non-breaching party shall include all attorneys' fees reasonably incurred by
such party in connection with the transactions contemplated hereby.
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(c) In the event this Agreement is terminated by Purchaser
under Section 2.3(c) or by Shareholders under Section 2.3(d), Shareholders and
Purchaser, as applicable, shall be entitled to exercise all remedies they have
at law or equity, including specific performance of this Agreement, existing due
to the material breach of the other party of the representations, warranties,
agreements or covenants set forth in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND COMPANY
RELATING TO THE COMPANY
Subject to the exceptions disclosed in the disclosure schedule
to be delivered by Shareholders and the Company to Purchaser on or before July
16, 2007, as the same may be updated prior to the Closing pursuant to Section
3.24 (the "Company Disclosure Schedules"), the Shareholders and the Company
hereby jointly and severally represent and warrant to Purchaser as of the
Closing Date, as follows:
Section 3.1 Corporate Organization; Subsidiaries.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. The
Company has corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted and as it
is currently contemplated to be conducted. The Company is qualified to do
business in each jurisdiction in which the nature of its business or the
ownership of its properties makes such qualification necessary, except for where
such failures to be so qualified would not have a Material Adverse Effect. The
copies of the certificate of incorporation and bylaws of the Company
(collectively, the "Organizational Documents"), which are attached hereto at
Section 3.1(a) of the Company Disclosure Schedules, are true, correct and
complete copies of such documents as in effect on the date of this Agreement.
(b) Section 3.1(b) of the Company Disclosure Schedules sets
forth the name of each of the Subsidiaries of the Company, and, with respect to
each Subsidiary, the jurisdiction in which it is incorporated or organized and
the Company's ownership interest therein. Each Subsidiary is a duly organized
and validly existing corporation validly existing or in good standing under the
Laws of the jurisdiction of its organization and is duly qualified to do
business in each jurisdiction in which the nature of its business or the
ownership of its properties requires such qualification, except for where such
failures to be so qualified would not have a Material Adverse Effect. The copies
of the articles of incorporation and bylaws of each of the Subsidiaries of the
Company (collectively, the "Subsidiary Organizational Documents") which are
attached hereto at Section 3.1(b) of the Company Disclosure Schedules, are true,
correct and complete copies of such documents as in effect on the date of this
Agreement.
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Section 3.2 Capitalization.
Shareholders are the only owners of the outstanding capital
stock of the Company and, as the only owners of the outstanding capital stock
issued by the Company, hold of record and beneficially all of the outstanding
common stock issued by the Company free and clear of any Liens. After giving
effect to the Option Cancellation, there are not outstanding any preferred stock
or other securities of the Company or its Subsidiaries or any options, warrants,
rights or agreements, orally or in writing, relating to the issuance, sale or
transfer of any equity securities or other securities of the Company or its
Subsidiaries.
Section 3.3 No Violation.
All corporate action on the part of the Company and
Shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the transactions contemplated hereby have been
taken by the Company and the Shareholders or will be taken by them prior to the
Closing. Except as set forth on Section 3.3 of the Company Disclosure Schedules,
the execution, delivery and performance by Shareholders of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination or
cancellation under, any provision of (a) the Organizational Documents of the
Company or any organizational documents of any of its Subsidiaries; (b) any
applicable Law or applicable order, judgment or decree issued by any
Governmental Entity which names the Company or any of its Subsidiaries or any of
their respective assets (each, an "Order") of any court, administrative agency
or commission or other governmental or regulatory authority or instrumentality
(each, a "Governmental Entity"), (c) any contract, lease, loan agreement,
mortgage, security agreement or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the Company's or its Subsidiaries'
properties or assets is subject, or (d) any of the approvals, authorizations,
consents, licenses, permits or certificates (the "Permits") granted by a
Governmental Entity to the Company or its Subsidiaries.
Section 3.4 Consents and Approvals.
Except as disclosed on Section 3.4 of the Company Disclosure
Schedules, no consent, waiver, authorization, approval, Order or Permit of or
from, or registration, declaration or filing with, or notice to any Governmental
Entity or any other Person, is required by the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
Section 3.5 Financial Statements; Books and Records.
The Company has made available to Purchaser copies of certain
internally prepared financial information attached as Section 3.5 of the Company
Disclosure Schedules (collectively, the "Financial Statements"). Except as set
forth on Section 3.5 of the Company Disclosure Schedules, the Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly in all material
respects the financial condition of the Company and its Subsidiaries as of such
dates and the results of operations of the Company and its Subsidiaries for such
periods, all in accordance with GAAP, subject to normal recurring period-end
adjustments and the absence of notes, and are consistent with the books and
records of the Company and its Subsidiaries (which books and records are correct
and complete in all material respects).
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For the purposes hereof, the unaudited consolidated balance
sheet of the Company and its Subsidiaries as at May 31, 2007 included in the
Financial Statements is referred to as the "Balance Sheet," and May 31, 2007 is
referred to as the "Balance Sheet Date."
Section 3.6 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 3.6 of the Company Disclosure
Schedules, and except as otherwise contemplated in this Agreement, neither the
Company nor any of its Subsidiaries has material Liabilities that would have
been required to be reflected in, reserved against or otherwise described on the
Balance Sheet in accordance with GAAP and were not so reflected, reserved
against or described, other than (i) Liabilities incurred in the Ordinary Course
of Business after the Balance Sheet Date that would not have a Material Adverse
Effect, and (ii) Liabilities incurred in connection with the transactions
contemplated hereby.
Section 3.7 Absence of Certain Changes or Events.
Except as set forth on Section 3.7 of the Company Disclosure Schedules,
since the Balance Sheet Date (i) the Company and its Subsidiaries have conducted
their respective businesses in the Ordinary Course of Business and (ii) there
has not been any event, change, occurrence or circumstance that has had or would
be reasonably likely to result in a Material Adverse Effect. Without limiting
the generality of the foregoing, since the Balance Sheet Date:
(a) none of the Company and its Subsidiaries has sold, leased,
transferred, or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of Business;
(b) none of the Company and its Subsidiaries has entered into
any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than
$50,000 or outside the Ordinary Course of Business;
(c) no party (including any of the Company and its
Subsidiaries) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than
$50,000 to which any of the Company and its Subsidiaries is a party or
by which any of them is bound;
(d) none of the Company and its Subsidiaries has imposed any
Lien upon any of its assets, tangible or intangible other than
Permitted Liens;
(e) none of the Company and its Subsidiaries has made any
capital expenditure (or series of related capital expenditures) either
involving more than $50,000 or outside the Ordinary Course of Business;
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(f) none of the Company and its Subsidiaries has made any
capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than
$50,000 or outside the Ordinary Course of Business;
(g) none of the Company and its Subsidiaries has issued any
note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation either involving more than $25,000 singly or $50,000 in the
aggregate;
(h) none of the Company and its Subsidiaries has delayed or
postponed the payment of accounts payable and other Liabilities outside
the Ordinary Course of Business;
(i) none of the Company and its Subsidiaries has cancelled,
compromised, waived, or released any right or claim (or series of
related rights and claims) either involving more than $50,000 or
outside the Ordinary Course of Business;
(j) none of the Company and its Subsidiaries has granted any
license or sublicense of any rights under or with respect to any
Intellectual Property outside the Ordinary Course of Business;
(k) there has been no change made or authorized in the charter
or bylaws of any of the Company and its Subsidiaries;
(l) none of the Company and its Subsidiaries has issued, sold,
or otherwise disposed of any of its capital stock, or granted any
options, warrants, or other rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock;
(m) none of the Company and its Subsidiaries has experienced
any material damage, destruction, or loss (whether or not covered by
insurance) to its property (excepting ordinary wear and tear);
(n) none of the Company and its Subsidiaries has made any loan
to, or entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of Business),
except for the cash distribution contemplated under Section 1.4(b) and
the Option Cancellation and cash bonus contemplated under Section 1.6;
(o) none of the Company and its Subsidiaries has entered into
any employment contract or collective bargaining agreement, written or
oral, or modified the terms of any existing such contract or agreement;
(p) none of the Company and its Subsidiaries has granted any
increase in the base compensation of any of its directors, officers,
and employees outside the Ordinary Course of Business;
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(q) none of the Company and its Subsidiaries has adopted,
amended, modified, or terminated any bonus, profit sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of
any of its directors, officers, and employees (or taken any such action
with respect to any other Employee Benefit Plan), except for the Option
Cancellation and cash bonus contemplated under Section 1.6;
(r) none of the Company and its Subsidiaries has made any
other change in employment terms for any of its directors, officers,
and employees outside the Ordinary Course of Business;
(s) none of the Company and its Subsidiaries has made or
pledged to make any charitable or other capital contribution outside
the Ordinary Course of Business;
(t) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Company and its Subsidiaries;
and
(u) none of the Company and its Subsidiaries has committed to
any of the foregoing.
Section 3.8 Legal Proceedings.
Except as set forth on Section 3.8 of the Company Disclosure
Schedules, there are no legal, administrative, arbitration or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
(each, a "Legal Proceeding") pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries before any
Governmental Entity, which, if adversely determined, would have a Material
Adverse Effect. The Company and its Subsidiaries are not subject to any Order of
any Governmental Entity except as set forth on Section 3.8 of the Company
Disclosure Schedules and that such Orders collectively will not have a Material
Adverse Effect.
Section 3.9 Taxes and Tax Returns.
Except, in each case, as disclosed on the corresponding
subsection of Section 3.9 of the Company Disclosure Schedules:
(a) The Company and each of its Subsidiaries has timely paid
(or there have been paid on its behalf) or has established adequate reserves
(exclusive of any accruals or reserves for deferred Taxes or similar items that
reflect timing differences between tax and financial accounting principles) in
its Financial Statements and Final Working Capital Worksheet for the payment of
all Taxes (without regard to whether or not such Taxes are or were disputed)
that have accrued but are not yet due as of the Closing Date, whether or not
shown on any Tax Return that has become due. There are no Liens for Taxes (other
than Permitted Liens) upon any of the assets of the Company or any of its
Subsidiaries.
