UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported) March 19, 2009 (March 13,
2009)
NetFabric Holdings, Inc.
(Exact
Name of Registrant as Specified in Charter)
|
Delaware
|
0-21419
|
76-0307819
|
|
(State
or Other Jurisdiction
|
(Commission
File Number)
|
(IRS
Employer
|
|
of
Incorporation)
|
Identification
No.)
|
|
299 Cherry Hill Road,
Parsippany, NJ
|
07054
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (973)
537-0077
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
|
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
|
Item
1.01.
|
Entry
into a Material Definitive Agreement.
|
|
See
Item 2.03.
|
|
|
Item
2.03.
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
|
|
On
March 13, 2009, NetFabric Holdings, Inc. (the “Company”), along with its
wholly-owned subsidiary, NetFabric Technologies, Inc., d/b/a UCA Services,
Inc. (“UCA”) entered into a Convertible Note Purchase Agreement dated
March 12, 2009 with Fortify Infrastructure Services, Inc. (“Fortify).
Pursuant to the Convertible Note Purchase Agreement, Fortify purchased a
Secured Convertible Promissory Note (the “Note”) from UCA in the principal
amount of $5 million with the Company being a guarantor for UCA’s
borrowings.
|
|
|
The
Note has a six-month term, and bears interest at 8% per annum, compounded
annually. The Note is secured by (i) all of the assets
of UCA and the Company and (ii) all of the equity securities of UCA
currently owned or hereafter acquired by the Company. At the exclusive
option of Fortify, Fortify may convert the entire principal amount of and
accrued and unpaid interest on the Note into shares of Series A Preferred
Stock of UCA. The conversion price shall be at a price equal to
the price per share reflecting a valuation of UCA equal to $5 million, on
an as-converted basis.
|
|
|
Fortify,
UCA and the Company also entered into a Credit Agreement whereby Fortify
agreed to provide UCA a revolving line of credit of up to $1 million for
working capital purposes. Amounts borrowed under the line of credit are
secured by (i) all of the assets
of UCA and the Company and (ii) all of the equity securities of UCA
currently owned or hereafter acquired by the Company.
|
|
|
Fortify,
UCA and the Company also entered into an Option and Purchase Agreement
(“Option Agreement’). Pursuant to the Option Agreement, Fortify has an
option to acquire all of the outstanding shares of common stock of UCA.
Upon effectiveness of the Company’s Definitive Schedule 14 C Information
Statement to be filed with the Securities and Exchange Commission (the
“SEC”) in connection with certain actions taken by the written consent of
holders of a majority of the Company’s outstanding common stock approving
the terms of the Option Agreement, Fortify will exercise the option. Upon
exercise of the Option, the Company will be released from the guaranty
obligations of the Note. Fortify will pay the Company $500,000 one year
from the date the option is exercised. In addition, Fortify will pay
additional amounts to the Company and certain employees of UCA based on
UCA’s performance during the periods specified in the Option
Agreement.
|
|
The
Company plans to file a Schedule 14C Information Statement with the SEC
shortly after completion of its audit for the years ended December 31,
2007 and 2008.
|
|
|
The
Company used approximately $3 million from the proceeds of the Note to
repay all amounts owed to Laurus Master Fund. The balance of the proceeds
will be used for repayment of debt, other payables and for working capital
purposes.
|
|
|
Item
3.02.
|
Unregistered
Sales of Equity Securities.
|
|
See
Item 2.03.
|
|
|
Item
9.01.
|
Financial
Statements and Exhibits.
|
|
(d)
|
Exhibits.
|
|
Exhibit No.
|
Description
|
|
|
Exhibit
99.1
|
Convertible
Note Purchase Agreement, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.2
|
Secured
Convertible Promissory Note, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.3
|
Credit
Agreement, dated March 12, 2009, by and among NetFabric Technologies,
Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and Fortify
Infrastructure Services, Inc.
|
|
|
Exhibit
99.4
|
Security
Agreement, dated March 12, 2009, by and among NetFabric Technologies,
Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and Fortify
Infrastructure Services, Inc.
|
|
Exhibit
99.5
|
Stock
Pledge Agreement, dated March 12, 2009, by between Netfabric Holdings Inc.
and Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.6
|
|
Option
and Purchase Agreement, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services,
Inc.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
NETFABRIC
HOLDINGS, INC.
|
||
|
Date: March
19, 2009
|
By:
|
/s/ Fahad Syed
|
|
Name:
Fahad Syed
|
||
|
Title:
Chairman and CEO
|
||
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
|
|
Exhibit
99.1
|
Convertible
Note Purchase Agreement, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.2
|
Secured
Convertible Promissory Note, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.3
|
Credit
Agreement, dated March 12, 2009, by and among NetFabric Technologies,
Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and Fortify
Infrastructure Services, Inc.
|
|
|
Exhibit
99.4
|
Security
Agreement, dated March 12, 2009, by and among NetFabric Technologies,
Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and Fortify
Infrastructure Services, Inc.
|
|
|
Exhibit
99.5
|
Stock
Pledge Agreement, dated March 12, 2009, by between Netfabric Holdings Inc.
and Fortify Infrastructure Services, Inc.
|
|
|
Exhibit
99.6
|
|
Option
and Purchase Agreement, dated March 12, 2009, by and among NetFabric
Technologies, Inc., d/b/a UCA Services, Inc., Netfabric Holdings Inc. and
Fortify Infrastructure Services,
Inc.
|
NETFABRIC
TECHNOLOGIES, INC., D/B/A UCA SERVICES, INC.
CONVERTIBLE
NOTE PURCHASE AGREEMENT
March
12, 2009
NETFABRIC
TECHNOLOGIES, INC., D/B/A UCA SERVICES, INC.
CONVERTIBLE NOTE PURCHASE
AGREEMENT
This
Convertible Note Purchase Agreement (the “Agreement”) is made
as of the 12th day of
March, 2009 (the “Effective Date”), by
and among NetFabric Technologies, Inc., d/b/a UCA Services, Inc., a New Jersey corporation
(the “Company”), Netfabric
Holdings Inc., a Delaware corporation (the “Guarantor”) and
Fortify Infrastructure Services, Inc., a Delaware corporation (the “Purchaser”).
RECITALS
The
Company desires to issue and sell and the Purchasers desire to purchase the
convertible promissory note attached to this Agreement as Exhibit A (the “Note”) which shall be
cancelable and convertible on the terms stated therein. The Note and
the equity securities issuable upon conversion thereof (and the securities
issuable upon conversion of such equity
securities) are collectively referred to herein as the “Securities.”
AGREEMENT
In
consideration of the mutual promises contained herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement, intending to be legally bound, agree as follows:
1. Purchase
and Sale of Note.
(a) Sale and
Issuance of Note. At Closing (as
defined below), the Purchaser agrees to provide a bridge loan to the Company,
pursuant to the terms and conditions of this Agreement and the Note, in the
amount of $5,000,000.00 (the “Purchase Price”) to
allow the Company to use for working capital purposes as well as repay in full
the outstanding liabilities of the Company set forth on Schedule 1 attached
hereto. Accordingly, subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase at the Closing, and the Company agrees to sell and
issue to the Purchaser, a Note in the principal amount equal to the Purchase
Price as specified on Exhibit A to this
Agreement.
(b) Closing;
Delivery. The purchase and sale of the
Note shall take place at the offices of Royse Law Firm, PC, 2600 El Camino Real,
Suite 110, Palo Alto, California 94306, at 10 a.m., on March 12, 2009, or at
such other time and place as the Company and the Purchaser mutually agree upon,
orally or in writing (which time and place are designated as the “Closing”). At
the Closing:
(i) The
Purchaser shall deliver the Purchase Price, payable by wire transfer to the bank
account(s) of: (i) each of the creditor(s) in such amounts set forth opposite
their name(s) on Schedule 1 attached
hereto (the “Creditors”), and (ii)
the Company’s bank account in the amount set forth on Schedule 1;
and
(ii) The
Company shall deliver to the Purchaser the Note and a duly executed settlement
and release agreement, payoff letter or other instrument satisfactory in form
and substance to the Purchaser in its sole discretion evidencing the release by
the Creditors of any and all liens and encumbrances on the Company’s and the
Guarantor’s assets (including the Shares).
(iii) The
Company shall deliver to the Purchase an amended certificate of incorporation
(the “Amended
Certificate”), in substantially the form attached hereto as Schedule 2,
authorizing the creation of _________ shares of preferred stock. The Amended
Certificate shall have been ratified by the Company’s board of directors and
approved by the Company’s shareholders, and filed with the Secretary of State of
New Jersey.
2. Stock
Purchase Agreement. The Purchaser understands
and agrees that the conversion of the Note into equity securities of the
Company may require the Purchaser’s execution of certain agreements (in form
reasonably agreeable to the Purchaser) relating to the purchase and sale of such
securities as well as registration, co-sale and voting rights, if any, relating
to such equity securities.
3. Credit
Agreement. The Purchaser
agrees to extend a credit facility to the Company in an amount not to
exceed $1,000,000.00, from which the Company may draw down for working capital
purposes, on the terms and conditions set forth in the credit agreement attached
to this agreement as Exhibit B (the “Credit
Agreement”). Amounts drawn on the credit facility shall be
secured as provided in Section 4 hereof.
4.
Security
Interest and Stock Pledge. The indebtedness
represented by the Note and the Credit Agreement and all of the Company’s
obligations arising under the Note and Credit Agreement shall be secured by (i)
all of the assets of the Company and the Guarantor in accordance with the
provisions of the security agreement in substantially the form attached to this
Agreement as Exhibit
C (the “Security Agreement”),
and (ii) a pledge by the Guarantor of all of the equity securities of the
Company currently owned or hereafter acquired by the Guarantor (the “Shares”) in
accordance with the provisions of a stock pledge agreement in substantially the
form attached to this Agreement as Exhibit D (the “Pledge
Agreement”).
5. Option
Agreement. In connection
with the execution of this Agreement, the Note, the Credit Agreement, the
Security Agreement and the Pledge Agreement, the Guarantor and the Purchaser
shall enter into an option agreement (the “Option Agreement”),
in substantially the form attached to this Agreement as Exhibit E, pursuant
to which Guarantor shall grant to the Purchaser the option to purchase the
Shares in accordance with the terms and conditions set forth in the Option
Agreement (the “Acquisition”).
6. Majority
Stockholder Proxy. This Agreement and the agreements attached as exhibits
hereto are collectively referred to herein as the “Transaction
Agreements.” In connection with the transactions contemplated by the
Option Agreement, Guarantor shall obtain and deliver to the Purchaser at or
prior to the Closing a stockholder agreement and irrevocable proxy (the “Proxy”), in
substantially the form attached to this Agreement as Exhibit F, from the
Guarantor’s stockholders holding at least 51% of the outstanding stock (the
“Majority
Stockholders”) of the Purchaser, evidencing the consent by the Majority
Stockholders to the Acquisition and the related transactions contemplated by the
Transaction Agreements as described in an information statement to be delivered
by Guarantor to its stockholders.
-2-
7. Post-Closing
Covenants of Company and Guarantor.
(a) As
long as any portion of the Note is outstanding, and except as contemplated in
the Transaction Agreements, the Company shall not, without the prior written
consent of the Purchaser incur any indebtedness or obligation in excess of
Twenty Five Thousand Dollars ($25,000.00) or act as a guarantor or surety for
any indebtedness or obligation for any party (including Guarantor).
(b) As
long as any portion of the Note is outstanding, the Company shall provide the
Purchaser with (i) monthly unaudited financial statements (balance sheet,
statement of operations and statement of cash flows), and (ii) upon Purchaser’s
request, the right to review and inspect the Company’s books and records
provided however that Purchaser shall give the Company forty-eight (48) hours
notice of such request.
(c) As
long as any portion of the Note is outstanding, the Company shall not remit any
dividends or make any distribution of cash or property to the Guarantor with
respect to the stock of the Company or otherwise make any advance to
Guarantor.
8. Representations
and Warranties of the Company. In this
Agreement, any reference to any event, change, condition or effect being “material” with
respect to any entity or group of entities means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of such entity or group of
entities. In this Agreement, any reference to a “Material Adverse
Effect” with respect to any entity or group of entities means any event,
change or effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
business, operations, results of or prospects of such entity and its
subsidiaries, taken as a whole, or to prevent or materially delay consummation
of the transactions contemplated under this Agreement or otherwise to prevent
such entity and its subsidiaries from performing their obligations under this
Agreement.
In this
Agreement, any reference to “knowledge” means an
individual will be deemed to have knowledge of a particular fact or other matter
if: (i) that individual is actually aware of that fact or matter; or (ii) a
prudent individual could be expected to discover or otherwise become aware of
that fact or matter in the course of conducting a reasonable comprehensive
investigation regarding the accuracy of any representation or warranty contained
in this Agreement. A party (that is not an individual) will be deemed
to have knowledge of a particular fact or other matter if any individual who is
serving as a director, officer, executive or manager, partner, executor or
trustee of that party (or in any similar capacity) has, or at any time had,
knowledge of that fact or other matter (as set forth in (i) and (ii) of this
definition), and any such individual (and any individual party to this
Agreement) will be deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of the representations and warranties made
herein by that party or individual.
-3-
Except as
disclosed in a document of the same date as this Agreement and delivered by the
Company to Purchaser prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the “Company Disclosure
Schedule”), the Company represents and warrants to Purchaser, as of the
Closing:
(a) Organization
Standing and Power; Subsidiaries. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey. The Company has the requisite corporate power
and authority and all necessary government approvals to own, lease and operate
its properties and to carry on its business as now being conducted and as
proposed to be conducted, except where the failure to have such power, authority
and governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company is duly qualified
or licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. Except as set forth on Schedule 8(a), the
Company currently has no subsidiaries and has had no subsidiaries since its
inception. Other than the transactions contemplated by the
Transaction Agreements, there are no outstanding subscriptions, options,
warrants, puts, calls, rights, exchangeable or convertible securities or other
commitments or agreements of any character relating to the issued or unissued
capital stock of the Company, or otherwise obligating the Company to issue,
transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as set forth in the Company Disclosure Schedule,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, limited liability
company, joint venture or other business association or entity.
(b) Certificate of
Incorporation and Bylaws. The Company has delivered a true and
correct copy of its Certificate of Incorporation and Bylaws or other charter
documents, each as amended to date, to Purchaser. The Company is not
in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents.
-4-
(c) Capital
Structure. The authorized capital stock of the Company
consists of 5,000,000 shares of Common Stock, of which there are issued and
outstanding as of the close of business on the date hereof, 3,000,000 shares of
Common Stock. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities of the Company. All outstanding
shares of the Company’s capital stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Certificate of Incorporation or Bylaws of the Company or any agreement to
which the Company is a party or by which it is bound. All outstanding
shares of the Company’s Common Stock were issued in compliance with all
applicable federal and state securities laws. As of the close of
business on the Effective Date, the Company has not reserved, issued or granted
any shares of Common Stock for issuance to employees and consultants pursuant to
a Company Stock Plan (the “Plan”). Except
(i) for the rights created pursuant to this Agreement, (ii) for the
Company’s right to repurchase any unvested shares under the Plan and (iii) as
set forth in this Section 8(c), there are no options, warrants, calls, rights,
commitments, agreements or arrangements of any character to which the Company is
a party or by which the Company is bound relating to the issued or unissued
capital stock of the Company or obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of the Company or obligating the Company
to grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement. There are no contracts, commitments or agreements relating
to voting, purchase or sale of the Company’s capital stock (i) between or among
the Company and any of its stockholders and (ii) between or among any of the
Company’s stockholders. True and complete copies of all agreements
and instruments relating to or issued under the Plan have been made available to
Purchaser and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form made available to
Purchaser.
(d) Authority. The
Company has all requisite corporate power and authority to enter into 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 authorized by all necessary
corporate action on the part of the Company. The Company’s Board of
Directors has approved this Agreement and issuance of the Securities
hereunder. This Agreement has been duly executed and delivered by the
Company and assuming due authorization, execution and delivery by Purchaser,
constitutes the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
(e) No
Conflicts; Required Filings and Consents.
(i) The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any
provision of the Certificate of Incorporation or Bylaws of the Company or any of
its subsidiaries, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets.
(ii) No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”)
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws; and
(ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company and would not prevent, or materially alter or delay any of
the transactions contemplated by this Agreement.
-5-
(f) Financial
Statements. Section 8(f) of
the Company Disclosure Schedule includes a true, correct and complete copy of
the Company’s audited financial statements for the fiscal year ended December
31, 2006, a draft copy of the Company’s audited financial statements for the
fiscal year ended December 31, 2007, a draft of its unaudited financial
statements (balance sheet, statement of operations and statement of cash flows)
on a consolidated basis as of September 30, 2008, and a draft of the Company’s
unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) as of December 31, 2008 (collectively, the “Financial
Statements”). The Financial Statements have been prepared in
accordance with generally accepted accounting principles (“GAAP”) (except that
the unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each
other. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit
adjustments. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP.
(g) Absence
of Undisclosed Liabilities. Except as set forth in Schedule
8(g), the Company has no material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth
or adequately provided for in the Balance Sheet for the period ended December
31, 2008 (the “Company
Balance Sheet”), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Company Balance Sheet under
GAAP, (iii) those incurred in the ordinary course of business since the
Company Balance Sheet Date and consistent with past practice, and
(iv) those incurred for professional fees in connection with the execution
of this Agreement.
(h) Absence
of Certain Changes. Except as set forth in Section 8(h) of the
Company Disclosure Schedule, since December 31, 2008 ( the “Company Balance Sheet
Date”) there has not been, occurred or arisen any:
(i)
transaction by the Company, other than transactions in connection with
elimination of intercompany accounts, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(ii) amendments
or changes to the Certificate of Incorporation or Bylaws of the Company (except
as contemplated by the Transaction Agreements);
(iii)
capital expenditure or commitment by the Company in any individual amount
exceeding $10,000.00 or in the aggregate, exceeding $50,000.00;
(iv) destruction
of, damage to, or loss of any assets (including, without limitation, intangible
assets), business or customer of the Company (whether or not covered by
insurance) which would constitute a Material Adverse Effect;
-6-
(v) labor
trouble or claim of wrongful discharge or other unlawful labor practice or
action;
(vi) change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates, any change in policies in making or reversing
accruals) by the Company;
(vii) revaluation
by the Company of any of its assets;
(viii)
declaration, setting aside, or payment of a dividend or other distribution
in respect to the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company of any of its capital
stock, except repurchases of the Company Common Stock from terminated Company
employees or consultants at the original per share purchase price of such
shares;
(ix) increase
in the salary or other compensation payable or to become payable by the Company
to any officers, directors, employees or consultants of the Company, except in
the ordinary course of business consistent with past practice, or the
declaration, payment, or commitment or obligation of any kind for the payment by
the Company of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement, or other than as set
forth in Section 8(p) below, the establishment of any bonus, insurance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation, the granting of stock options, stock appreciation rights,
performance awards), stock purchase or other employee benefit plan;
(x)
sale, lease, license or other disposition of any of the assets or properties of
the Company, except in the ordinary course of business and not in excess of
$10,000.00, in the aggregate;
(xi) termination
or material amendment of any material contract, agreement or license (including
any distribution agreement) to which the Company is a party or by which it is
bound;
(xii) loan
by the Company to any person or entity, or guaranty by the Company of any loan,
except for (i) travel or similar advances made to employees in connection
with their employment duties in the ordinary course of business, consistent with
past practice and (ii) trade payables not in excess of $50,000.00 in the
aggregate and in the ordinary course of business, consistent with past
practice;
(xiii)
waiver or release of any right or claim of the Company, except for inter company
balances and doubtful allowances, including any write-off or other compromise of
any account receivable of the Company in excess of $50,000.00 in the
aggregate;
(xiv) commencement
or notice or threat of commencement of any lawsuit or proceeding against or, to
the Company’s or the Company’s officers’ or directors’ knowledge, investigation
of the Company or its affairs;
-7-
(xv) to
the Company’s knowledge, notice of any claim of ownership by a third party of
the Company’s Intellectual Property (as defined in Section 8(m) below) or, to
Company’s knowledge, of infringement by the Company of any third party’s
Intellectual Property rights;
(xvi) issuance
or sale by the Company of any of its shares of capital stock, or securities
exchangeable, convertible or exercisable therefor, or of any other of its
securities, other than as contemplated by the Transaction
Agreements;
(xvii) material
changes in pricing or royalties set or charged by the Company to its customers
or licensees or in pricing or royalties set or charged by persons who have
licensed Intellectual Property to the Company;
(xviii) to
the Company’s knowledge, any event or condition of any character that has or
could reasonably be expected to have a Material Adverse Effect on the Company;
or
(xix) agreement
by the Company, or any of its officers or employees on its behalf to do any of
the things described in the preceding clauses (i) through (xviii) (other than
negotiations with Purchaser and its representatives regarding the transactions
contemplated by this Agreement).
(i) Litigation. Except
as set forth on Schedule 8(i), there
is no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Company’s knowledge, threatened against the Company or any of its
properties or any of its officers or directors (in their capacities as such)
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Company. There is no judgment, decree
or order against the Company or, to the Company’s knowledge, any of its
directors or officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on the Company. All litigation to which the Company is a party
(or, to the knowledge of the Company, threatened to become a party) is disclosed
in the Company Disclosure Schedule.
(j) Restrictions
on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of the Company, any acquisition of
property by the Company or the overall conduct of business by the Company as
currently conducted or as proposed to be conducted by the
Company. The Company has not entered into any agreement under which
it is restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
-8-
(k) Permits;
Company Products; Regulation.
(i) The
Company is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders necessary for the Company to own, lease and operate its properties or to
carry on its business as it is now being conducted (the “Company
Authorizations”) and no suspension or cancellation of any Company
Authorization is pending or, to the Company’s knowledge, threatened, except
where the failure to have, or the suspension or cancellation of, any Company
Authorization would not have a Material Adverse Effect on the
Company. The Company is not in conflict with, or in default or
violation of, (i) any laws applicable to the Company or by which any
property or asset of the Company is bound or affected, (ii) any Company
Authorization or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company or any property or asset
of the Company is bound or affected, except for any such conflict, default or
violation that would not, individually or in the aggregate have a Material
Adverse Effect on the Company.
(ii) Except
as would not have a Material Adverse Effect on the Company, since January 31,
2009, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured,
marketed or distributed at any time by the Company or by any agent on behalf of
the Company (the “Products”) is
defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the knowledge of the Company, the
Company has complied in all material respects with the laws, regulations,
policies, procedures and specifications with respect to the design, manufacture,
labeling, testing and inspection of the Products. Except as disclosed
in Section 8(k)(ii) of the Company Disclosure Schedule, since January 31, 2009,
there have been no recalls, field notifications or seizures ordered or, to the
Company’s knowledge, threatened by any such governmental or regulatory body with
respect to any of the Products.
(iii) The
Company has obtained, in all countries where either the Company or any agent of
the Company is marketing or has marketed the Company’s Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies in such countries regulating the safety,
effectiveness and market clearance of the Products currently or previously
marketed by the Company or its agents in such countries, except for any such
failures as would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The Company has identified and made available
for examination by Purchaser all information relating to regulation of its
Products, including licenses, registrations, approvals, permits, device listing,
inspections, the Company’s recalls and product actions, audits and the Company’s
ongoing field tests. The Company has
identified in writing to Purchaser all international locations where regulatory
information and documents are kept.
-9-
(l) Title to
Property.
(i) The
Company has good and marketable title to all of its properties, interests in
properties and assets, real and personal, reflected in the Company Balance Sheet
or acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable,
(ii) such imperfections of title, liens and easements as do not and will
not materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties and (iii) liens securing debt which is reflected
on the Company Balance Sheet. The plants, property and equipment of
the Company that are used in the operations of its business are in good
operating condition and repair. All properties used in the operations
of the Company are reflected in the Company Balance Sheet to the extent GAAP
requires the same to be reflected. Section 8(l)(i) of the Company
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by the Company, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and other fees
payable under such lease. Such leases are in good standing, are valid
and effective in accordance with their respective terms, and there is not under
any such leases any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(ii) Section
8(l)(ii) of the Company Disclosure Schedule also sets forth a true, correct and
complete list of all equipment (the “Equipment”) owned or
leased by the Company, and such Equipment is, taken as a whole,
(i) adequate for the conduct of the Company’s business, consistent with its
past practice and (ii) in good operating condition (except for ordinary
wear and tear).