(b) Neither Company nor any of its Subsidiaries has received
any written notice that any action, suit, proceeding, or audit is pending
against or with respect to them regarding Taxes.
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(c) All Tax Returns that are required to have been filed by or
with respect to the Company and each of its Subsidiaries have been filed on a
timely basis (taking into account all extensions of time to file that have been
granted). All such Tax Returns were accurate and complete and were prepared in
compliance with all applicable Laws. Neither Company nor any of its Subsidiaries
has given, nor is subject to, any currently effective waiver of any statute of
limitations in respect of Taxes or agreed to any currently effective extension
of time with respect to a Tax assessment or deficiency. The Company has withheld
and paid (to the extent they have become due) all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor or other third party.
(d) Neither Company nor any of its Subsidiaries is a party to
or is bound by any Tax allocation or sharing agreement.
(e) No Shareholder or director or officer of the Company (or
employee responsible for Tax matters) of any of the Company and its Subsidiaries
expects any authority to assess any additional Taxes for any period for which
Tax Returns have been filed. The Company has delivered to the Purchaser correct
and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the Company
and its Subsidiaries since their incorporation.
(f) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. Each of the Company and its Subsidiaries has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662. None of the Company and its Subsidiaries (A) has been a member of
an affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) or (B) has any Liability for
the Taxes of any Person (other than any of the Company and its Subsidiaries)
under Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
Section 3.10 Employee Plans.
(a) Section 3.10(a) of the Company Disclosure Schedules sets
forth a complete list of each "employee benefit plan," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and each other plan, arrangement or agreement providing benefits that
is maintained, administered or contributed to by the Company or any of its ERISA
Affiliates and covers any current or former employee of the Company
(collectively, the "Company Plans"). For purposes of this Section 3.10, "ERISA
Affiliate" of any entity means any other entity (whether or not incorporated)
that, together with such entity, would be treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA. Each Company Plan that is an
"employee benefit plan," as defined in Section 3(3) of ERISA, is referred to as
a "Company ERISA Plan."
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(b) The Company and its ERISA Affiliates have performed their
required obligations under all Company Plans. The Company has no liability to
the Internal Revenue Service, the U.S. Pension Benefit Guaranty Corporation or
to any other governmental or quasi-governmental agency or authority with respect
to any Company Plan. The Company has not at any time (i) had a Company Plan
subject to Title IV of ERISA, (ii) had a Company Plan subject to the minimum
funding requirements of Section 412 of the Code or Part 3 of Subtitle B of Title
I of ERISA, (iii) contributed to or been obligated to contribute to any
Multiemployer Plan or a plan that has two or more contributing sponsors at least
two of whom are not under common control, within the meaning of Section 4063 of
ERISA (a "Multiple Employer Plan") or (iv) incurred any Withdrawal Liability
that has not been satisfied in full. "Withdrawal Liability" means liability to a
Multiple Employer Plan or a Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiple Employer Plan or Multiemployer Plan.
"Multiemployer Plan" means any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA.
(c) (i) Each of the Company Plans has been operated and
administered in material compliance with applicable Laws, (ii) all contributions
or other amounts payable by the Company with respect to each Company Plan and
all other liabilities of the Company with respect to each Company Plan, as to
current or prior plan years, have been paid or have been properly accrued on the
Financial Statements and the Final Working Capital Worksheet, (iii) the Company
has not engaged in a "prohibited transaction" as defined in Section 406 of ERISA
or Section 4975 of the Code in connection with which the Company could be
subject to either any excise tax or civil penalty assessed pursuant to ERISA or
the Code, and (iv) to the Knowledge of the Company, there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Company Plans or any trusts related thereto.
(d) Except as set forth on Section 3.10(d) of the Company
Disclosure Schedules, the execution and delivery of this Agreement and the
consummation of the Purchase and the other transactions contemplated by this
Agreement will not (i) require the Company to make a larger contribution to, or
pay greater benefits under, any of the Company Plans than it otherwise would
have been required to make or pay as of the date of this Agreement, or (ii)
create, give rise to or accelerate the payment of any bonus, severance or other
payments or additional vested rights or service credits under any Company Plan.
Section 3.11 Labor and Employment Matters.
(a) Except as set forth on Section 3.11(a) of the Company
Disclosures Schedule, neither the Company nor any of its Subsidiaries is a party
to any labor or collective bargaining agreement.
(b) Except as set forth on Section 3.11(b) of the Company
Disclosure Schedules, there are no (i) strikes, work stoppages, work slowdowns
or lockouts pending or, to the Knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries, or (ii) unfair labor practice
charges, grievances or complaints pending or, to the Knowledge of the Company
threatened, by or on behalf of any employee or group of employees of the Company
or any of its Subsidiaries.
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Section 3.12 Certain Contracts.
(a) Except as set forth on Section 3.12(a) of the Company
Disclosure Schedules, none of the Company or its Subsidiaries is a party to or
bound by any written:
(i) agreement, contract or commitment with any
present or former employee or consultant for the employment of any such
Person for an annual salary of $50,000 or more or having a severance
payment or benefit;
(ii) agreement, contract, commitment or arrangement
with any labor union or other representative of employees (including
any collective bargaining agreement);
(iii) agreement, contract or commitment for the
future purchase of, or payment for, supplies or products, or for the
performance of services by a third party, involving in any one case
payment by the Company or any of its Subsidiaries in excess of $50,000
per year;
(iv) third party commission, representative,
distributorship or sales agency agreement, contract or commitment
involving in any one case payment by the Company or any of its
Subsidiaries in excess of $50,000 per year;
(v) note, debenture, bond, trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the indebtedness
of any other Person, in each case exceeding $50,000 in value;
(vi) agreement, contract or commitment relating to
the disposition or acquisition by the Company or any of its
Subsidiaries of any assets not in the Ordinary Course of Business and
exceeding $50,000 in value;
(vii) contracts which involve the expenditure of more
than $50,000 in the aggregate or require performance by any party more
than one year from the date hereof that, in either case, are not
terminable by the Company or any of its Subsidiaries without penalty on
notice of thirty days or less; or
(viii) agreement, contract, commitment or
arrangement, other than those described in clauses (i) through (vii) of
this Section 3.12(a), material to the business of the Company and its
Subsidiaries, taken as a whole, as currently conducted and without
giving effect to the transactions contemplated by this Agreement.
Each agreement, contract, commitment and understanding set
forth in Section 3.12(a) of the Company Disclosure Schedules is referred to
herein as a "Company Contract."
(b) Each Company Contract is valid and binding and in full
force and effect as to the obligations of the Company or any of its Subsidiaries
thereunder, and, to the Knowledge of the Company, is valid and binding and in
full force and effect as to the obligations of the third parties thereto. Except
as set forth on Section 3.12(b) of the Company Disclosure Schedules, neither the
Company nor any of its Subsidiaries has received any written notice of any
default or event that with notice or lapse of time, or both, would constitute a
default by the Company or its Subsidiaries under any Company Contract.
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Section 3.13 Properties and Assets.
(a) The Company does not own a fee or other ownership interest
(other than leasehold interests) in any real property.
(b) Section 3.12(b) of the Company Disclosure Schedules sets
forth each real property lease or sublease to which the Company, any of its
Subsidiaries is a party (the "Real Property Leases"). Neither the Company nor
any of its Subsidiaries has received any written notice of any default or event
that with notice or lapse of time, or both, would constitute a default by the
Company or any of its Subsidiaries under any of the Real Property Leases.
(c) Section 3.13(c) of the Company Disclosure Schedules sets
forth all leases of personal property by the Company and any of its Subsidiaries
("Personal Property Leases") involving annual payments by the Company or its
Subsidiaries in excess of one $50,000 per annum. Neither the Company nor any of
its Subsidiaries has received any written notice of any default or any event
that with notice or lapse of time, or both, would constitute a default, by the
Company or any of its Subsidiaries under any of the Personal Property Leases.
(d) The Company and its Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used.
(e) The physical inventory of the Company and its Subsidiaries
consists of finished goods, all of which is merchantable and fit for the purpose
for which the goods were procured or manufactured, and none of which is
slow-moving, obsolete, damaged, or defective, subject only to the reserve for
inventory write-down set forth on the face of the Balance Sheet and inventory to
which warranty claims may be asserted against the manufacturer.
Section 3.14 Accounts Receivable.
All accounts receivable of the Company and its Subsidiaries
are reflected properly on their books and records, are valid receivables and, to
the Knowledge of the Company, are not subject to any setoffs or counterclaims,
are current and collectible, subject only to the reserve for bad debts set forth
on the face of the Balance Sheet.
Section 3.15 Permits; Compliance with Applicable Laws.
(a) The Company and its Subsidiaries own, possess or have the
right to use in the operation of its business all Permits that are necessary for
the Company to conduct their respective businesses as currently conducted.
Neither the Company nor any of its Subsidiaries is in default or violation (and
no event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of any
Permit to which it is a party.
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(b) Except as set forth on Section 3.15(b) of the Company
Disclosure Schedules, the Company and its Subsidiaries have at all times
conducted their respective businesses in compliance with all applicable Laws.
Except as set forth on Section 3.15(b) of the Company Disclosure Schedules,
neither Company nor any of its Subsidiaries has received written notice of any
violation of any such applicable Law nor is in default with respect to any
Order, applicable to the Company or its Subsidiaries.
Section 3.16 Intellectual Property.
(a) Except as set forth on Section 3.17 of the Company
Disclosure Schedules, the Company and its Subsidiaries own or have licenses to
use all material Intellectual Property used by them in the Ordinary Course of
Business. Each item of Intellectual Property owned or used by any of the Company
and its Subsidiaries immediately prior to the Closing hereunder will be owned or
available for use by the Company or the Subsidiary on identical terms and
conditions immediately subsequent to the Closing hereunder. Each of the Company
and its Subsidiaries has taken all reasonable necessary action to maintain and
protect each item of Intellectual Property that it owns or uses consistent with
industry practices.