(m) Intellectual
Property.
(i) The
Company owns, or is licensed or otherwise possesses legally enforceable rights
to use all patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, service marks, copyrights, and any applications for any of
the foregoing, net lists, schematics, industrial models, inventions, technology,
know-how, trade secrets, inventory, ideas, algorithms, processes, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material (“Intellectual
Property”) that are used or proposed to be used in the business of the
Company as currently conducted or as proposed to be conducted by the Company,
except to the extent that the failure to have such rights has not had and could
not reasonably be expected to have a Material Adverse Effect on the
Company.
-10-
(ii) Section
8(m) of the Company Disclosure Schedule lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and mask work rights,
included in the Intellectual Property, including the jurisdictions in which each
such Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements to which the Company is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is authorized to use any
third party patents, trademarks or copyrights, including software (“Third Party Intellectual
Property Rights”) which are incorporated in, are, or form a part of any
products of the Company that are, individually or in the aggregate, material to
the business of the Company. The Company is not in violation of any
license, sublicense or agreement described in Section 8(m) of the Company
Disclosure Schedule. The execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Section 8(m) of the Company
Disclosure Schedule, the Company is the sole and exclusive owner or licensee of,
with all right, title and interest in and to (free and clear of any liens), the
Intellectual Property, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which Intellectual Property is being
used.
(iii) To
the Company’s knowledge, there is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of the
Company, any trade secret material to the Company or any Intellectual Property
right of any third party to the extent licensed by or through the Company, by
any third party, including any employee or former employee of the
Company. The Company has not entered into any agreement to indemnify
any other person against any charge of infringement of any Intellectual
Property, other than indemnification provisions contained in purchase orders
arising in the ordinary course of business.
(iv) The
Company is not or will not be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Intellectual
Property or Third Party Intellectual Property Rights, the breach of which would
have a Material Adverse Effect on the Company.
(v) To
the Company’s knowledge, all patents, registered trademarks, service marks and
copyrights held by the Company are valid and existing and there is no assertion
or claim (or basis therefor) challenging the validity of any Intellectual
Property of the Company. The Company has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party. Neither the conduct of the
business of the Company as currently conducted or contemplated nor the
manufacture, sale, licensing or use of any of the products of the Company as now
manufactured, sold or licensed or used, nor the use in any way of the
Intellectual Property in the manufacture, use, sale or licensing by the Company
of any products currently proposed, infringes on or will infringe or conflict
with, in any way, any license, trademark, trademark right, trade name, trade
name right, patent, patent right, industrial model, invention, service mark or
copyright of any third party that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the
Company. All registered trademarks, service marks and copyrights held
by the Company are valid and subsisting. To the Company’s knowledge,
no third party is challenging the ownership by the Company, or validity or
effectiveness of, any of the Intellectual Property. The Company has
not brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party. There are no pending, or to the best of the Company’s
knowledge, threatened interference, re-examinations, oppositions or nullities
involving any patents, patent rights or applications therefor of the Company,
except such as may have been commenced by the Company. There is no
breach or violation of or threatened or actual loss of rights under any licenses
to which the Company is a party.
-11-
(vi) The
Company has secured valid written assignments from all consultants and employees
who contributed to the creation or development of Intellectual Property of the
rights to such contributions that the Company does not already own by operation
of law.
(vii) The
Company has taken all necessary and appropriate steps to protect and preserve
the confidentiality of all Intellectual Property not otherwise protected by
patents, patent applications or copyright (“Confidential
Information”). The Company has a policy requiring each of its
employees and contractors to execute proprietary information and confidentiality
agreements substantially in the Company’s standard forms and all current and
former employees and contractors of the Company have executed such an
agreement. All use, disclosure or appropriation of Confidential
Information owned by the Company by or to a third party has been pursuant to the
terms of a written agreement between the Company and such third
party. All use, disclosure or appropriation of Confidential
Information not owned by the Company has been pursuant to the terms of a written
agreement between the Company and the owner of such Confidential Information, or
is otherwise lawful.
(n) Environmental
Matters.
(i) The
following terms shall be defined as follows:
(A) “Environmental
and Safety Laws”
shall mean any federal, state or local laws, ordinances, codes, regulations,
rules, policies and orders, as each may be amended from time to time, that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants; which regulate the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Materials (as defined below) or materials containing Hazardous
Materials; or which are intended to assure the protection, safety and good
health of employees, workers or other persons, including the
public.
(B) “Hazardous
Materials” shall
mean any toxic or hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws; petroleum or petroleum
products including crude oil or any fractions thereof; natural gas, synthetic
gas, or any mixtures thereof; radon; asbestos; or any other pollutant or
contaminant
(C) “Property” shall mean all real property
leased or owned by the Company either currently or in the past.
-12-
(D) “Facilities” shall mean all buildings and
improvements on the Property of the Company.
(ii) The
Company represents and warrants as follows: (i) no methylene
chloride or asbestos is contained in or has been used at or released from the
Facilities; (ii) all Hazardous Materials and wastes have been disposed of
in accordance with all Environmental and Safety Laws; and (iii) the Company
has received no notice (verbal or written) of any noncompliance of the
Facilities or of its past or present operations with Environmental and Safety
Laws; (iv) no notices, administrative actions or suits are pending or
threatened relating to Hazardous Materials or a violation of any Environmental
and Safety Laws; (v) the Company is not a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”), or state
analog statute, arising out of events occurring prior to the Closing;
(vi) there has not been in the past, and there is not now, any
contamination, disposal, spilling, dumping, incineration, discharge, storage,
treatment or handling of Hazardous Materials on, under or migrating to or from
the Facilities or Property (including without limitation, soils and surface and
ground waters); (vii) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells; (viii) there are no polychlorinated biphenyls (“PCBs”) deposited,
stored, disposed of or located on the Property or Facilities or any equipment on
the Property containing PCBs at levels in excess of 50 parts per million;
(ix) there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities; (x) the
Facilities and the Company’s uses and activities therein have at all times
complied with all Environmental and Safety Laws; (xi) the Company has all
the permits and licenses required to be issued and is in full compliance with
the terms and conditions of those permits; and (xii) the Company is not
liable for any off-site contamination under any Environmental and Safety
Laws.
(o) Taxes.
(i) For
purposes of this Section 8(o) and other provisions of this Agreement relating to
Taxes, the following definitions shall apply:
(A) The
term “Taxes” shall mean all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
(A) imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including but not limited to, federal, state and foreign income taxes),
payroll and employee withholding taxes, unemployment insurance contributions,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, withholding taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers’ compensation, and other Tax of any
kind whatsoever, which are required to be paid, withheld or collected, in an
aggregate amount in excess of $10,000, (B) any liability for the payment of
amounts referred to in (A) as a result of being a member of any affiliated,
consolidated, combined or unitary group, or (C) any liability for amounts
referred to in (A) or (B) as a result of any obligations to indemnify another
person.
-13-
(B) The
term “Returns”
shall mean all reports, estimates, declarations of estimated tax, information
statements and returns required to be filed in connection with any Taxes,
including information returns with respect to backup withholding and
other payments to third parties.
(ii) Except
as set forth on Schedule 8(o), all
Returns required to be filed by or on behalf of the Company have been duly filed
on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto, and all payments of estimated Taxes
required to be made by or on behalf of the Company under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis, and no other Taxes are payable by the Company with
respect to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns). The Company has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of the Company with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that the Company is contesting in good faith through appropriate
proceedings. The Company has not at any time been a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns for a period for which the statute of limitations for
any Tax potentially applicable as a result of such membership has not expired
other than an affiliated group the common parent of which is the
Guarantor.
(iii) The
amount of the Company’s liabilities for unpaid Taxes for all periods through the
date of the Financial Statements does not, in the aggregate, exceed the amount
of the current liability accruals for Taxes reflected on the Financial
Statements, and the Financial Statements properly accrue in accordance with GAAP
all liabilities for Taxes of the Company payable after the date of the Financial
Statements attributable to transactions and events occurring prior to such
date. No liability for Taxes of the Company has been incurred or
material amount of taxable income has been realized (or prior to and including
the Closing will be incurred or realized) since such date other than in the
ordinary course of business.
(iv) Purchaser
has been furnished by the Company with true and complete copies of (i) all
relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company relating to
Taxes, and (ii) all federal, state and foreign income or franchise tax
returns and state sales and use tax Returns for or including the Company for all
periods since six
(6) full years preceding the date of this Agreement.
(v) No
audit of the Returns of or including the Company by a government or taxing
authority is in process, threatened or, to the Company’s knowledge, pending
(either in writing or orally, formally or informally). No
deficiencies exist or have been asserted (either in writing or orally, formally
or informally) or are expected to be asserted with respect to Taxes of the
Company, and the Company has not received notice (either in writing or orally,
formally or informally) nor does it expect to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid. The
Company is not a party to any action or proceeding for assessment or collection
of Taxes, nor, to the Company’s knowledge, has such event been asserted or
threatened (either in writing or orally, formally or informally) against the
Company, or any of its assets. No waiver or extension of any statute
of limitations is in effect with respect to Taxes or Returns of the
Company. The Company has disclosed on its federal and state income
and franchise tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Code Section 6662 or
comparable provisions of applicable state tax laws.
-14-
(vi) The
Company is not (nor has it ever been) a party to any tax sharing
agreement. Since April 16, 1997, the Company has not been
a distributing corporation or a controlled corporation in a transaction
described in Section 355(a) of the Code.
(vii) The
Company is not, nor has it been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. The Company is not a “consenting corporation” under Section
341(f) of the Code. The Company has not entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a nondeductible expense to the Company pursuant to Section 280G
or 162(m) of the Code or an excise tax to the recipient of such payment pursuant
to Section 4999 of the Code. The Company has not agreed to, nor is it
required to make, any adjustment under Code Section 481(a) by reason of, a
change in accounting method, and the Company will not otherwise have any income
reportable for a period ending after the Closing attributable to a transaction
or other event (e.g., an installment sale) occurring prior to the Closing with
respect to which the Company received the economic benefit prior to the
Closing. The Company is not, nor has it been, a “reporting
corporation” subject to the information reporting and record maintenance
requirements of Section 6038A and the regulations thereunder.
(viii) The
Company Disclosure Schedule contains accurate and complete information regarding
the Company’s net operating losses for federal and each state tax
purposes. The Company has no net operating losses or credit
carryovers or other tax attributes currently subject to limitation under
Sections 382, 383, or 384 of the Code.
(ix) The
Company shall not have any liability for Taxes of any person other than the
Company under (a) Treas. Reg. Section 1502-6 (or any similar provision of state,
local, or foreign law), (b) as a transferee or successor, (c) by contract, or
(d) otherwise.
(x)
With respect to each option and share of restricted stock, the Company and
the Stockholders warrant and represent that each such option has been granted
with an exercise price no lower than “fair market value” (determined in
accordance with Treas. Reg. Section 1.409A-1(b)(vi)) as of the grant date and
that each such grant does not provide for a deferral of compensation under Code
section 409A. Each Company Employee Plan (as defined in Section 8(p)
hereof) that is a “nonqualified deferred compensation plan” (as defined in Code
Section 409A(d)(1)) has been operated since January 1, 2005, in good faith
compliance with Code Section 409A and the rules and regulations issued
thereunder. No Company Employee Plan that is a “nonqualified deferred
compensation plan” has been materially modified (as determined under Treas. Reg.
Section 1.409A-6) after October 3, 2004. The Company is not a party
to, and is not otherwise obligated under, any Contract, plan or arrangement that
provides for the gross-up of the Tax imposed by Section 409A(a)(1)(B) of the
Code.
-15-
(p) Employee
Benefit Plans.
(i) Schedule
8(p) lists, with respect to the Company and any trade or business (whether or
not incorporated) which is treated as a single employer with the Company (an
“ERISA
Affiliate”) within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (i) all employee benefit plans (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)),
(ii) each loan to a non-officer employee in excess of $10,000, loans to
officers and directors and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria benefit
(Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
contracts and agreements relating to employment that provide for annual
compensation in excess of $100,000 and all severance agreements, with any of the
directors, officers or employees of the Company (other than, in each case, any
such contract or agreement that is terminable by the Company at will or without
penalty or other adverse consequence), (iv) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of the Company and that do not
generally apply to all employees, and (vi) any current or former employment
or executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of the Company of greater than $50,000 remain for
the benefit of, or relating to, any present or former employee, consultant or
director of the Company (together, the “Company Employee
Plans”).
(ii) The
Company has furnished to Purchaser a copy of each of the Company Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and, to the extent still in its possession, any material employee
communications relating thereto) and has, with respect to each Company Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any
Company Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service an opinion letter or
favorable determination letter as to its initial qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation; may rely on an opinion letter issued to a
prototype plan sponsor with respect to a standardized plan adopted by the
Company in accordance with the requirements for such reliance; or has applied to
the Internal Revenue Service for such a determination letter (or has time
remaining to apply for such a determination letter) prior to the expiration of
the requisite period under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination with respect
to all periods since the date of adoption of such Company Employee
Plan. The Company has also furnished Purchaser with the most recent
Internal Revenue Service determination letter issued with respect to each such
the Company Employee Plan, and nothing has occurred since the issuance of each
such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any the Company Employee Plan subject to Code Section
401(a).
-16-
(iii) Except
as set forth in Section 8(p)(iii) of the Company Disclosure Schedule,
(i) none of Company Employee Plans promises or provides retiree medical or
other retiree welfare or life insurance benefits to any person; (ii) there
has been no “prohibited
transaction,” as such term is defined in Section 406 of ERISA and Section
4975 of the Code, and not exempt under Section 408 of ERISA or Section 4975 of
the Code, with respect to any Company Employee Plan, which could reasonably be
expected to have, in the aggregate, a Material Adverse Effect; (iii) each
Company Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect, and the Company or ERISA Affiliate have
performed all obligations required to be performed by them under, are not in any
material respect in default, under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Company Employee
Plans; (iv) neither the Company nor any ERISA Affiliate is subject to any
liability or penalty under Sections 4976 through 4980D of the Code or
Title I of ERISA with respect to any of the Company Employee Plans;
(v) all material contributions required to be made by the Company or any
ERISA Affiliate to any Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Company Employee Plan for the current plan years; (vi) with respect to each
Company Employee Plan, no “reportable event”
within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company
Employee Plan is covered by, and neither the Company nor any ERISA Affiliate has
incurred or expects to incur any direct or indirect liability under, arising out
of or by operation of Title IV of ERISA in connection with the termination
of, or an employee’s withdrawal from, any Company Employee Plan or other
retirement plan or arrangement, and no fact or event exists that could give rise
to any such liability, or under Section 412 of the Code; and (viii) no
compensation paid or payable to any employee of the Company has been, or will
be, non-deductible by reason of application of Section 162(m) or 280G of the
Code. With respect to each Company Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA
or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, the Company has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
the Company Employee Plan. No suit, administrative proceeding, action
or other litigation has been brought, or to the best knowledge of the Company is
threatened, against or with respect to any such the Company Employee Plan,
including any audit or inquiry by the IRS or United States Department of
Labor. Neither the Company nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
“multiemployer
plan” as defined in Section 3(37) of ERISA.
-17-
(iv)
With respect to each Company Employee Plan, the Company has complied with
(i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the
regulations thereunder or any similar applicable state law, (ii) the applicable
requirements of the Health Insurance Portability Amendments Act (“HIPAA”) and
the regulations thereunder and (iii) the applicable requirements of the
Family Medical Leave Act of 1993 and the regulations thereunder or any similar
applicable state law, except to the extent that failure to comply would not, in
the aggregate, have a Material Adverse Effect.
(v) Except
as set forth on Schedule 8(p), the
consummation of the transactions contemplated by this Agreement will not
(i) entitle any current or former employee or other service provider of the
Company or any ERISA Affiliate to severance benefits or any other payment
(including, without limitation, unemployment compensation, golden parachute or
bonus), except as expressly provided in this Agreement, or (ii) accelerate
the time of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service provider.
(vi) There
has been no amendment to, written interpretation or announcement (whether or not
written) by the Company or any ERISA Affiliate relating to, or change in
participation or coverage under, any Company Employee Plan which would
materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan for the most recent fiscal year
included in the Company’s financial statements.
(q) Effect on
Other Certain Agreements . Except as set forth on Schedule
8(q), neither the execution and delivery of this Agreement or the Transaction
Agreements nor the consummation of the transactions contemplated hereby or
thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of the Company, (ii) materially
increase any benefits otherwise payable by the Company or (iii) result in
the acceleration of the time of payment or vesting of any such
benefits.
(r) Employee
Matters.
(i)
Except as set forth on Schedule 8(r), the Company
is in compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor
practice. There are no pending claims against the Company under any
workers compensation plan or policy or for long term disability. The
Company does not have any material obligations under COBRA or any similar state
law with respect to any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or, to the Company’s
knowledge, threatened, between the Company and any of its employees or former
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect on the Company. The Company is not a party to
any collective bargaining agreement or other labor unions contract nor does the
Company know of any activities or proceedings of any labor union or organize any
such employees. The Company has not incurred any liability under, and
has complied in all respects with, the Worker Adjustment Retraining Notification
Act (the “WARN
Act”), and no fact or event exists that could give rise to liability
under the WARN Act. Section 8(r) of the Company Disclosure Schedule
contains a list of all employees who are currently on a leave of absence
(whether paid or unpaid), the reasons therefor, the expected return date, and
whether reemployment of such employee is guaranteed by contract or statute, and
a list of all employees who have requested a leave of absence to commence at any
time after the date of this Agreement, the reason therefor, the expected length
of such leave, and whether reemployment of such employee is guaranteed by
contract or statute.
-18-
(ii) The
Company is in compliance with all federal, state and local laws governing the
employment and sponsorship of foreign nationals employed by the Company and is
not required to make any filing with or give any notice to, or to obtain any
consent from, any governmental body in connection with employment by the Company
of any employee who is a foreign national. There is no pending legal proceeding,
and no governmental agency has threatened to commence any legal proceeding,
against the Company or that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with the
employment by the Company of any employee who is a foreign
national. There is no order, writ, injunction or decree which has
been entered against the Company preventing or delaying the employment by the
Company of any employee who is a foreign national.
(s) Material
Contracts.
(i) Section
8(s)(i) of the Company Disclosure Schedule contains a list of all contracts and
agreements to which the Company is a party and that are material to the
business, results of operations, or condition (financial or otherwise), of the
Company (such contracts, agreements and arrangements as are required to be set
forth in Section 8(s)(i) of the Company Disclosure Schedule being referred to
herein collectively as the “Material
Contracts”). “Material Contracts”
shall include, without limitation, the following and shall be categorized in the
Company Disclosure Schedule as follows:
(A) each
contract and agreement (other than routine purchase orders and pricing quotes in
the ordinary course of business covering a period of less than one year) for the
purchase of inventory, spare parts, other materials or personal property with
any supplier or for the furnishing of services to the Company under the terms of
which the Company: (A) paid or otherwise gave consideration of
more than $5,000.00 in the aggregate during the calendar year ended
December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $5,000.00 in the aggregate over the remaining term of
such contract or (C) cannot be canceled by the Company without penalty or
further payment of less than $5,000.00;
(B) each
customer contract and agreement (other than routine purchase orders, pricing
quotes with open acceptance and other tender bids, in each case, entered into in
the ordinary course of business and covering a period of less than one year) to
which the Company is a party which (A) involved consideration of more than
$5,000.00 in the aggregate during the calendar year ended December 31,
2008, (B) is likely to pay or otherwise give consideration of more than
$5,000.00 in the aggregate over the remaining term of such contract or
(C) cannot be canceled by the Company without penalty or further payment of
less than $5,000.00;
-19-
(C) (A) all
distributor, manufacturer’s representative, broker, franchise, agency and dealer
contracts and agreements to which the Company is a party (specifying on a
matrix, in the case of distributor agreements, the name of the distributor,
product, territory, termination date and exclusivity provisions) and
(B) all sales promotion, market research, marketing and advertising
contracts and agreements to which the Company is a party
which: (1) involved consideration of more than $5,000.00 in the
aggregate during the calendar year ended December 31, 2008 or (2) are
likely to involve consideration of more than $5,000.00 in the aggregate over the
remaining term of the contract;
(D) all
management contracts with independent contractors or consultants (or similar
arrangements) to which the Company is a party and which (A) involved
consideration or more than $5,000.00 in the aggregate during the calendar year
ended December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $5,000.00 in the aggregate over the remaining term of
such contract, or (C) cannot be canceled by the Company without penalty or
further payment of less than $5,000.00;
(E) all
contracts and agreements (excluding routine checking account overdraft
agreements involving petty cash amounts) under which the Company has created,
incurred, assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness or under which the Company has imposed (or may impose) a security
interest or lien on any of their respective assets, whether tangible or
intangible, to secure indebtedness;
(F)
all contracts and agreements that limit the ability of the Company to
compete in any line of business or with any person or in any geographic area or
during any period of time, or to solicit any customer or client;
(G) all
contracts and agreements between or among the Company, on the one hand, and any
affiliate of the Company, on the other hand:
(H) all
contracts and agreements to which the Company is a party under which it has
agreed to supply products to a customer at specified prices, whether directly or
through a specific distributor, manufacturer’s representative or dealer;
and
(I)
all other contracts or agreements (A) which are material to the Company or
the conduct of their respective businesses or (B) the absence of which
would have a Material Adverse Effect on the Company or (C) which are
believed by the Company to be of unique value even though not material to the
business of the Company.
(ii) Except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, each Company license and each Material Contract, is a legal,
valid and binding agreement, and none of the Company licenses or Material
Contracts is in default by its terms or has been canceled by the other party;
the Company is not in receipt of any claim of default under any such agreement;
and the Company does not anticipate any termination of or change to, or receipt
of a proposal with respect to, any such agreement as a result of the
transactions contemplated by this Agreement. The Company has
furnished Purchaser with true and complete copies of all such agreements
together with all amendments, waivers or other changes thereto.
-20-
(t) Interested
Party Transactions. Except as set forth on Schedule 8(t), the
Company is not directly or indirectly indebted to any director, officer,
employee or agent of the Company (each of the foregoing, an “Interested Party”)
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), nor is the Company directly or indirectly indebted to any
members of the immediate families of any Interested Party, and no such
Interested Parties or members of their immediate families are directly or
indirectly indebted to the Company. No Interested Parties
have any direct or indirect ownership or financial interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that Interested Parties and members of their families may own
stock in (but not exceeding two percent (2%) of the outstanding capital stock
of) any publicly traded companies that may compete with the
Company. No Interested Party or any members of their immediate
families are, directly or indirectly, interested in any material contract with
the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
(u) Insurance. The
Company has policies of insurance and bonds of the type and in the amounts
customarily carried by persons conducting businesses or owning assets similar to
those of the Company. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in compliance with the terms of such policies and
bonds. The Company has no knowledge of any threatened termination of,
or material premium increase with respect to, any of such policies.
(v) Compliance
With Laws. The Company has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not reasonably be expected to have a
Material Adverse Effect on the Company.
(w) Minute
Books. The minute books of the Company made available to
Purchaser contain a complete summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
(x) Complete
Copies of Materials. The Company has delivered or made
available true and complete copies of each document which has been requested by
Purchaser or its counsel in connection with their legal and accounting review of
the Company.
(y) Brokers’
and Finders’ Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.
-21-
(z) Board and
Stockholder Approval. The Board of Directors of the Company
has unanimously (i) approved this Agreement and the Transaction Agreements
and the transactions contemplated hereunder and thereunder, and
(ii) determined that the purchase of the Securities by Purchaser is in the
best interests of the stockholders of the Company. Guarantor has
obtained Proxies from the Majority Stockholders.