(b) Section 3.16 of the Company Disclosure Schedules contains
a complete list of the Company's registered patents, trademarks, copyrights and
domain names and its pending patent, trademark and copyright applications, if
any.
(c) To the Knowledge of the Company, none of the Company and
its Subsidiaries has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties. Except as set forth on Section 3.17 of the Company Disclosure
Schedules, (i) the Intellectual Property used by the Company and its
Subsidiaries is not the subject of any challenge received by the Company or any
of its Subsidiaries in writing and (ii) neither the Company nor any Subsidiary
has received any written notice of any default or any event that with notice or
lapse of time, or both, would constitute a default under any material
Intellectual Property license to which the Company or any of its Subsidiaries is
a party or by which it is bound.
Section 3.17 Related Party Arrangements.
Except as disclosed on Section 3.17 of the Company Disclosure
Schedules, there are no material contracts or arrangements currently in effect
between the Company and its Subsidiaries, on the one hand, and any Shareholder,
family member of a Shareholder, employee or Affiliate of a Shareholder ("Related
Parties" ), on the other hand. No Affiliate, Shareholder, or other employee of
the Company and its Subsidiaries personally owns, directly or indirectly, any
material property or right (whether tangible or intangible) that is used by the
Company. Other than obligations to pay compensation arising in the Ordinary
Course of Business, there are no material debts or other obligations owed by the
Company to any Related Parties.
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Section 3.18 Bank Accounts.
Section 3.18 of the Company Disclosure Schedules sets forth
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
accounts of any nature (the "Bank Accounts" ), the account numbers of all such
Bank Accounts and the names of all Persons authorized to draw thereon or make
withdrawals therefrom.
Section 3.19 Insurance.
The Company is insured against such risks, and subject to
exclusions, conditions and deductible amounts, as companies engaged in a similar
business would, in accordance with good business practice, customarily be
insured. Set forth on Section 3.19 of the Company Disclosure Schedules is a
complete and correct list as of the date hereof of all material insurance
policies maintained by the Company for the benefit of the Company or its
Subsidiaries (correct and complete copies of which the Company has made
available to Purchaser). As of the date of this Agreement, all such insurance
policies are (a) in full force and effect and (b) sufficient for compliance by
the Company with all requirements of applicable Law and of all Material
Contracts that require particular levels of insurance coverage.
Section 3.20 Environmental Matters.
Except as set forth in Section 3.20 of the Company Disclosure
Schedules, the Company at all times since its inception has been and presently
is in compliance in all material respects with all environmental Laws. The
Company has not utilized, treated, stored, processed, discharged, spilled or
otherwise disposed of any hazardous material at any real property or any other
facility owned or leased by the Company in violation of applicable environmental
Law.
Section 3.21 Substantial Suppliers/Vendors.
Section 3.21 of the Company Disclosure Schedules lists the
nine (9) largest suppliers of the Company, on the basis of cost of goods or
services purchased for the most recently-completed fiscal year (the "Material
Suppliers"). The Company has received no written notice that any Material
Supplier is threatened with any bankruptcy or insolvency proceeding.
Section 3.22 Previous Sales; Warranties.
All goods sold or distributed by the Company's Subsidiary,
Linkstar Corporation, prior to the Closing were of merchantable quality, and to
the Knowledge of the Company, Linkstar Corporation has not breached any express
or implied warranties given directly by Linkstar Corporation in connection with
the sale or distribution of such goods.
Section 3.23 Broker's Fees.
The Company and its Subsidiaries have not employed any broker,
finder or financial advisor or incurred any liability for any broker's fees,
commissions, finder's fees or advisor's fees in connection with any of the
transactions contemplated by this Agreement.
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Section 3.24 Updating Disclosure Schedules.
The Shareholders may update the Company Disclosure Schedules
prior to the Closing to reflect (a) actions taken by the Shareholders or events
occurring after the date of this Agreement, provided that such updates shall
relate only to actions taken by the Shareholders or the Company that are
permitted pursuant to this Agreement, or (b) to make any non-material
corrections or changes.
Section 3.25 No Material Untrue Statements or Omissions.
The representations and warranties contained in this Article
III do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Article III not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS RELATING TO SHAREHOLDERS
Each Shareholder hereby represents and warrants, severally and
not jointly, to Purchaser on behalf of such Shareholder as of the Closing Date
as follows:
Section 4.1 Authority and Validity.
The Shareholder is over the age of twenty-one and has the
mental capacity and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. No actions on the part of the
Shareholder is necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Shareholder (assuming due authorization, execution
and delivery by Purchaser) constitutes a valid and binding obligation of the
Shareholder, enforceable against the Shareholder in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, moratorium or
similar Laws of general application relating to or affecting creditors' rights
generally and except for the limitations imposed by general principles of
equity.
Section 4.2 No Violation.
The execution, delivery and performance by the Shareholder of
this Agreement does not, and the consummation of the transactions contemplated
hereby by the Shareholder will not, conflict with, or result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination or cancellation under, any provision of (a) any
applicable Laws or applicable Orders, (b) any contract, lease, loan agreement,
mortgage, security agreement or other agreement or instrument to which the
Shareholder is a party or by which the Shareholder is bound or to which any of
the Shareholder's properties or assets is subject, or (c) any of the Permits
granted by a Governmental Entity to Company.
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Section 4.3 Consents and Approvals.
No consents, waivers, authorizations, approvals, Orders or
Permits of or from, or registration, declaration or filing with, or notice to
any Governmental Entity, or any other Person are required by the Shareholder in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
Section 4.4 Transfer of the Company Stock.
The Shareholder is the only record and beneficial owner of the
Company Stock being sold by the Shareholder hereunder. Upon payment for the
Company Stock pursuant to the terms of this Agreement, the Shareholder will
transfer to Purchaser good and valid title thereto, free and clear of all Liens.
Section 4.5 Investment Intention.
The Shareholder is accepting the MSI Common Stock being issued
to the Shareholder hereunder for the Shareholder's own account, for investment
purposes only and not with a view to the distribution (as such term is used in
Section 2(11) of the Securities Act of 1933 as amended (the "Securities Act")
thereof. The Shareholder understands that the MSI Common Stock being sold
hereunder has not been registered under the Securities Act and cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available.
Section 4.6 Brokers.
The Shareholder has not employed any broker, finder or
financial advisor or incurred any liability for any broker's fees, commissions,
finder's fees or advisor's fees for which the Company would be liable in
connection with any of the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Shareholders
as of the Closing Date as follows:
Section 5.1 Corporate Organization.
Purchaser is a corporation duly incorporated, validly existing
and in good standing under the Laws of State of Delaware. Purchaser has full
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted. Purchaser is duly
qualified to do business in each jurisdiction in which the nature of its
business or the ownership of its properties makes such qualification necessary,
except for where such failures to be so qualified would not, individually or in
the aggregate, reasonably be expected to delay or impair Purchaser's abilities
to consummate the transactions contemplated by this Agreement.
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Section 5.2 Authority and Validity.
Purchaser has full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
Purchaser, and no other proceedings on the part of Purchaser are necessary to
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Purchaser and
(assuming due authorization, execution and delivery by Shareholders) constitutes
a valid and binding obligation of the Purchaser, enforceable against Purchaser
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, moratorium or similar Laws of general application relating to or
affecting creditors' rights generally and except for the limitations imposed by
general principles of equity. No vote of the holders of any class or series of
any securities of Purchaser is required to approve and adopt this Agreement, to
approve the Purchase or otherwise to consummate the transactions contemplated by
this Agreement. All outstanding shares of Purchaser are, and all MSI Common
Stock subject to issuance as specified in Article I above will be upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, duly authorized, validly issued, fully paid and nonassessable and
free of preemptive or other similar rights; provided, that the MSI Common Stock
to be issued hereunder will be subject to restrictions on transfer under
applicable federal and state securities laws and as contemplated in Section
1.3(c).
Section 5.3 No Violation.
The execution, delivery and performance by Purchaser of this
Agreement does not, and the consummation of the transactions contemplated hereby
by Purchaser will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination or cancellation under, any provision of (a) the certificate
of incorporation or bylaws of Purchaser; (b) any applicable Laws or applicable
Orders, (c) any contract, lease, loan agreement, mortgage, security agreement or
other agreement or instrument to which Purchaser is a party or by which
Purchaser is bound or to which any of Purchaser's properties or assets is
subject, or (d) any of the Permits granted by a Governmental Entity to
Purchaser.
Section 5.4 Consents and Approvals.
No consent, waiver, authorization, approval, order, license,
certificate or permit of or form, or registration, declaration or filing with,
or notice to any Governmental Entity, or any other Person is required in
connection with Purchaser's execution and delivery of this Agreement or the
consummation by Purchaser of the transactions contemplated hereby.
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Section 5.5 Investment Intention.
Purchaser is acquiring the Company Stock being sold hereunder
for its own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act
thereof. Purchaser understands that the Company Stock being sold hereunder have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
Section 5.6 Financial Capability.
At Closing Purchaser will have sufficient funds to be able to
pay the full Cash Consideration and any expenses incurred by Purchaser in
connection with the transactions contemplated by this Agreement. Purchaser has
not incurred any obligation, commitment, restriction or Liability of any kind,
which would impair or adversely affect such resources and capabilities.
Section 5.7 Filings of the Purchaser.
(a) Except for its disclosure on Form 8-K relating to the sale
of Purchaser's Arizona car wash business ("Delinquent Filing"), Purchaser has
filed all forms, reports, registration statements and documents required to be
filed by Purchaser with the Securities Exchange Commission ("SEC" ) since
January 1, 2002. All such required forms, reports and documents (including those
that Purchaser may file subsequent to the date hereof until the Closing) are
referred to herein as the "Purchaser SEC Reports;" provided, that any Purchaser
SEC Report shall be deemed to include all amendments to such report through the
date hereof. As of their respective filing dates (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing),
the Purchaser SEC Reports (i) complied in all material respects with the
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act" ), as the case may be, and the rules and regulations
of the SEC thereunder applicable to such Purchaser SEC Reports, except that
Purchaser did not timely file the Delinquent Filing and its Reports on Form 10-K
for the years ended December 31, 2005 and December 31, 2006 and its Reports on
Form 10-Q for the quarters ended March 31, 2006 and March 31, 2007, and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except to the extent corrected by subsequently filed documents with
the SEC.
(b) Each of the consolidated financial statements of Purchaser
(including, in each case, the notes thereto), included in the Purchaser SEC
Reports (the "Purchaser Financial Statements" ), including each Purchaser SEC
Report filed after the date hereof until the Closing, (i) complied as to form in
all material respects with the applicable rules and regulations of the SEC with
respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (other than the provision of
notes to the financial statements or in the case of unaudited interim financial
statements as permitted by the SEC on Form 10-Q of the Exchange Act), and (iii)
fairly presented in all material respects the consolidated financial position of
Purchaser and its Subsidiaries at the respective dates thereof and the
consolidated results of Purchaser's operations and cash flows for the periods
indicated (subject, in the case of unaudited financial statements, to audit
adjustments), all in accordance with GAAP. There has been no change in
Purchaser's accounting policies during the periods covered by the Purchaser
Financial Statements except as described in the notes to the Purchaser Financial
Statements. The Delinquent Filing shall be filed with the Securities Exchange
Commission on or before August 15, 2007.
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Section 5.8 Litigation.
Other than as set forth in Purchaser SEC Reports, there is no
action, suit or proceeding of any nature pending or to Purchaser's knowledge
threatened against Purchaser, its properties or any of its officers, director or
employees, nor, to Purchaser's knowledge, is there any reasonable basis therefor
the adverse result of which would have a material adverse effect upon Purchaser.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Further Assurances.
(a) Subject to the terms of this Agreement, each of Purchaser
and Shareholders shall use (and Shareholders shall cause the Company to use) its
reasonable best efforts to (i) take all actions necessary or appropriate to
consummate the transactions contemplated by this Agreement at the earliest
practicable date and (ii) cause the fulfillment at the earliest practicable date
of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement.
Section 6.2 Confidentiality.
Purchaser, Shareholders and the Company acknowledge that the
information they provided to each other in connection with this Agreement and
the transactions contemplated hereby is subject to the terms of the
non-disclosure and confidentiality letter agreement by and among the Company and
the Purchaser dated June 6, 2007 (the "Non-Disclosure and Confidentiality
Agreement"), the terms of which are incorporated herein by reference. Effective
upon, and only upon, the Closing Date, the Non-Disclosure and Confidentiality
Agreement shall terminate.
Section 6.3 Publicity.
Neither the Company or the Shareholders nor Purchaser shall
issue any press release or public announcement concerning this Agreement or the
transactions contemplated hereby or make any other public disclosure regarding
the terms of this Agreement without obtaining the prior written approval of the
other parties hereto, which approval in any such case shall not be unreasonably
withheld or delayed; provided, however, that Purchaser shall not be required to
obtain such approval if in its reasonable judgment disclosure is required by
applicable Law or by the applicable rules of the Nasdaq Global Market on which
Purchaser lists its common stock; further, provided, that Purchaser shall not
issue any such press release or written public statement with first consulting
with the Company and giving it a reasonable opportunity to review and comment on
such press release or written statement prior to issuance or filing.
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Section 6.4 Employee Matters.
Purchaser covenants and agrees to continue for a reasonable
period of time following the Closing the employment of the non-executive
employees of the Company and its Subsidiaries who remain employed immediately
prior to Closing at the same salary or hourly wage rate and position in effect
immediately prior to Closing.
Section 6.5 Preservation of Records; Post-Closing Cooperation.
Each of Shareholders, Company and Purchaser agrees that each
shall preserve and keep any records held or controlled by them relating to the
businesses of the Company for a period of seven (7) years from the Closing Date
and shall make such records and personnel available to the other parties hereto
as may be reasonably required by such party in connection with, among other
things, any insurance claims by, Legal Proceedings against or governmental
investigations of the Company, Shareholders or Purchaser, or in order to enable
Shareholders or Purchaser to comply with their respective obligations under this
Agreement and each other agreement, document or instrument contemplated hereby.
Section 6.6 Tax Matters.
(a) Purchaser and Shareholders shall each pay one half, when
due, all transfer, documentary, sales, use, stamp, registration and other
similar Taxes, and all conveyance fees, recording charges and other fees and
charges (including any penalties and interest) incurred in connection with the
consummation of the transactions contemplated by this Agreement. Purchaser shall
prepare, at its own expense, all necessary Tax Returns and other documentation
with respect to such Taxes, fees and charges, relating to the consummation of
the transactions contemplated by this Agreement.
(b) Purchaser shall be responsible for the timely preparation
and filing of all Tax Returns for the Company for all periods as to which Tax
Returns are due (including the consolidated, unitary, and combined Tax Returns
for the Company that include the operations of Company and its Subsidiaries for
any period ending on or before the Closing Date) and will submit drafts of such
Tax Returns for Shareholders' review and reasonable approval at least 15 days
prior to the date they are to be filed (after giving effect to any valid
extensions). The Company and Purchaser will make all payments required with
respect to any such Tax Return; provided, however, Shareholders will reimburse
the Company concurrently thereunder to the extent the reserve on the Final
Working Capital Worksheet for the payment of Taxes is less then the Taxes owed
by the Company and its Subsidiaries due to earnings for all periods prior to the
Closing.
(c) Following the Closing, the Shareholders shall, as
reasonably requested by Purchaser: (i) assist the Purchaser in preparing any Tax
Returns relating to the Company and its Subsidiaries for any periods prior to
the Closing; (ii) cooperate fully in preparing for any Tax audit, and any
dispute with taxing authorities, and any judicial or administrative proceeding
or assessment, and in the preparation or conduct of litigation or investigation
of claims, and in connection with the preparation of financial statements or
other documents to be filed with any taxing authority, in each case relating to
Taxes for periods prior to the Closing with respect to the Company and its
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Subsidiaries (a "Pre-Closing Tax Proceeding" ); (iii) make available to the
Company and to any taxing authority as reasonably requested all information,
records, and documents relating to Taxes relating to the Company and its
Subsidiaries for periods prior to the Closing; and (iv) furnish the other
parties hereto with copies of all correspondence received from any taxing
authority in connection with any Pre-Closing Tax Proceeding. Purchaser will
immediately notify the Shareholders in writing of any actual, or to Purchaser's
knowledge threatened, Pre-Closing Tax Proceeding which, if determined adversely,
could result in a liability to the Shareholders under this Agreement or which
could cause an adjustment in the Tax liability of the Shareholders. Purchaser
and its Affiliates will have the right at their own expense to control the
conduct of such Pre-Closing Tax Proceeding. Purchaser shall provide the
Shareholders with a timely and reasonably detailed account of each phase of the
Pre-Closing Tax Proceeding, and neither Purchaser nor its Affiliates may settle
or compromise any asserted liability if such settlement or compromise would
adversely affect the Tax liability of the Shareholders (under this Agreement or
otherwise) with respect to any pre-Closing Tax period without the prior written
consent of a Shareholder Majority, which shall not be unreasonably withheld. In
any event, the Shareholders may participate, at their own expense, in any
Pre-Closing Tax Proceeding.
(d) None of Purchaser or the Shareholders shall take, nor
shall Purchaser cause or permit the Company or its Subsidiaries to take, any
action or omit to take any action (other than actions specifically contemplated
hereby) which could increase the liability of the other party in connection with
any Taxes under this Agreement. Neither Purchaser nor any Affiliate thereof
shall amend, refile or otherwise modify, or cause or permit the Company or its
Subsidiaries to amend, refile or otherwise modify, any Tax election or Tax
Return with respect to any pre-Closing Tax period without the prior written
consent of a Shareholder Majority, which consent shall not be unreasonably
withheld.
Section 6.7 Employment Agreements.
At Closing, the Company on one part and each of Maurry
Mendelovich, Colin McIntyre and Michael Katz shall enter into Employment
Agreements in the form attached as Annex D (the "Employment Agreements").
Section 6.8 Registration Rights Agreement.
At Closing, the Purchaser on one part and each of the
Shareholders shall enter into the Registration Rights Agreement.
Section 6.9 Affirmative Covenants.
From the date of this Agreement until the Closing Date or the
earlier termination of this Agreement (the "Pre-Closing Period"), Shareholders
shall cause the Company to conduct its business in the Ordinary Course of
Business, except as required by Law or as otherwise expressly contemplated by
this Agreement, and to use commercially reasonable efforts to preserve
substantially intact its business and all of its material assets and properties,
keep available the services of its current officers and significant employees,
and maintain in all material respects its current relations and goodwill with
vendors, customer base and other Persons having material business relationships
with the Company.
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Section 6.10 Negative Covenants Concerning the Company.