(aa) Inventory. The
inventories shown on the Financial Statements or thereafter acquired by the
Company consist of items of a quantity and quality usable or salable in the
ordinary course of business. Since January 31, 2009, the Company has
continued to replenish inventories in a normal and customary manner consistent
with past practice. The Company has not received written or oral
notice that it will experience in the foreseeable future any difficulty in
obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its
products. The values at which inventories are carried reflect the
inventory valuation policy of the Company, which is consistent with its past
practice and in accordance with GAAP applied on a consistent
basis. Due provision has been made on the books of the Company in the
ordinary course of business consistent with past practice to provide for all
slow-moving, obsolete, or unusable inventories at their estimated useful scrap
values and such inventory reserves are adequate to provide for such slow-moving,
obsolete or unusable inventory and inventory shrinkage.
(bb) Accounts
Receivable.
(i) The
Company has made available to Purchaser a list of all accounts receivable of the
Company reflected on the Financial Statements (“Accounts Receivable”)
along with a range of days elapsed since invoice.
(ii) All
Accounts Receivable of the Company arose in the ordinary course of business and
are carried at values determined in accordance with GAAP consistently
applied. No person has any lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with respect
to any of such Accounts Receivable.
(iii) All
of the inventories of the Company reflected in the Financial Statements and the
Company’s books and records on the date hereof were purchased, acquired or
produced in the ordinary and regular course of business and in a manner
consistent with the Company’s regular inventory practices and are set forth on
the Company’s books and records in accordance with the practices and principles
of the Company consistent with the method of treating said items in prior
periods. None of the inventory of the Company reflected on the
Financial Statements or on the Company’s books and records as of the date hereof
(in either case net of the reserve therefor) is obsolete, defective or in excess
of the needs of the business of the Company reasonably anticipated for the
normal operation of the business consistent with past practice and outstanding
customer contracts. The presentation of inventory on the Financial
Statements conforms to GAAP and such inventory is stated at the lower of cost or
net realizable value.
-22-
(cc) Customers
and Suppliers. As of the date hereof, no customer which
individually accounted for more than ten percent (10%) of the Company’s gross
revenues during the twelve (12) month period preceding the date hereof, and no
supplier of the Company, has canceled or otherwise terminated, or made any
written threat to the Company to cancel or otherwise terminate its relationship
with the Company, or has at any time on or after December 31, 2008 decreased
materially its services or supplies to the Company in the case of any such
supplier, or its usage of the services or products of the Company in the case of
such customer, and to the Company’s knowledge, no such supplier or customer
intends to cancel or otherwise terminate its relationship with the Company or to
decrease materially its services or supplies to the Company or its usage of the
services or products of the Company, as the case may be. From and
after the date hereof, no customer which individually accounted for more than
ten percent (10%) of the Company’s gross revenues during the twelve (12) month
period preceding the Closing, has canceled or otherwise terminated, or made any
written threat to the Company to cancel or otherwise terminate, for any reason,
including without limitation the consummation of the transactions by this
Agreement, its relationship with the Company, and to the Company’s knowledge, no
such customer intends to cancel or otherwise terminate its relationship with the
Company or to decrease materially its usage of the services or products of the
Company. The Company has not knowingly breached, so as to provide a
benefit to the Company that was not intended by the parties, any agreement with,
or engaged in any fraudulent conduct with respect to, any customer or supplier
of the Company.
(dd) Third
Party Consents. The Company shall have obtained all consents
or approvals needed from any third party in order to effect this Agreement or
any of the transactions contemplated hereby.
(ee) No
Commitments Regarding Future Products. The Company has
made no sales to customers that are contingent upon providing future
enhancements of existing products, to add features not presently available on
existing products or to otherwise enhance the performance of its existing
products (other than beta or similar arrangements pursuant to which the
Company’s customers from time to time test or evaluate products). The
products the Company has delivered to customers substantially comply with
published specifications for such products and the Company has not received
material complaints from customers about its products that remain
unresolved. Section 8(ee) of the Company Disclosure Schedule
accurately sets forth a complete list of products in development (exclusive of
mere enhancements to and additional features for existing
products).
(ff) Representations
Complete. None of the representations or warranties made by
the Company in this Agreement or in any attachment hereto, including the Company
Disclosure Schedule, or certificate furnished by the Company pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Closing any untrue statement of a material fact, or omits
or will omit at the Closing to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
9. Representations
and Warranties of the Guarantor. Guarantor hereby
represents and warrants to the Purchaser that:
(a) Organization,
Good Standing and Qualification. The Guarantor is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
-23-
(b) Authorization. All corporate
action on the part of the Guarantor, its officers, directors and stockholders
necessary for the authorization, execution and delivery of the Transaction
Agreements and the performance of all obligations of the Guarantor hereunder and
thereunder has been taken or will be taken prior to the Closing. The
Transaction Agreements, when executed and delivered by the Guarantor, shall
constitute valid and legally binding obligations of the Guarantor, enforceable
against the Guarantor in accordance with their terms except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors’ rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable
remedies.
10. Representations
and Warranties of Purchaser. Purchaser hereby
represents and warrants to the Company that:
(a) Purchase
Entirely for Own Account. The Securities to
be acquired by the Purchaser will be acquired for investment for the Purchaser’s
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the
same. The Purchaser has not been formed for the specific purpose of
acquiring any of the Securities.
(b) Knowledge. The Purchaser is
aware of the Company’s business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the securities.
(c) Restricted
Securities. The Purchaser
understands that the Securities have not been, and will not be, registered under
the Securities Act of 1933, as amended (the “Securities Act”), by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Purchaser’s representations as expressed
herein. The Purchaser understands that the Securities are “restricted
securities” under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for
resale. The Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Securities, and on requirements relating to the Company
which are outside of the Purchaser’s control, and which the Company is under no
obligation and may not be able to satisfy.
(d) No Public
Market. The Purchaser
understands that no public market now exists for any of the securities issued by
the Company, that the Company has made no assurances that a public market will
ever exist for the Securities.
-24-
(e) Legends. The Purchaser
understands that the Securities, and any securities issued in respect thereof or
exchange therefor, may bear one or all of the following legends:
(i) “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.”
(ii) Any
legend required by the Blue Sky laws of any state to the extent such laws are
applicable to the shares represented by the certificate so
legended.
(f) Accredited
Investor. The
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
11. Conditions
of the Purchaser’s Obligations at Closing. The obligations
of the Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Execution
and Delivery of Transaction Agreements. The Company and/or the
Guarantor (if applicable) shall have executed and delivered the Transaction
Agreements to the Purchaser.
(b) Representations
and Warranties. The
representations and warranties of the Company contained in Section 8 and
the representations of the Guarantor contained in Section 9 shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
(c) Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be obtained and effective as of the Closing.
(d) Amended
Certificate. The Company shall have delivered to Purchaser the
Amended Certificate.
12. Conditions
of the Company’s Obligations at Closing. The obligations
of the Company to the Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations
and Warranties. The
representations and warranties of the Purchaser contained in Section 10
shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the
Closing.
-25-
(b) Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be obtained and effective as of the Closing.
(c) Delivery
of Form W-8 BEN or Form W-9. The Purchaser shall have
completed and delivered to the Company a validly executed IRS Form W-8 BEN or
IRS Form W-9, as applicable, which forms are attached as Exhibit G to this
Agreement.
13. Default.
(a) Events of
Default. The occurrence of any one or more of the following
events, conditions or state of affairs shall constitute an Event of Default
hereunder and under the Note:
(i)
The Company shall fail to pay as and when due any principal or interest
under the Note or the Credit Agreement.
(ii) If
the Company or the Guarantor shall breach or default in connection with any of
the representations, warranties, covenants or obligations contained the
Transaction Agreements.
(iii) If
the Company makes an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by the
Company.
(iv) Upon
the commencement of any action for the dissolution or liquidation of the
Company, or the commencement of any case or proceeding for reorganization or
liquidation of the Company’s debts under Title 11 of the United States Code as
now or hereafter in effect, or any successor statute, or any other state or
federal law, now or hereafter enacted for the relief of debtors, whether
instituted by or against the Company; provided, however, that the
Company shall have sixty (60) days to obtain the dismissal or discharge of any
involuntary proceeding filed against it and the Agent may seek adequate
protection in any bankruptcy proceeding.
(v) Upon
the appointment of a receiver, liquidator, custodian, trustee or similar
official or fiduciary for the Company or for a material portion of any property
of the Company.
14. Miscellaneous.
(a) Successors
and Assigns. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
-26-
(b) Governing
Law. This Agreement
and all acts and transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of
conflicts of law.
(c) Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
(d) Titles
and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
(e) Notices. Any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by courier, overnight
delivery service or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party’s address
or facsimile number as set forth below or as
subsequently modified by written notice.
(f) Finder’s
Fee. Each party
represents that it neither is nor will be obligated for any finder’s fee or
commission in connection with this transaction. The Purchaser agrees
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder’s fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Purchaser or any of its officers, employees, or representatives is
responsible. The Company and the Guarantor agree to indemnify and
hold harmless the Purchaser from any liability for any commission or
compensation in the nature of a finder’s fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company,
the Guarantor or any of their respective officers, employees or representatives
is responsible.
(g) Amendments
and Waivers. Any term of this
Agreement may only be amended with the written consent of the parties
hereto. Any amendment or waiver effected in accordance with this
Section 14(g) shall be binding upon the Purchaser and each transferee of the
Securities, each future holder of all such Securities, and the
Company.
(h) Severability. If one or more
provisions of this Agreement are held to be unenforceable
under applicable law, the parties agree to renegotiate such provision in good
faith, in order to maintain the economic position enjoyed by each party as close
as possible to that under the provision rendered unenforceable. In
the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(i) Entire
Agreement. This Agreement,
and the documents referred to herein constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof, and any and all other
written or oral agreements existing between the parties hereto are expressly
canceled.
-27-
(j) Exculpation
Among Purchasers. The Purchaser
acknowledges that it is not relying upon any person, firm or corporation, other
than (a) the Company and its officers and directors, and (b) the Guarantor and
its officers and directors in making its investment or decision to invest in the
Company.
(k) Corporate
Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO
EXEMPT.
-28-
The
parties have executed this Convertible Note Purchase Agreement as of
the date first written above.
|
COMPANY:
|
||
|
UCA
Services, Inc., d/b/a Netfabric
|
||
|
Technologies,
Inc.
|
||
|
By:/s/
|
||
|
Fahad Syed, CEO
|
||
| Address: 299 Cherry Hill Road | ||
| Parsippany, NJ 07054 | ||
|
Facsimile
Number: 973-384-9061
|
||
|
GUARANTOR:
|
||
|
Netfabric
Holdings, Inc.
|
||
|
By:/s/
|
||
|
Fahad Syed, CEO
|
||
| Address: 299 Cherry Hill Road | ||
| Parsippany, NJ 07054 | ||
|
Facsimile
Number: 973-384-9061
|
||
|
PURCHASER:
|
||
|
Fortify
Infrastructure Services, Inc.
|
||
|
By:/s/
|
||
|
Name:
Rajkumar Velagapudi
|
||
| Address: 2340 Walsh Avenue, Suite A | ||
| Santa Clara, CA 95051 | ||
|
Facsimile
Number: 408-416-3237
|
||
SIGNATURE
PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
LIST OF
SCHEDULES/EXHIBITS
|
Schedule
l -
|
Schedule
of Liabilities/Creditors to be Paid at Closing
|
|
Schedule
2-
|
Amended
Certificate
|
|
Exhibit A
-
|
Form
of Promissory Note
|
|
Exhibit
B -
|
Credit
Agreement
|
|
Exhibit
C -
|
Security
Agreement
|
|
Exhibit
D -
|
Pledge
Agreement
|
|
Exhibit
E -
|
Option
Agreement
|
|
Exhibit
F -
|
Form
of Proxy
|
|
Exhibit
G -
|
W-9
|
SCHEDULE
1
SCHEDULE OF
LIABILITIES
At Closing, the creditors of the
Company set forth below shall be paid by Purchaser the amounts set forth
opposite their names, representing payment in full of the total amount of
liabilities and indebtedness of the Company outstanding as of the Closing
Date:
|
Name
and Address
|
Amount
|
|
SCHEDULE
2
AMENDED
CERTIFICATE
-3-
EXHIBIT
A
FORM
OF CONVERTIBLE PROMISSORY NOTE
-4-
EXHIBIT
B
CREDIT
AGREEMENT
EXHIBIT
C
SECURITY
AGREEMENT
EXHIBIT
D
PLEDGE
AGREEMENT
EXHIBIT
E
OPTION
AGREEMENT
EXHIBIT
F
FORM
OF PROXY
EXHIBIT
G
FORM
W-9
Non-Profiled
Document
-10-
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
SECURED CONVERTIBLE
PROMISSORY NOTE
|
$5,000,000.00
|
March
12, 2009
|
|
Parsippany,
NJ
|
For value
received, UCA Services, Inc., d/b/a Netfabric Technologies, Inc., a New Jersey
corporation (the “Company”), promises
to pay to Fortify Infrastructure Services, Inc., a Delaware
corporation (the “Holder”), the
principal sum of Five Million Dollars ($5,000,000.00). Interest shall
accrue from the date of this Note on the unpaid principal amount at a rate equal
to eight percent (8%) per annum, compounded annually. This Note is subject to
the following terms and conditions.
1. Maturity. Unless converted as
provided in Section 2, this Note will automatically mature and be due and
payable on the date which is six (6) months from the date of issuance (the
“Maturity
Date”). Interest shall accrue on this Note and shall be paid
monthly. Notwithstanding the foregoing, the entire unpaid principal sum of this
Note, together with accrued and unpaid interest thereon, shall become
immediately due and payable upon the insolvency of the Company, the commission
of any act of bankruptcy by the Company, the execution by the Company of a
general assignment for the benefit of creditors, the filing by or against the
Company of a petition in bankruptcy or any petition for relief under the federal
bankruptcy act or the continuation of such petition without dismissal for a
period of ninety (90) days or more, or the appointment of a receiver or trustee
to take possession of the property or assets of the Company.
2. Conversion.
(a) Investment
by the Holder. At the exclusive
option of Holder, the entire principal amount of and accrued and unpaid interest
on this Note shall be converted into shares of Series A Preferred Stock of the
Company (the “Equity
Securities”). The conversion price shall be at a price equal
to the price per share reflecting a valuation of the Company equal to Five
Million Dollars ($5,000,000.00), on an as-converted basis.
UCA
Services, Inc.
Secured Convertible Promissory
Note
(b) Mechanics
and Effect of Conversion. Holder shall
designate in writing its intention to convert this Note into Equity Securities
of the Company. Upon receiving such notice, the Company shall, within
two (2) days thereafter file a certificate of designation with the Secretary of
State of New Jersey, in substantially the form attached hereto as Exhibit A (the “Certificate of
Designation”), which sets forth the rights, preferences and privileges of
the Equity Securities to be issued to Holder hereunder. No fractional
shares of the Company’s capital stock will be issued upon conversion of this
Note. In lieu of any fractional share to which the Holder would
otherwise be entitled, the Company will pay to the Holder in cash the amount of
the unconverted principal and interest balance of this Note that would otherwise
be converted into such fractional share. Upon conversion of this Note
pursuant to this Section 2, the Holder shall surrender this Note, duly endorsed,
at the principal offices of the Company or any transfer agent of the
Company. At its expense, the Company will, as soon as practicable
thereafter, issue and deliver to such Holder, at such principal office, a
certificate or certificates for the number of shares to which such Holder is
entitled upon such conversion, together with an other securities and property to
which the Holder is entitled upon such conversion under the terms of this Note,
including a check payable to the Holder for any cash amounts payable as
described herein. Upon conversion of this Note, the Company will be
forever released from all of its obligations and liabilities under this Note
with regard to that portion of the principal amount and accrued interest being
converted including without limitation the obligation to pay such portion of the
principal amount and accrued interest.
3. Payment.
(a) All
payments shall be made in lawful money of the United States of America at such
place as the Holder hereof may from time to time designate in writing to the
Company. Payment shall be credited first to the accrued interest then
due and payable and the remainder applied to principal.
(b) The
Company may not prepay this Note.
4. Transfer;
Successors and Assigns. The terms and
conditions of this Note shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Notwithstanding the
foregoing, neither party may assign, pledge, or otherwise transfer this Note
without the prior written consent of the other party, except for transfers to
affiliates. Subject to the preceding sentence, this Note may be
transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Company. Thereupon, a new note
for the same principal amount and interest will be issued to, and registered in
the name of, the transferee. Interest and principal are payable only
to the registered holder of this Note.
5. Governing
Law. This Note and all
acts and transactions pursuant hereto and the rights and obligations of the
parties hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of law.
6. Notices. Any notice
required or permitted by this Note shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by a
nationally-recognized delivery service (such as Federal Express or UPS), or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed to the party to be notified at
such party’s address as set forth below or as subsequently modified by written
notice.
UCA
Services, Inc.
Secured Convertible Promissory
Note
- 2
- -
7. Amendments
and Waivers. Any term of this
Note may be amended only with the written consent of the Company and the
Holder. Any
amendment or waiver effected in accordance with this Section 7 shall be
binding upon the Company, the Holder and each transferee of the
Note.
8. Officers
and Directors Not Liable. In no event shall
any officer or director of the Company be liable for any amounts due or payable
pursuant to this Note.
9. Security
Interest and Guarantee. This Note is
secured by (i) all of the assets of the
Company and Guarantor in accordance with a separate security agreement (the
“Security
Agreement”) of even date herewith between the Company and the Holder, and
(ii) all of equity securities of the Company currently owned or hereafter
acquired by the Guarantor in accordance with the provisions of a stock pledge
agreement (the “Pledge
Agreement”) of even date herewith. In case of an Event of
Default (as defined in the Security Agreement and the Pledge Agreement), the
Holder shall have the rights set forth in the Security Agreement and the Pledge
Agreement, respectively.
10. Action to
Collect on Note. If action is
instituted to collect on this Note, the Company promises to pay all costs and
expenses, including reasonable attorney’s fees, incurred in connection with such
action.
11. Note
Purchase Agreement. This Note shall
incorporate all of the terms and conditions contained the Note Purchase
Agreement of even date herewith.
[SIGNATURE
PAGE FOLLOWS]
UCA
Services, Inc.
Secured Convertible Promissory
Note
- 3
- -
|
COMPANY:
|
|
|
UCA
Services, Inc., d/b/a Netfabric
Technologies,
Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
|
299
Cherry Hill Road
|
|
Parsippany,
NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
GUARANTOR:
|
|
|
Netfabric
Holdings, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
|
299
Cherry Hill Road
|
|
Parsippany,
NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
AGREED
TO AND ACCEPTED:
Fortify
Infrastructure Services, Inc.
|
By:
|
/s/
|
|
Name:
Rajkumar Velagapudi, President and
CEO
|
|
|
Address:
|
2340
Walsh Avenue, Suite A
|
|
Santa
Clara, CA 95051
|
|
|
Facsimile
Number: 408-416-3237
|
|
SIGNATURE
PAGE TO SECURED CONVERTIBLE PROMISSORY NOTE
EXHIBIT
A
CERTIFICATE
OF DESIGNATION
- 5
- -
Dated: March
12, 2009
NETFABRIC
HOLDINGS, INC.
NETFABRIC
TECHNOLOGIES, INC., D/B/A UCA SERVICES, INC.
and
FORTIFY
INFRASTRUCTURE SERVICES, INC.
CREDIT
AGREEMENT
This Credit Agreement (the “Agreement”) is made
as of the 12th day of
March, 2009 (the “Effective Date”), by
and among NetFabric Technologies, Inc., d/b/a UCA Services, Inc., a New Jersey corporation
(the “Borrower”), NetFabric
Holdings Inc., a Delaware corporation (the “Guarantor”) and
Fortify Infrastructure Services, Inc., a Delaware corporation (the “Lender”). Borrower,
Guarantor and Lender are each referred to herein as a “Party” and collectively
as the “Parties.”
RECITALS
WHEREAS,
Borrower desires and has requested from Lender a credit
facility pursuant to which up to $1,000,000.00 can be borrowed from
time to time on a secured basis as set forth herein; and
WHEREAS, Lender is
willing to accommodate the request for credit upon and subject to the
terms, conditions and provisions of the this Agreement, provided, however, that
the obligations of Borrower hereunder are guaranteed in full by Guarantor as
provided herein.
AGREEMENT
In
consideration of the mutual promises contained herein and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement, intending to be legally bound, agree as follows:
|
1.
|
THE
LOAN
|
|
|
1.1
|
The
Lender hereby agrees to loan Borrower up to $1,000,000.00 upon the terms
and subject to the conditions of this Agreement (the “Loans”). The Loans, when
drawn pursuant to this Agreement, shall be made by wire transfer of
immediately funds.
|
|
|
1.2
|
Subject
to Section 1.4, the Loans can be drawn down by the Borrower from the
Lender at such times and in such amounts as may be reasonably required by
the Borrower for working capital
purposes.
|
|
|
1.3
|
Subject
to Section 1.4, the Loans may be drawn down by the Borrower by providing
written notice to the Lender in the form of Exhibit 1 hereto (a “Drawdown
Notice”). Each Drawdown Notice shall set forth (i) the
amount of the Loan to be drawn down (the “Drawdown Amount”), which
amount, in the aggregate, shall not be more than the amount provided in
Section 1.1, and (ii) the date (the “Drawdown Date”) on which
the Drawdown Amount is to be provided by the Lender to the Borrower, which
date shall not be less than five (5) Business Days following the date on
which the Lender receives the Drawdown
Notice.
|
|
|
1.4
|
The
Lender shall not be obligated to provide any part of the Loan pursuant to
a Drawdown Notice if an Event of Default (as defined below) has
occurred.
|
|
2.
|
THE
LOAN NOTES
|
The Loans
shall be evidenced by notes issued by the Borrower to the Lender substantially
in the form of Exhibit 2 hereto (the “Loan Notes”). A Loan
Note shall be issued by the Borrower to the Lender on the date of the advance by
the Lender of a Loan pursuant hereto.
|
3.
|
PURPOSE
OF THE LOANS
|
The
Borrower shall utilize all amounts borrowed by it under this Agreement to meet
its working capital requirements.
|
4.
|
INTEREST
|
Any
amounts borrowed under this Agreement shall bear interest at a rate of eight
percent (8%) per annum, compounded annually.
|
5.
|
REPAYMENT
|
All
amounts borrowed (principal and accrued interest) under this Agreement will
automatically mature and be due and payable on the third (3rd)
anniversary of the Effective Date (the “Maturity
Date”). Subject to the provisions of the Loan Notes, interest
shall accrue, at a rate of eight percent (8%) per annum, from the date specified
in the Loan Note on the principal balance specified therein but shall not be due
and payable until the Maturity Date. Notwithstanding the foregoing, the entire
unpaid principal sum of the Loans, together with accrued and unpaid interest
thereon, shall become immediately due and payable upon the insolvency of the
Borrower, the commission of any act of bankruptcy by the Borrower, the execution
by the Borrower of a general assignment for the benefit of creditors, the filing
by or against the Borrower of a petition in bankruptcy or any petition for
relief under the federal bankruptcy act or the continuation of such petition
without dismissal for a period of ninety (90) days or more, or the appointment
of a receiver or trustee to take possession of the property or assets of the
Borrower.
|
6.
|
SECURITY
AND GUARANTY
|
The
indebtedness represented by the Loan Notes and the Convertible Promissory Note
of even date herewith (the “Note”) and all of the
Borrower’s obligations arising under (a) the Note, (b) the convertible note
purchase agreement by and among Borrower, Lender and Guarantor of even date
herewith (the “Note Purchase
Agreement”) and (c) and Loan Notes shall be secured by (i) all of the
assets of the Borrower and the Guarantor in accordance with the provisions of
the security agreement of even date herewith (the “Security Agreement”), and (ii)
a pledge by the Guarantor of all of the equity securities of the Borrower
currently owned or hereafter acquired by the Guarantor (the “Shares”) in accordance with
the provisions of a stock pledge agreement of even date herewith (the “Pledge
Agreement”). Notwithstanding the foregoing, upon the close of
the Acquisition (as defined below), Guarantor shall be released from its
obligations hereunder.