During the Pre-Closing Period, without the prior written
consent of Purchaser (not to be unreasonably withheld or delayed), except (i) as
required by Law or as otherwise expressly contemplated by this Agreement or any
of the other Transaction Documents or (ii) as set forth on Section 6.10(a) of
the Company Disclosure Schedule, the Shareholders agree to cause the Company to
not:
(a) enter into, amend or terminate any Material Contract,
except in the Ordinary Course of Business;
(b) make any material capital expenditure or enter into any
material commitment therefor not set forth on Section 6.10(b) of the Company
Disclosure Schedule;
(c) change its authorized or issued common stock or other
equity interests; issue or grant any debt security, warrant, option, right to
purchase or similar right regarding its securities; purchase, redeem, retire or
otherwise acquire any of its common stock or other equity interests, other than
the Redemption and the Option Cancellation; make any distribution or payment in
respect of its common stock or other equity interests, except as allowed under
Section 1.4(a) and Section 1.6; split, combine or reclassify its common stock or
other equity interests;
(d) amend any of its or its Subsidiaries Organizational
Documents;
(e) pay any bonuses, except as allowed under Section 1.4(a)
and Section 1.6, or increase any salaries or other compensation, to any of its
directors, officers or other employees, except for bonuses to be awarded and
increases in salaries or other compensation to be made in the Ordinary Course of
Business;
(f) enter into or amend any employment, severance or similar
Contract with any director, officer, consultant, agent or employee of the
Company, or enter into any collective bargaining agreement;
(g) make any loan or advance to any Person, other than the
extension of trade credit in the Ordinary Course of Business and advances to
officers and other employees in the Ordinary Course of Business for travel and
similar business expenses;
(h) enter into any transaction that would be required to be
disclosed on Section 3.18 of the Company Disclosure Schedule;
(i) adopt, increase, accelerate or modify the schedule of
payments or benefits under any Company Benefit Plan for or with any of the
directors, officers, consultants, agents or employees of the Company, except in
the Ordinary Course of Business;
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(j) terminate without cause the employment of any officer of
the Company;
(k) incur any indebtedness or redeem or prepay in advance of
maturity any indebtedness, other than the indebtedness contemplated in Section
1.4(a) and trade payables incurred in the Ordinary Course of Business, or
guarantee of the obligations of another Person;
(l) outside the Ordinary Course of Business, sell, encumber or
otherwise transfer any tangible or intangible assets having a fair market value
in excess of $25,000 individually or $50,000 in the aggregate;
(m) acquire or agree to acquire by merging or consolidating
with, or by way of any other business combination, or by purchasing or
exchanging any of the capital stock, other equity interests or assets of, or by
any other manner, any other Person;
(n) except to the extent required by applicable Law, permit
any material change in (A) any pricing, investment, accounting, financial
reporting, inventory, credit, allowance or Tax practice or policy of the
Company, or (B) permit any change in the fiscal year of the Company; or
(o) commence any proceeding against any other Person involving
more than $25,000, or settle or compromise any such proceeding.
Section 6.11 Negative Covenants Concerning Shareholders.
During the Pre-Closing Period, Shareholders agrees to not
transfer the Company Stock or subject the Company Stock to any Lien.
Section 6.12 Access to Information.
Except as required pursuant to any confidentiality agreement
or similar agreement or arrangement between the Company and a third Person or
pursuant to applicable Law, during the Pre-Closing Period Shareholders will, and
will cause the Company to, (a) provide Purchaser and its officers, directors,
employees, agents, counsel, accountants, financial advisors, consultants and
other representatives (together "Representatives") with reasonable access, upon
reasonable prior notice and during normal business hours, to the officers,
employees, agents and accountants of the Company and their assets and properties
and books and records, and (b) furnish Purchaser and such other Persons with all
such information and data (including without limitation copies of Contracts,
Company Benefit Plans, documents evidencing the Intellectual Property and other
books and records) concerning the business and operations of the Company as
Purchaser or any of its Representatives reasonably may request in connection
with such investigation.
Section 6.13 No Solicitation.
From the date hereof through the earlier to occur of Closing
or termination of this Agreement, Shareholders shall, and shall cause the
Company and each of their respective Affiliates, directors, officers, partners,
members, managers, trustees, employees, agents and advisors (collectively, the
"Shareholders Representatives" ) to deal exclusively with Purchaser and its
designated Affiliates and representatives regarding any and all acquisitions of,
and investments in, the Company, whether by way of merger, consolidation or
other business combination with any other Person, purchase or exchange of
capital stock or other equity interests, purchase of assets or otherwise (an
"Alternative Transaction") and, without the prior consent of Purchaser,
Shareholders shall not, and shall cause the Company and the Shareholder
Representatives not to:
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(a) solicit, initiate or otherwise engage in any negotiations,
discussions or other communications with any other Person relating to any
Alternative Transaction;
(b) provide information or documentation to any other Person
with respect to the Company or any of its businesses or assets in respect of any
Alternative Transaction; or
(c) enter into any contract or understanding with any other
Person in respect of any Alternative Transaction.
Section 6.14 Bank Accounts.
At Closing, the Bank Accounts set forth on Section 3.19 of the
Company Disclosure Schedule will remain with the Company and the signatories to
the Bank Accounts will be changed to the Persons designated by Purchaser.
Section 6.15 Indemnification of Officers and Directors; Directors'
and Officers' Insurance.
(a) Purchaser shall cause all rights to indemnification
existing in favor of those Persons who are officers and directors of the Company
and its Subsidiaries as of the date of this Agreement (the "Indemnified
Persons") for their acts and omissions occurring prior to the Closing Date,
whether provided in the Company's or Subsidiary's certificate or articles of
incorporation, bylaws or other charter documents (as in effect as of the date of
the Closing) to survive the Closing and be observed by Purchaser and its
Affiliates to the fullest extent permitted by Law until not earlier than the
seventh anniversary of the Closing Date.
(b) The provisions of this Section 6.15 are intended to be in
addition to the rights otherwise available to the Indemnified Persons by law,
charter, statute, bylaw or agreement, and shall operate for the benefit of, and
shall be enforceable by, each of the Indemnified Persons, and their respective
heirs and representatives.
Section 6.16 Purchaser Board Approval.
The Shareholders acknowledge that Purchaser's board of
directors must approve this Agreement, the Purchase and the other Transaction
Documents. Purchaser shall use commercially reasonable efforts to obtain such
approval as soon as practicable after the date of this Agreement and shall
provide the Shareholders with prompt notice if such approval is obtained.
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ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation.
The respective obligation of each party to effect the Purchase
and the other transactions contemplated by this Agreement is subject to the
satisfaction at or prior to Closing of the following condition:
(a) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Purchase
or any of the other transactions contemplated by this Agreement shall be in
effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal the consummation of the Purchase or any of
the other transactions contemplated by this Agreement.
(b) Option Cancellation and Redemption. Each other party to
the cancellation agreements and redemption agreement in connection with the
Option Cancellation and the Redemption shall have executed and delivered to the
Company such agreement to which he or she is a party.
Section 7.2 Conditions to Obligation of Purchaser.
The obligation of Purchaser to effect the Purchase and the
other transactions contemplated by this Agreement is subject to the satisfaction
or waiver by Purchaser, at or prior to Closing, of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Shareholders set forth in this Agreement shall be true and
correct in all material respects, at and as of the Closing Date as though made
on and as of the Closing Date (except to the extent such representations and
warranties speak as of an earlier date, in which case such representations and
warranties shall be so true and correct as of such earlier date and it being
understood that, for purposes of determining the accuracy of such
representations and warranties, all "Material Adverse Effect" qualifications and
other materiality qualifications and similar qualifications contained in such
representations and warranties shall be disregarded).
(b) Performance of Covenants and Agreements of the
Shareholders. Shareholders shall have performed all covenants and agreements
required to be performed by them under this Agreement in all respects at or
prior to the Closing Date.
(c) Delivery of the Company Stock. The Shareholders shall have
delivered a certificate or certificates representing the Company Stock being
sold hereunder to Purchaser.
(d) Legal Proceedings. No action or proceeding by or before
any Governmental Entity shall have been instituted or threatened (and not
subsequently settled, dismissed or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement.
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(e) Board Approval. Purchaser's board of directors shall have
approved this Agreement, the Purchase and the other Transaction Documents.
Section 7.3 Conditions to Obligation of the Shareholders.
The obligation of Shareholders to effect the Purchase and the
other transactions contemplated by this Agreement is subject to the satisfaction
or waiver by a Shareholder Majority, at or prior to Closing, of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in this Agreement shall be true and correct in
all material respects, at and as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and warranties speak
as of an earlier date, in which case such representations and warranties shall
be so true and correct on and as of such earlier date and it being understood
that, for purposes of determining the accuracy of such representations and
warranties, all "material adverse effect" qualifications and other materiality
qualifications and similar qualifications contained in such representations and
warranties shall be disregarded).
(b) Performance of Covenants and Agreements of Purchaser.
Purchaser shall have performed all covenants and agreements required to be
performed by it under this Agreement in all respects at or prior to the Closing
Date.
(c) Purchase Price. Purchaser shall have delivered the Cash
Consideration by wire transfer of immediately available funds and shall deliver
the Promissory Notes and the MSI Stock, all in accordance with Section 1.3
hereof.
(d) Legal Proceedings. No action or proceeding by or before
any Governmental Entity shall have been instituted or threatened (and not
subsequently settled, dismissed or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement.
ARTICLE VIII
INDEMNIFICATION; CERTAIN REMEDIES
Section 8.1 Survival.
The representations and warranties of the Shareholders
regarding Taxes contained in Section 3.9 of this Agreement shall survive for
seven years from the Closing Date, all other representations and warranties of
the parties contained in this Agreement shall survive until the eighteen (18)
month anniversary of the Closing Date and as such, and notwithstanding anything
herein to the contrary, Purchaser or Shareholders, as applicable, must give
notice to the other of any claim for indemnification with respect thereto under
this Article VIII in writing setting forth the specific claim and the basis
therefor in reasonable detail prior to the expiration the applicable expiration
period. The covenants of the parties regarding Taxes as set forth in Section 6.6
and no circular recovery under Section 8.11 shall survive for seven years from
the Closing Date, all other covenants unless otherwise expressly provided in
this Agreement, shall survive until the eighteen (18) month anniversary of the
last date on which each such covenant is to be performed, and as such, and
notwithstanding anything herein to the contrary, Purchaser or Shareholders, as
applicable, must give notice to the other of any claim for indemnification with
respect thereto under this Article VIII in writing setting forth the nature of
the claim and the basis therefor in reasonable detail prior to the expiration of
the applicable claim period. Notwithstanding the foregoing, if a written claim
or written notice is given under this Article VIII with respect to any
representation, warranty or covenant prior to the expiration of the applicable
survival period, the claim with respect to such representation, warranty or
covenant shall continue indefinitely until such claim is finally resolved.