|
7.
|
OPTION
AGREEMENT
|
In
connection with the execution of this Agreement, the Note, the Security
Agreement and the Pledge Agreement, the Guarantor and the Lender shall enter
into an option agreement (the “Option Agreement”) of even
date herewith, pursuant to which Guarantor shall grant to the Lender the option
to purchase the Shares in accordance with the terms and conditions set forth in
the Option Agreement (the “Acquisition”).
|
8.
|
MAJORITY
STOCKHOLDER PROXY.
|
This
Agreement, the Option Agreement, the Security Agreement, the Pledge Agreement,
the Operating Plan, the Note and the Note Purchase Agreement are collectively
referred to herein as the “Transaction Agreements.” In
connection with the transactions contemplated by the Option Agreement, Guarantor
shall obtain and deliver to the Lender a stockholder agreement and irrevocable
proxy (the “Proxy”) from
the Guarantor’s stockholders holding at least 51% of the outstanding stock (the
“Majority Stockholders”)
of the Guarantor, evidencing the consent by the Majority Stockholders to the
Acquisition and the related transactions contemplated by the Transaction
Agreements.
|
9.
|
CURRENCY
|
The Loans
shall be made in United States dollars and all payments under the Loan Notes
shall be in United States dollars.
|
10.
|
COVENANTS
|
The
Borrower covenants and agrees that, until payment in full of all amounts payable
by the Borrower hereunder:
|
|
10.1
|
promptly
after the Borrower knows that any Event of Default has occurred, the
Borrower shall deliver to the Lender a notice thereof describing the same
in reasonable detail and, together with such notice or as soon thereafter
as possible, a description of the action that the Borrower has taken or
proposes to take with respect thereto;
and
|
|
|
10.2
|
the
Borrower shall: (i) preserve and maintain its legal existence
and all of its material rights, privileges, licenses and franchises; (ii)
comply with the requirements of all applicable laws, rules, regulations
and orders of governmental or regulatory authorities; (iii) pay and
discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior
to the date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves are
being maintained; and (iv) keep adequate records and books of account, in
which complete entries will be made in accordance with generally accepted
accounting principles consistently
applied.
|
|
|
10.3
|
As
long as any portion of the Loans is outstanding, and except as
contemplated in the Transaction Agreements, the Borrower shall not,
without the prior written consent of the Lender incur any indebtedness or
obligation in excess of Twenty Five Thousand Dollars ($25,000.00) or act
as a guarantor or surety for any indebtedness or obligation for any party
(including Guarantor).
|
|
|
10.4
|
As
long as any portion of the Loans is outstanding, the Borrower shall
provide the Lender with (i) monthly unaudited financial statements
(balance sheet, statement of operations and statement of cash flows), and
(ii) upon Lender’s request, the right to review and inspect the Borrower’s
books and records provided however that Lender shall give the Borrower
forty-eight (48) hours notice of such
request.
|
|
|
10.5
|
As
long as any portion of the Loans is outstanding, the Borrower shall not
remit any dividends or make any distribution of cash or property to the
Guarantor with respect to the stock of the Borrower or otherwise make any
advance to Guarantor.
|
|
11.
|
EVENTS
OF DEFAULT.
|
|
|
11.1
|
The
Borrower shall fail to pay as and when due any principal or interest under
the Note or this Agreement.
|
|
|
11.2
|
If
the Borrower or the Guarantor shall materially breach or default in
connection with any of the representations, warranties, covenants or
obligations contained in the Transaction
Agreements.
|
|
|
11.3
|
If
the Borrower makes an assignment for the benefit of creditors generally,
offers a composition or extension to creditors, or makes or sends notice
of an intended bulk sale of any business or assets now or hereafter owned
or conducted by the Borrower.
|
|
|
11.4
|
Upon
the commencement of any action for the dissolution or liquidation of the
Borrower, or the commencement of any case or proceeding for reorganization
or liquidation of the Borrower’s debts under Title 11 of the United States
Code as now or hereafter in effect, or any successor statute, or any other
state or federal law, now or hereafter enacted for the relief of debtors,
whether instituted by or against the Borrower; provided, however, that
the Borrower shall have sixty (60) days to obtain the dismissal or
discharge of any involuntary proceeding filed against
it.
|
|
|
11.5
|
Upon
the appointment of a receiver, liquidator, custodian, trustee or similar
official or fiduciary for the Borrower or for a material portion of any
property of the Borrower.
|
|
12.
|
REPRESENTATIONS AND WARRANTIES
OF BORROWER
|
In this
Agreement, any reference to any event, change, condition or effect being “material” with
respect to any entity or group of entities means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of such entity or group of
entities. In this Agreement, any reference to a “Material Adverse Effect” with
respect to any entity or group of entities means any event, change or effect
that, when taken individually or together with all other adverse changes and
effects, is or is reasonably likely to be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of or prospects of such entity and its subsidiaries, taken as a whole,
or to prevent or materially delay consummation of the transactions contemplated
under this Agreement or otherwise to prevent such entity and its subsidiaries
from performing their obligations under this Agreement.
In this
Agreement, any reference to “knowledge” means an individual
will be deemed to have knowledge of a particular fact or other matter if: (i)
that individual is actually aware of that fact or matter; or (ii) a prudent
individual could be expected to discover or otherwise become aware of that fact
or matter in the course of conducting a reasonable comprehensive investigation
regarding the accuracy of any representation or warranty contained in this
Agreement. A party (that is not an individual) will be deemed to have
knowledge of a particular fact or other matter if any individual who is serving
as a director, officer, executive or manager, partner, executor or trustee of
that party (or in any similar capacity) has, or at any time had, knowledge of
that fact or other matter (as set forth in (i) and (ii) of this definition), and
any such individual (and any individual party to this Agreement) will be deemed
to have conducted a reasonably comprehensive investigation regarding the
accuracy of the representations and warranties made herein by that party or
individual.
Except as
disclosed in a document of the same date as this Agreement and delivered by the
Borrower to Lender prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the “Borrower Disclosure
Schedule”), the Borrower represents and warrants to Lender as of the
Effective Date:
|
|
12.1
|
Organization
Standing and Power; Subsidiaries. The Borrower is a
corporation duly organized, validly existing and in good standing under
the laws of the State of New Jersey. The Borrower has the
requisite corporate power and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted, except
where the failure to have such power, authority and governmental approvals
would not, individually or in the aggregate, have a Material Adverse
Effect on the Borrower. The Borrower is duly qualified or
licensed as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of the properties owned, leased
or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or
licensed and in good standing that would not, individually or in the
aggregate, have a Material Adverse Effect on the
Borrower. Except as set forth on Schedule 12.1,
the Borrower currently has no subsidiaries and has had no subsidiaries
since its inception. Other than the transactions contemplated
in the Transaction Agreements, there are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible
securities or other commitments or agreements of any character relating to
the issued or unissued capital stock of the Borrower, or otherwise
obligating the Borrower to issue, transfer, sell, purchase, redeem or
otherwise acquire any such securities. Except as set forth in
the Borrower Disclosure Schedule, the Borrower does not directly or
indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, limited liability company,
joint venture or other business association or
entity.
|
|
|
12.2
|
Certificate of
Incorporation and Bylaws. The Borrower has delivered a
true and correct copy of its Certificate of Incorporation and Bylaws or
other charter documents, each as amended to date, to
Lender. The Borrower is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
|
|
|
12.3
|
Capital
Structure. The authorized capital stock of the Borrower
consists of 5,000,000 shares of Common Stock, of which there are issued
and outstanding as of the close of business on the date hereof, 3,000,000
shares of Common Stock. There are no other outstanding
shares of capital stock or voting securities and no outstanding
commitments to issue any shares of capital stock or voting securities of
the Borrower. All outstanding shares of the Borrower’s capital
stock are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not
subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of the Borrower or any
agreement to which the Borrower is a party or by which it is
bound. All outstanding shares of the Borrower’s Common Stock
were issued in compliance with all applicable federal and state securities
laws. As of the close of business on the Effective Date, the
Company has not reserved, issued or granted any shares of Common Stock for
issuance to employees and consultants pursuant to a Company Stock Plan
(the “Plan”). Except
(i) for the rights created pursuant to this Agreement, (ii) for
the Borrower’s right to repurchase any unvested shares under the
Plan and (iii) as set forth in this Section 12.3, there are no options,
warrants, calls, rights, commitments, agreements or arrangements of any
character to which the Borrower is a party or by which the Borrower is
bound relating to the issued or unissued capital stock of the Borrower or
obligating the Borrower to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares
of capital stock of the Borrower or obligating the Borrower to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend
or enter into any such option, warrant, call, right, commitment or
agreement. There are no contracts, commitments or agreements
relating to voting, purchase or sale of the Borrower’s capital stock (i)
between or among the Borrower and any of its stockholders and (ii) between
or among any of the Borrower’s stockholders. True and complete
copies of all agreements and instruments relating to or issued under the
Plan have been made available to Lender and such agreements and
instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to
Lender.
|
|
|
12.4
|
Authority. The
Borrower has all requisite corporate power and authority to enter into
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
authorized by all necessary corporate action on the part of the
Borrower. The Borrower’s Board of Directors has approved this
Agreement and all of Borrowers obligations hereunder. This
Agreement has been duly executed and delivered by the Borrower and
assuming due authorization, execution and delivery by Lender, constitutes
the valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its
terms.
|
|
|
12.5
|
No
Conflicts; Required Filings and
Consents.
|
|
|
(a)
|
The
execution and delivery of this Agreement by the Borrower does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit
under (i) any provision of the Certificate of Incorporation or Bylaws
of the Borrower or any of its subsidiaries, as amended, or (ii) any
material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Borrower or any of its properties or
assets.
|
|
|
(b)
|
No
consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”) is
required by or with respect to the Borrower in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable federal and state securities laws; and
(ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material
Adverse Effect on the Borrower and would not prevent, or materially alter
or delay any of the transactions contemplated by this Agreement and the
Transaction Agreements.
|
|
|
12.6
|
Financial
Statements. Section
12.6 of the Borrower Disclosure Schedule includes a true, correct and
complete copy of the Borrower’s audited financial statements for the
fiscal year ended December 31, 2006, a draft copy of the Borrower’s
audited financial statements for the fiscal year ended December 31, 2007,
a draft of its unaudited financial statements (balance sheet, statement of
operations and statement of cash flows) on a consolidated basis as of
September 30, 2008, and a draft of the Borrower’s unaudited financial
statements (balance sheet, statement of operations and statement of cash
flows) as of December 31, 2008 (collectively, the “Financial
Statements”). The Financial Statements have been
prepared in accordance with generally accepted accounting principles
(“GAAP”) (except
that the unaudited financial statements do not have notes thereto) applied
on a consistent basis throughout the periods indicated and with each
other. The Financial Statements accurately set out and describe the
financial condition and operating results of the Borrower as of the dates,
and for the periods, indicated therein, subject to normal year-end audit
adjustments. The Borrower maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP.
|
|
|
12.7
|
Absence
of Undisclosed Liabilities. Except as set forth in
Schedule 12.7, the Borrower has no material obligations or liabilities of
any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the Balance Sheet
for the period ended December 31, 2008 (the “Borrower Balance
Sheet”), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Borrower Balance Sheet
under GAAP, (iii) those incurred in the ordinary course of business
since the Borrower Balance Sheet Date and consistent with past practice,
and (iv) those incurred for professional fees in connection with the
execution of this Agreement.