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Section 8.2 Indemnification by Shareholders.
(a) Subject to Section 8.5 and the other provisions of this
Article VIII, Shareholders, jointly and severally, hereby agree to reimburse,
defend, indemnify and hold Purchaser and Company and its directors, officers,
employees, Affiliates, stockholders, agents, attorneys, representatives,
successors and permitted assigns (collectively, the "Purchaser Indemnified
Parties") harmless from and against any and all losses, liabilities,
obligations, damages and expenses (including without limitation reasonable
attorneys' fees and court costs) (individually, a "Loss" and, collectively,
"Losses") based upon or resulting from:
(i) any breach of or falsity of any of the
representations or warranties made by Shareholders or the Company under
Article III in this Agreement; or
(ii) any breach of or failure to perform any covenant
or agreement made by Shareholders or the Company in this Agreement
(except for Section 6.11).
(b) Subject to Section 8.5 and the other provisions of this
Article VIII, each Shareholder, severally and not jointly, hereby agrees to
reimburse, defend, indemnify and hold the Purchaser Indemnified Parties harmless
from and against any and all Losses based upon or resulting from:
(i) any breach of or falsity of any of the
representations or warranties made by such Shareholder under Article IV
in this Agreement; or
(ii) any breach of or failure to perform any covenant
or agreement made by such Shareholder under Section 6.11.
(c) Purchaser acknowledges and agrees that Shareholders shall
not have any liability under any provision of this Agreement for any Loss to the
extent that such Loss relates to action taken by Purchaser or its Affiliates
after the Closing Date. Purchaser shall take and shall cause its Affiliates to
take all reasonable steps to mitigate any Loss upon becoming aware of any event
which would reasonably be expected to, or does, give rise thereto.
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Section 8.3 Indemnification by Purchaser and the Company.
(a) Subject to Section 8.5 and the other provisions of this
Article VIII, Purchaser and the Company, jointly and severally, hereby agree to
reimburse, defend, indemnify and hold Shareholders and their Affiliates, agents,
attorneys, representatives, and successors (collectively, the "Shareholder
Indemnified Parties") harmless from and against any and all Losses based upon or
resulting from:
(i) any breach of or falsity of any of the
representations or warranties made by Purchaser in this Agreement; or
(ii) any breach of or failure to perform any covenant
or agreement made by Purchaser in this Agreement.
(b) Shareholders acknowledges and agrees that Purchaser shall
not have any liability under Sections 8.3(a)(i) or 8.3(a)(ii) for any Loss to
the extent that such Loss relates to actions taken by Shareholders or Company
prior to the Closing Date. Shareholders shall take and cause its Affiliates to
take all reasonable steps to mitigate any Loss upon becoming aware of any event
which would reasonably be expected to, or does, give rise thereto.
Section 8.4 Indemnification Procedures.
(a) In the event that indemnification may be sought under this
Article VIII (an "Indemnification Claim") in connection with (i) any action,
suit or proceeding that may be instituted or (ii) any claim that may be asserted
by any Person not a party to this Agreement, the party seeking indemnification
hereunder (the "Indemnified Party") shall promptly cause written notice of the
assertion of such Indemnification Claim to be delivered to the party from whom
indemnification hereunder is sought (the "Indemnifying Party") prior to the
expiration of the applicable survival period set forth in Section 8.1; provided,
however, that no delay on the part of the Indemnified Party in giving any such
notice shall relieve the Indemnifying Party of any indemnification obligation
hereunder unless (and then solely to the extent that) the Indemnifying Party is
prejudiced by such delay. The Indemnifying Party shall have the right, at its
sole option and expense, to be represented by counsel of its choice, which must
be reasonably satisfactory to the Indemnified Party, and to defend against,
negotiate, settle or otherwise deal with any Indemnification Claim and, if the
Indemnifying Party elects to defend against, negotiate, settle or otherwise deal
with any Indemnification Claim, it shall within thirty (30) days (or sooner, if
the nature of the Indemnification Claim so requires) (the "Dispute Period")
notify the Indemnified Party of its intent to do so. If the Indemnifying Party
within the Dispute Period elects not to defend against, negotiate, settle or
otherwise deal with any Indemnification Claim, the Indemnified Party may defend
against, negotiate, settle or otherwise deal with such Indemnification Claim. If
the Indemnifying Party assumes the defense of any Indemnification Claim, the
Indemnified Party may participate, at its own expense, in the defense of such
Indemnification Claim; provided, however, that such Indemnified Party shall be
entitled to participate in any such defense with separate counsel at the expense
of the Indemnifying Party if (x) so requested by the Indemnifying Party to
participate or (y) in the reasonable opinion of counsel to the Indemnified
Party, a conflict or potential conflict exists between the Indemnified Party and
the Indemnifying Party that would make such separate representation advisable;
and provided, further, that the Indemnifying Party shall not be required to pay
for more than one such counsel for all Indemnified Parties in connection with
any single Indemnification Claim. The parties hereto agree to cooperate fully
with each other in connection with the defense, negotiation or settlement of any
such Indemnification Claim arising out of a third party claim. Notwithstanding
anything in this Section 8.4 to the contrary, neither the Indemnifying Party nor
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the Indemnified Party shall, without the written consent of the other party,
settle or compromise any Indemnification Claim or permit a default or consent to
entry of any judgment unless the claimant and such party provide to such other
party an unqualified release from all liability in respect of the
Indemnification Claim. Notwithstanding the foregoing, if a settlement offer
solely for money damages is made by the applicable third party claimant, and the
Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying
Party's willingness to accept the settlement offer and, subject to the
applicable limitations of Section 8.5, pay the amount called for by such offer,
and the Indemnified Party declines to accept such offer, the Indemnified Party
may continue to contest such Indemnification Claim, free of any participation by
the Indemnifying Party, and the amount of any ultimate liability with respect to
such Indemnification Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (i) the amount of the settlement
offer that the Indemnified Party declined to accept plus the Losses of the
Indemnified Party relating to such Indemnification Claim through the date of its
rejection of the settlement offer or (ii) the aggregate Losses of the
Indemnified Party with respect to such Indemnification Claim. If the
Indemnifying Party makes any payment on any Indemnification Claim, the
Indemnifying Party shall be subrogated, to the extent of such payment, to all
rights and remedies of the Indemnified Party to any insurance benefits or other
claims of the Indemnified Party with respect to such Indemnification Claim.
(b) In the event that an Indemnified Party has any claim
against an Indemnifying Party hereunder, but which such claim does not involve
an action, suit, proceeding or claim by a third party not party to this
Agreement, which such Indemnified Party determines to assert, then such
Indemnified Party shall assert such Indemnification Claim by sending written
notice to the Indemnifying Party describing in reasonable detail the nature of
such claim and the Indemnified Party's estimate of the amount of Losses
attributable to such claim.
(c) After any final and non-appealable decision, judgment or
award shall have been rendered by a Governmental Entity of competent
jurisdiction, or a settlement or arbitration shall have been consummated, or the
Indemnified Party and the Indemnifying Party shall have arrived at a mutually
binding agreement (any such event a "Final Determination") with respect to any
Indemnification Claim hereunder, then the Indemnifying Party shall pay any
amount so determined to such Indemnified Party.
Section 8.5 Limitations on Indemnification for Breaches of
Representations and Warranties.
(a) Notwithstanding the provisions of this Article VIII, (i)
no Indemnifying Party shall have any indemnification obligations for Losses
under this Article VIII unless and until the aggregate amount of all such Losses
exceeds one hundred thousand dollars ($100,000) (the "Basket Amount"); provided,
however, that from and after such time as the total amount of Losses under this
Article VIII exceeds the Basket Amount then the Indemnifying Party shall be
liable only for the amount that exceeds the Basket Amount. Each of the
Shareholders shall be liable for all Indemnification Claims made under Section
8.2(a) up to the Shareholder's Pro Rata Percentage of the Indemnification Claim.
Notwithstanding the above, the Basket Amount shall not apply to: (i) Purchaser's
payment of the Purchase Price under Section 1.3; (ii) the obligations of the
parties regarding Working Capital and the adjustment of the Purchase Price under
the provisions of Section 1.4(e); (iii) the Purchaser's obligation to make the
Option Cash Out Contribution under Section 1.6; (iv) the Shareholders'
obligation under Section 6.6(b) to pay Taxes as set forth therein; and (v) a
claim for indemnification made under Section 8.2(b).
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(b) In no event shall the aggregate indemnification to be paid
by the Indemnifying Party under this Article VIII, exceed the following amounts
(the "Cap" ):
(i) there shall be no limit to the amount to be paid
by an Indemnifying Party under the Article VIII regarding
Indemnification Claims arising out of or relating to fraudulent acts or
inactions or intentional misrepresentations of the Indemnifying Party;
(ii) breaches of or the falsity of the
representations, warranties and covenants contained in Section 3.1
(Company Organization), Section 3.2 (Company Capitalization), Section
3.3 (Company No Violation), Section 3.9 (Company Taxes), Section 4.1
(Shareholder Authority), Section 4.2 (Shareholder No Violation),
Section 4.4 (Shareholder Stock Ownership), Section 5.1 (Purchaser
Organization), Section 5.2 (Purchaser Authority), Section 5.3
(Purchaser No Violation), and Section 6.6 (Post-Closing Tax Matters)
shall be limited in amount to the Purchase Price; and
(iii) all other breaches of or the falsity of
representations, warranties and covenants in the Agreement shall be
limited in amount to $3,000,000.
(c) Losses subject to indemnification or reimbursement under
Article VIII shall not include any incidental or consequential damages,
including lost or anticipated profits, except to the extent such damages are
payable by an Indemnified Party to a third party.
Section 8.6 Calculation of Losses.
The amount of any Losses for which indemnification is provided
under this Article VIII shall be net of any amounts actually recovered or
recoverable by the Indemnified Party under insurance policies or otherwise with
respect to such Losses but shall not be reduced by the net present value of any
Tax benefits realized or expected to be realized by the Indemnified Party. The
Indemnified Party shall use its commercially reasonable efforts to mitigate any
Losses and recover under insurance policies or otherwise for any Losses.
Section 8.7 Tax Treatment of Indemnity Payments.
The Shareholders and Purchaser agree to treat any indemnity
payment made pursuant to this Article VIII as an adjustment to the Purchase
Price for federal, state, local and foreign income tax purposes.
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Section 8.8 Subrogation.
Upon making any payment for Losses of an Indemnified Party
under this Article VIII, the Indemnifying Party will, to the extent of such
payment, be subrogated to all rights of the Indemnified Party against any third
party with respect to the Loss for which the payment relates. In addition to any
other obligation under this Agreement, the Indemnified Party agrees to duly
execute and deliver, upon request of the Indemnifying Party, all instruments
reasonably necessary to evidence and perfect the subrogation and subordination
rights granted pursuant to this Section 8.8.
Section 8.9 Exclusive Remedy.
From and after Closing, except in the event of fraud, the sole
and exclusive remedy for any breach, or alleged breach, of any representation or
warranty or any covenant or agreement in this Agreement, shall be
indemnification in accordance with this Article VIII. Notwithstanding the
foregoing, this Section 8.9 shall not operate to limit the rights of the parties
to seek equitable remedies (including specific performance or injunctive
relief).
Section 8.10 Release.
Effective upon Closing, except with respect to a claim arising
out of this Agreement (including without limitation Section 6.15 and Section 8.3
hereof), the other Transaction Documents or with respect to any rights of the
Shareholder to indemnification or reimbursement from the Company under its
Organizational Documents for acts or omissions of the Shareholder while acting
in his or her capacity as an officer and/or director of the Company or its
Subsidiaries prior to or as of the Closing Date, each Shareholder hereby
irrevocably waives, releases and discharges the Company from any and all
Liabilities of any kind or nature whatsoever arising out of the conduct of the
Company's business prior to the Closing Date, in each case whether absolute or
contingent, liquidated or unliquidated, known or unknown, and such Shareholder
shall not seek to recover any amounts in connection therewith or thereunder from
the Company. Without limiting the generality of the foregoing, the Shareholders
waives all rights under California Civil Code Section 1542 and under any other
state or federal statute, or common law principle of similar effect relating to
the matters released herein. Section 1542 provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
Such released Liabilities shall include, without limitation,
any right to recover against the Company for any indemnification claims made
against or paid by Shareholders pursuant to this Article VIII. Notwithstanding
anything to the contrary in this Section 8.10, in no event shall anything in
this Section 8.10 affect the ability of Shareholders to obtain indemnification
from Purchaser or the Company or to dispute any indemnification claim made by a
Purchaser Indemnified Party, in each case in accordance with the other
provisions of this Article VIII.
Section 8.11 No Circular Recovery.
After the Closing, no Shareholder shall make a claim for
indemnification against a Purchaser or the Company or any of its Subsidiaries
under this Agreement, the Organizational Documents of the Company or any of its
Subsidiaries or any employment agreement between such Shareholder and the
Company or Purchaser by reason of the fact that such Shareholder was a
controlling person, director, officer, employee, agent or other representative
of the Company or any of its Subsidiaries with respect to any claim brought by
Purchaser against Shareholders pursuant to this Article VIII.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Expenses.
All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense; provided, however, that the Company may pay or book the
Shareholders' legal and advisor fees in connection with this transaction prior
to the calculation of the Final Working Capital Worksheet.
Section 9.2 Notices.
All notices, requests, demands and other communications made
under or by reasons of this Agreement shall be in writing and shall be given by
hand delivery, certified or registered mail, return receipt requested, facsimile
or next day courier to the affected party at the address set forth below. Such
notices shall be deemed given (A) at the time personally delivered, if delivered
by hand with receipt acknowledged; (B) at the time received, if sent by
certified or registered mail; (C) upon issuance by the transmitting machine of a
confirmation slip that the number of pages constituting the notice has been
transmitted without error, if sent by facsimile; and (D) the first day after
timely to the courier, if sent by next day courier specifying next day delivery:
(a) if to Purchaser or, following Closing, the Company:
Mace Security International, Inc.
Attention: General Counsel
1000 Crawford Place, 4th Floor
Mount Laurel, New Jersey, 08054
Telephone: 856-778-2300
Fax: 856-439-1723
with a copy (which shall not constitute notice) to:
Ballard Spahr Andrews & Ingersoll, LLP
Attention: Gerald Guarcini, Esq.
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania, 19103-7599
Tel.: (512) 320-9200
Fax: (512) 320-9292
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(b) if to Shareholders or the Company prior to Closing:
Linkstar Interactive
Attn.: Maurry Mendelovich
140 Lake Drive, Suite 102
Wexford, PA 15090
Tel.: (408) 416-0784
Fax: (412) 291-1696
with a copy (which shall not constitute notice) to:
Cohen & Grigsby, P.C.
Attn: Andrew Flowers, Esq.
11 Stanwix Street, 15th Floor
Pittsburgh, Pennsylvania 15222
Tel.: (412) 297-4835
Fax: (412) 209-1945
(c) if to Shareholders after the Closing:
Maurry Mendelovich
Colin McIntyre
Michael Katz
2501 Matterhorn Dr.
Wexford, PA 15090
Tel.: (412-260-7056)
Fax: (412-291-1696)
with a copy (which shall not constitute notice) to:
Cohen & Grigsby, P.C.
Attn: Andrew Flowers, Esq.
11 Stanwix Street, 15th Floor
Pittsburgh, Pennsylvania 15222
Tel.: (412) 297-4835
Fax: (412) 209-1945
Section 9.3 Interpretation.
When a reference is made in this Agreement to "Sections,"
"Exhibits" or the "Company Disclosure Schedules," such reference shall be to a
section of, an exhibit of, or the Company Disclosure Schedules to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. 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 terms defined in
the singular have a comparable meaning when used in the plural, and vice versa,
and references herein to any gender includes each other gender. Shareholders
may, at their option, include in the Company Disclosure Schedules items that are
not material in order to avoid any misunderstanding, and such inclusion, or any
references to dollar amounts, shall not be deemed to be an acknowledgement or
representation that such items are material, to establish any standard of
materiality or to define further the meaning of such terms for purposes of this
Agreement. Any fact disclosed in a particular item or schedule of the Company
Disclosure Schedules shall be deemed to be a fact disclosed in each other item
and schedule of the Company Disclosure Schedules to which the applicability of
such disclosure is readily apparent on its face.
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Section 9.4 Counterparts.
This Agreement may be executed in one or more counterparts,
including facsimile counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each of the parties and delivered to the other parties.
Section 9.5 Entire Agreement; Construction.
This Agreement (including the disclosure schedules, annexes
and exhibits hereto and the other instruments referred to herein) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
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 9.6 Amendment; Shareholder Majority.
This Agreement may not be amended except by an instrument in
writing signed by Purchaser and a Shareholder Majority. Whenever any consent,
waiver, agreement or other action of the Shareholders as a group is required or
permitted under the this Agreement, such action will only be effective if it is
taken with the consent of a Shareholder Majority; provided, however, that the
written consent of a Shareholder will always be required to amend this Agreement
in order to (a) subject such Shareholder to any additional obligations that are
disproportionate to any additional obligations imposed on the Shareholder
Majority; or (b) reduce the amount of the Purchase Price owed to such
Shareholder; and further provided, that this Section may not be amended without
the unanimous consent of the Shareholders.
Section 9.7 Extension; Waiver.
The Purchaser or a Shareholder Majority hereto may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
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Section 9.8 Governing Law.
This Agreement shall be governed and construed in accordance
with the Laws of the State of Delaware applicable to contracts to be wholly
performed within the State of Delaware.
Section 9.9 Consent to Jurisdiction.
(a) The parties hereto hereby irrevocably submit to the
non-exclusive jurisdiction of any federal or state court located within the
Castle County, Delaware over any dispute arising out of or relating to this
Agreement or any of the transactions contemplated hereby, and each party hereby
irrevocably agrees that all claims in respect of such dispute or any suit,
action or proceeding related thereto may be heard and determined in such courts.
The parties hereby irrevocably waive, to the fullest extent permitted by
applicable Law, any objection which they may now or hereafter have to the laying
of venue of any such dispute brought in such court or any defense of
inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by Law.
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding by
the delivery of a copy thereof in accordance with the provisions of Section 9.2.
Section 9.10 Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
Section 9.11 Assignment.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) 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,
heirs, successors and assigns.
Section 9.12 No Third Party Beneficiaries.
This Agreement is for the sole benefit of the parties hereto
and their permitted assigns, and nothing herein expressed or implied shall give
or be construed to give any Person, other than the parties hereto and such
assigns, any legal or equitable rights hereunder, except to the extent expressly
set forth in Section 6.15 and Article VIII. All references herein to the
enforceability of agreements with third parties, the existence or non-existence
of third party rights, the absence of breaches or defaults by third parties, or
similar matters or statements, are intended only to allocate rights and risks
among the parties hereto and are not intended to be admissions against
interests, give rise to any inference or proof of accuracy, be admissible
against any party hereto by any third party, or give rise to any claim or
benefit to any third party.
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Section 9.13 Additional Definitions.
In addition to any other definitions contained in this
Agreement, the following words, terms and phrases shall have the following
meanings when used in this Agreement.
"Affiliate" means, with respect to any Person, any
other Person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such Person, and the term "control" (including the terms
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise.
"Business Day" means any day of the year on which
national banking institutions in Delaware are open to the public for
conducting business and are not required or authorized to close.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Stock" means all the outstanding securities
of the Company, which securities are listed on Annex A by owner.
"GAAP" means generally accepted accounting
principles in the United States as of the date hereof.
"Intellectual Property" means all intellectual
property rights used by the Company and its Subsidiaries arising from
or in respect of the following: (i) all patents and applications
therefor, including continuations, divisionals, continuations-in-part,
or reissues of patent applications, and patents issuing thereon, (ii)
all trademarks, service marks, trade names, service names, brand names,
trade dress rights, logos, internet domain names and corporate names,
together with the goodwill associated with any of the foregoing, and
all applications, registrations and renewals thereof, (iii) copyrights
and registrations and applications therefor, works of authorship and
mask work rights and (iv) all Software of the Company and its
Subsidiaries.
"Knowledge" means, with respect to Shareholder or the
Company, the actual knowledge of the following individuals: Maurry
Mendelovich, Colin McIntyre Michael Katz, and Emily Pender.
"Law" means any and all statutes, laws, ordinances,
rules, regulations, orders, permits, judgments, injunctions, decrees,
case law and other rules of law enacted, promulgated or issued by any
Governmental Entity.
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"Liability" means any debt, liability or obligation
(whether direct or indirect, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, or due or to become due) and
including all costs and expenses relating thereto.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien (statutory or other), or conditional sale agreement,
or any other claim or charge, similar in purpose or effect to any of
the foregoing.
"Material Adverse Effect" means a material adverse
effect on (i) the business, assets, properties, results of operations
or financial condition of the Company and its Subsidiaries (taken as a
whole), or (ii) the ability of Shareholders to consummate the
transactions contemplated by this Agreement, other than an effect
resulting from an Excluded Matter.
"Excluded Matter" means any one or more of the
following: (i) the effect of any action taken by Purchaser or its
Affiliates with respect to the transactions contemplated hereby or with
respect to the Company or its Subsidiaries, (ii) any matter of which is
disclosed in the Company Disclosure Schedules, (iii) any event,
occurrence, circumstance or change resulting from the public
announcement of this Agreement, or compliance with terms of this
Agreement, or (iv) any adverse circumstance, change or effect resulting
directly from conditions affecting the industries in which the Company
or its Subsidiaries participate or the U.S. economy as a whole.
"Material Contract" means any Company Contract under
which the Company receives or is projected to receive $50,000 or more
in revenue during a 12 month period or is obligated to render $50,000
or more in services over a 12 month period, or is obligated to pay
$50,000 or more in money.
"Minimum Working Capital" means Five Hundred Thousand
Dollars ($500,000) of Working Capital as of the Closing Date.
"Ordinary Course of Business" means the ordinary and
usual course of normal day-to-day operations of the Company and its
Subsidiaries.
"Permitted Liens" means statutory Liens for Taxes not
yet due but which have been adequately reserved for on the Company's
financial statements; (ii) statutory Liens of landlords, carriers,
warehousemen, mechanics and materialmen incurred in the Ordinary Course
of Business for sums not yet due but which are reflected as account
payables on the Company's financial statements; (iii) Liens incurred or
deposits made in the Ordinary Course of Business in connection with
workers' compensation, unemployment insurance and other types of social
security; and (iv) any Liens on property securing all or part of the
purchase price thereof which are identified in the Company Disclosure
Schedules and reflected as liabilities on the Company's financial
statements.
"Person" means any individual, corporation,
partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Entity or other entity.
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"Redemption" means the Company's redemption of
[290,069] shares of the Company's common stock from Emily Pender prior
to Closing.
"Software" means any and all computer programs,
including any and all software implementations of algorithms, models
and methodologies, whether in source code or object code.
"Subsidiary" means, with respect to any Person, any
other Person of which a majority of the outstanding share capital,
voting securities or other voting equity interests are owned, directly
or indirectly, by such first Person.
"Tax" means any tax (including any income tax, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Section 59A of the Code), capital stock, franchise, profits,
capital gains tax, value-added tax, sales tax, property tax,
withholding tax, social security (or similar) or unemployment,
disability, levy, assessment, tariff, duty (including any customs
duty), deficiency, or other fee, and any related charge or amount
(including any fine, penalty, interest, or addition to tax)), imposed,
assessed, or collected by or under the authority of any Taxing
Authority or payable pursuant to any tax-sharing agreement or any other
contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee whether disputed or not
and including any obligations to indemnify or succeed to the Tax
liability of any other Person.
"Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
"Transaction Documents" mean this Agreement, the
Employment Agreement Agreements with each of Maurry Mendelovich, Colin
McIntyre and Michael Katz, the Registration Rights Agreement, and the
Promissory Notes.
"Working Capital" means (1) all cash, cash
equivalents, inventory, accounts receivable, prepaid expenses and other
current assets of the Company, less (2) all accounts payable and other
current liabilities, of the Company as determined on a consolidated
basis using GAAP consistently applied.
(a) For purposes of this Agreement, the following terms have
the meanings set forth in the sections indicated:
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Affiliate Section 9.13 Cap Section 8.5(b)
Agreement Preamble Cash Consideration Section 1.3(a)
Balance Sheet Section 3.5 Closing Section 2.1
Balance Sheet Date Section 3.5 Closing Date Section 2.1
Bank Accounts Section 6.13 Code Section 9.13
Bank Accounts Section 3.18 Common Stock Section 9.13
Basket Amount Section 8.5(a) Company Preamble
Business Day Section 9.13 Company Contract Section 3.12(a)
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Company Disclosure Article III Option Cancellation Section 1.6
Schedules
Company ERISA Plan Section 3.10(a) Option Cash Out Contribution Section 1.6
Company Plans Section 3.10(a) Option Plan Section 1.6
Delinquent Filing Section 5.7(a) Order Section 3.3
Dispute Period Section 8.4(a) Ordinary Course of Business Section 9.13
Employment Agreements Section 6.7 Organizational Documents Section 3.1(a)
ERISA Section 3.10(a) Permits Section 3.3
ERISA Affiliate Section 3.10(a) Permitted Liens Section 9.13
Estimated Working Capital Section 1.4(c) Person Section 9.13
Estimated Working Capital Personal Property Leases Section 3.13(c)
Certificate Section 2.2(a)(viii)
Exchange Act Section 5.7(a) Pre-Closing Period Section 6.9
Excluded Assets Section 1.5 Pre-Closing Tax Proceeding Section 6.6(c)
Excluded Matter Section 9.13 Promissory Note Section 1.3(b)
Final Determination Section 8.4(c) Purchase Price Section 1.2
Final Working Capital Section 1.4(c) Purchaser Preamble
Final Working Capital Purchaser Financial Statements Section 5.7(b)
Worksheet Section 1.4(c)
Financial Statements Section 3.5 Purchaser Indemnified Parties Section 8.2(a)
GAAP Section 9.13 Purchaser SEC Reports Section 5.7(a)
Governmental Entity Section 3.3 Real Property Leases Section 3.13(b)
Indemnification Claim Section 8.4(a) Redemption Section 9.13
Indemnified Party Section 8.4(a) Registration Rights Agreement Section 6.8, Section 1.3(c)
Indemnified Persons Section 6.15(a) Related Parties Section 3.17
Indemnifying Party Section 8.4(a) Representatives Section 6.12
Intellectual Property Section 9.13 SEC Section 5.7(a)
Knowledge Section 9.13 Securities Act Section 5.5
Law Section 9.13 Seller Preamble
Legal Proceeding Section 3.8 Shareholder Indemnified
Parties Section 8.3(a)
Liability Section 9.13 Shareholder Majority Section 2.3(a)
Lien Section 9.13 Shareholders Representatives Section 6.13
LLC Purchase Section 1.1 Software Section 9.13
Loss Section 8.2(a) Subsidiary Section 9.13
Losses Section 8.2(a) Subsidiary Organizational
Documents Section 3.1(b)
Material Adverse Effect Section 9.13 Tax Section 9.13
Material Contract Section 9.13 Tax Return Section 9.13
Material Suppliers Section 3.21 Termination Date Section 2.3(a)
Minimum Working Capital Transaction Documents Section 9.13
Amount Section 9.13
Multiemployer Plan Section 3.10(b) Withdrawal Liability Section 3.10(b)
Multiple Employer Plan Section 3.10(b) Working Capital Section 9.13
Non-Disclosure and
Confidentiality Agreement Section 6.2
Objections Section 1.4(d)
-43-
Execution Copy
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
PURCHASER:
MACE SECURITY INTERNATIONAL, INC.
By: /s/ Robert M. Kramer
------------------------------------------
Robert M. Kramer, Executive Vice President
COMPANY:
LINKSTAR INTERACTIVE, INC.
By: /s/ Maurry Mendelovich
------------------------------------------
Maurry Mendelovich, CEO
SHAREHOLDERS:
/s/ Maurry Mendelovich
---------------------------------
Maurry Mendelovich
/s/ Colin McIntyre
---------------------------------
Colin McIntyre
/s/ Michael Katz
---------------------------------
Michael Katz
/s/ Shawn Mendelovich
---------------------------------
Shawn Mendelovich
/s/ Christine McIntyre
---------------------------------
Christine McIntyre
/s/ Emily Pender
---------------------------------
Emily Pender
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
ANNEX A
-------
COMPANY STOCK AND PRO RATA OWNERSHIP
NAME OF SHAREHOLDER NUMBER OF SHARES PRO RATA PERCENTAGE
- ------------------- ---------------- -------------------
Maurry Mendelovich 7,720,000 45.11%
Colin McIntyre 4,499,837 26.29%
Michael Katz 2,416,816 14.12%
Shawn Mendelovich 1,607,247 9.39%
Emily Pender 483,450 2.82%
Christine McIntyre 386,759 2.26%
- --------------------------------------------------------------------------------
Total 17,114,109 100.00%
A-1