|
|
|
12.8
|
Absence
of Certain Changes. Except as set forth in Section 12.8
of the Borrower Disclosure Schedule, since December 31, 2008 ( the “Borrower Balance Sheet
Date”) there has not been, occurred or arisen
any:
|
|
|
(a)
|
transaction
by the Borrower, other than transactions in connection with elimination of
inter company accounts, except in the ordinary course of business as
conducted on that date and consistent with past
practices;
|
|
|
(b)
|
amendments
or changes to the Certificate of Incorporation or Bylaws of the Borrower
(except as contemplated by the Transaction
Agreements);
|
|
|
(c)
|
capital
expenditure or commitment by the Borrower in any individual amount
exceeding $10,000.00 or in the aggregate, exceeding
$50,000.00;
|
|
|
(d)
|
destruction
of, damage to, or loss of any assets (including, without limitation,
intangible assets), business or customer of the Borrower (whether or not
covered by insurance) which would constitute a Material Adverse
Effect;
|
|
|
(e)
|
labor
trouble or claim of wrongful discharge or other unlawful labor practice or
action;
|
|
|
(f)
|
change
in accounting methods or practices (including any change in depreciation
or amortization policies or rates, any change in policies in making or
reversing accruals) by the
Borrower;
|
|
|
(g)
|
revaluation
by the Borrower of any of its
assets;
|
|
|
(h)
|
declaration,
setting aside, or payment of a dividend or other distribution in respect
to the capital stock of the Borrower, or any direct or indirect
redemption, purchase or other acquisition by the Borrower of any of its
capital stock, except repurchases of the Borrower Common Stock from
terminated Borrower employees or consultants at the original per share
purchase price of such shares;
|
|
|
(i)
|
increase
in the salary or other compensation payable or to become payable by the
Borrower to any officers, directors, employees or consultants of the
Borrower, except in the ordinary course of business consistent with past
practice, or the declaration, payment, or commitment or obligation of any
kind for the payment by the Borrower of a bonus or other additional salary
or compensation to any such person except as otherwise contemplated by
this Agreement, or other than as set forth in Section 12.16 below, the
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation,
the granting of stock options, stock appreciation rights, performance
awards), stock purchase or other employee benefit
plan;
|
|
|
(j)
|
sale,
lease, license or other disposition of any of the assets or properties of
the Borrower, except in the ordinary course of business and not in excess
of $10,000.00, in the aggregate;
|
|
|
(k)
|
termination
or material amendment of any material contract, agreement or license
(including any distribution agreement) to which the Borrower is a party or
by which it is bound;
|
|
|
(l)
|
loan
by the Borrower to any person or entity, or guaranty by the Borrower of
any loan, except for (i) travel or similar advances made to employees
in connection with their employment duties in the ordinary course of
business, consistent with past practice and (ii) trade payables not
in excess of $50,000.00 in the aggregate and in the ordinary course of
business, consistent with past
practice;
|
|
|
(m)
|
waiver
or release of any right or claim of the Borrower, except for inter company
balances and doubtful allowances, including any write-off or other
compromise of any account receivable of the Borrower in excess of
$50,000.00 in the aggregate;
|
|
|
(n)
|
commencement
or notice or threat of commencement of any lawsuit or proceeding against
or, to the Borrower’s or the Borrower’s officers’ or directors’ knowledge,
investigation of the Borrower or its
affairs;
|
|
|
(o)
|
to
Borrower’s knowledge, notice of any claim of ownership by a third party of
the Borrower’s Intellectual Property (as defined in Section 12.13 below)
or, to the Borrower’s knowledge, of infringement by the Borrower of any
third party’s Intellectual Property
rights;
|
|
|
(p)
|
issuance
or sale by the Borrower of any of its shares of capital stock, or
securities exchangeable, convertible or exercisable therefor, or of any
other of its securities, other than as contemplated by the Transaction
Agreements;
|
|
|
(q)
|
material
changes in pricing or royalties set or charged by the Borrower to its
customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the
Borrower;
|
|
|
(r)
|
to
Borrower’s knowledge, any event or condition of any character that has or
could reasonably be expected to have a Material Adverse Effect on the
Borrower; or
|
|
|
(s)
|
agreement
by the Borrower, or any of its officers or employees on its behalf to do
any of the things described in the preceding clauses (a) through (r)
(other than negotiations with Lender and its representatives regarding the
transactions contemplated by this
Agreement).
|
|
|
12.9
|
Litigation. Except
as set forth on Schedule 12.9,
there is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the Borrower’s knowledge, threatened against
the Borrower or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the
Borrower. There is no judgment, decree or order against the
Borrower or, to the Borrower’s knowledge, any of its directors or officers
(in their capacities as such), that could prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or
that could reasonably be expected to have a Material Adverse Effect on the
Borrower. All litigation to which the Borrower is a party (or,
to the knowledge of the Borrower, threatened to become a party) is
disclosed in the Borrower Disclosure
Schedule.
|
|
12.10
|
Restrictions
on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon the Borrower which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of the Borrower, any
acquisition of property by the Borrower or the overall conduct of business
by the Borrower as currently conducted or as proposed to be conducted by
the Borrower. The Borrower has not entered into any agreement
under which it is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the
market.
|
|
12.11
|
Permits;
Borrower Products;
Regulation.
|
|
|
(a)
|
The
Borrower is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders necessary for the Borrower to own,
lease and operate its properties or to carry on its business as it is now
being conducted (the “Borrower
Authorizations”) and no suspension or cancellation of any Borrower
Authorization is pending or, to the Borrower’s knowledge, threatened,
except where the failure to have, or the suspension or cancellation of,
any Borrower Authorization would not have a Material Adverse Effect on the
Borrower. The Borrower is not in conflict with, or in default
or violation of, (i) any laws applicable to the Borrower or by which
any property or asset of the Borrower is bound or affected, (ii) any
Borrower Authorization or (iii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which the Borrower is a party or by which the Borrower or
any property or asset of the Borrower is bound or affected, except for any
such conflict, default or violation that would not, individually or in the
aggregate have a Material Adverse Effect on the
Borrower.
|
|
|
(b)
|
Except
as would not have a Material Adverse Effect on the Borrower, since January
31, 2009, there have been no written notices, citations or decisions by
any governmental or regulatory body that any product produced,
manufactured, marketed or distributed at any time by the Borrower or by
any agent on behalf of the Borrower (the “Products”) is defective
or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the knowledge of the
Borrower, the Borrower has complied in all material respects with the
laws, regulations, policies, procedures and specifications with respect to
the design, manufacture, labeling, testing and inspection of the
Products. Except as disclosed in Section 12.11(b) of the
Borrower Disclosure Schedule, since January 31, 2009, there have been no
recalls, field notifications or seizures ordered or, to the Borrower’s
knowledge, threatened by any such governmental or regulatory body with
respect to any of the Products.
|
|
|
(c)
|
The
Borrower has obtained, in all countries where either the Borrower or any
agent of the Borrower is marketing or has marketed the Borrower’s
Products, all applicable licenses, registrations, approvals, clearances
and authorizations required by local, state or federal agencies in such
countries regulating the safety, effectiveness and market clearance of the
Products currently or previously marketed by the Borrower or its agents in
such countries, except for any such failures as would not, individually or
in the aggregate, have a Material Adverse Effect on the
Borrower. The Borrower has identified and made available for
examination by Lender all information relating to regulation of its
Products, including licenses, registrations, approvals, permits, device
listing, inspections, the Borrower’s recalls and product actions, audits
and the Borrower’s ongoing field tests. The Borrower has
identified in writing to Lender all international locations where
regulatory information and documents are
kept.
|
|
12.12
|
Title
to Property.
|
|
|
(a)
|
The
Borrower has good and marketable title to all of its properties, interests
in properties and assets, real and personal, reflected in the Borrower
Balance Sheet or acquired after the Borrower Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed
of since the Borrower Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of
title, liens and easements as do not and will not materially detract from
or interfere with the use of the properties subject thereto or affected
thereby, or otherwise materially impair business operations involving such
properties and (iii) liens securing debt which is reflected on the
Borrower Balance Sheet. The plants, property and equipment of
the Borrower that are used in the operations of its business are in good
operating condition and repair. All properties used in the
operations of the Borrower are reflected in the Borrower Balance Sheet to
the extent GAAP requires the same to be reflected. Section
12.12(a) of the Borrower Disclosure Schedule sets forth a true, correct
and complete list of all real property owned or leased by the Borrower,
the name of the lessor, the date of the lease and each amendment thereto
and the aggregate annual rental and other fees payable under such
lease. Such leases are in good standing, are valid and
effective in accordance with their respective terms, and there is not
under any such leases any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a
default).
|
|
|
(b)
|
Section
12.12(b) of the Borrower Disclosure Schedule also sets forth a true,
correct and complete list of all equipment (the “Equipment”) owned or
leased by the Borrower, and such Equipment is, taken as a whole,
(i) adequate for the conduct of the Borrower’s business, consistent
with its past practice and (ii) in good operating condition (except
for ordinary wear and tear).
|
|
12.13
|
Intellectual
Property.
|
|
|
(a)
|
The
Borrower owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, service marks, copyrights, and any
applications for any of the foregoing, net lists, schematics, industrial
models, inventions, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material (“Intellectual Property”)
that are used or proposed to be used in the business of the Borrower as
currently conducted or as proposed to be conducted by the Borrower, except
to the extent that the failure to have such rights has not had and could
not reasonably be expected to have a Material Adverse Effect on the
Borrower.
|
|
|
(b)
|
Section
12.13(b) of the Borrower Disclosure Schedule lists (i) all patents
and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights, and
mask work rights, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been
issued or registered or in which any application for such issuance and
registration has been filed, (ii) all licenses, sublicenses and other
agreements to which the Borrower is a party and pursuant to which any
person is authorized to use any Intellectual Property, and (iii) all
licenses, sublicenses and other agreements as to which the Borrower is a
party and pursuant to which the Borrower is authorized to use any third
party patents, trademarks or copyrights, including software (“Third Party Intellectual
Property Rights”) which are incorporated in, are, or form a part of
any products of the Borrower that are, individually or in the aggregate,
material to the business of the Borrower. The Borrower is not
in violation of any license, sublicense or agreement described in Section
12.13(b) of the Borrower Disclosure Schedule. The execution and
delivery of this Agreement by the Borrower and the consummation of the
transactions contemplated hereby, will neither cause the Borrower to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or
agreement. Except as set forth in Section 12.13(b) of the
Borrower Disclosure Schedule, the Borrower is the sole and exclusive owner
or licensee of, with all right, title and interest in and to (free and
clear of any liens), the Intellectual Property, and has sole and exclusive
rights (and is not contractually obligated to pay any compensation to any
third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which
Intellectual Property is being
used.
|
|
|
(c)
|
To
the Borrower’s knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Intellectual Property
rights of the Borrower, any trade secret material to the Borrower or any
Intellectual Property right of any third party to the extent licensed by
or through the Borrower, by any third party, including any employee or
former employee of the Borrower. The Borrower has not entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders arising in the ordinary course of
business.
|
|
|
(d)
|
The
Borrower is not or will not be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights, the breach of which would have a Material Adverse Effect on the
Borrower.
|
|
|
(e)
|
To
the Borrower’s knowledge, all patents, registered trademarks, service
marks and copyrights held by the Borrower are valid and existing and there
is no assertion or claim (or basis therefor) challenging the validity of
any Intellectual Property of the Borrower. The Borrower has not
been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party. Neither the conduct of the business of the Borrower as
currently conducted or contemplated nor the manufacture, sale, licensing
or use of any of the products of the Borrower as now manufactured, sold or
licensed or used, nor the use in any way of the Intellectual Property in
the manufacture, use, sale or licensing by the Borrower of any products
currently proposed, infringes on or will infringe or conflict with, in any
way, any license, trademark, trademark right, trade name, trade name
right, patent, patent right, industrial model, invention, service mark or
copyright of any third party that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the
Borrower. All registered trademarks, service marks and
copyrights held by the Borrower are valid and subsisting. To
the Borrower’s knowledge, no third party is challenging the ownership by
the Borrower, or validity or effectiveness of, any of the Intellectual
Property. The Borrower has not brought any action, suit or
proceeding for infringement of Intellectual Property or breach of any
license or agreement involving Intellectual Property against any third
party. There are no pending, or to the best of the Borrower’s knowledge,
threatened interference, re-examinations, oppositions or nullities
involving any patents, patent rights or applications therefor of the
Borrower, except such as may have been commenced by the
Borrower. There is no breach or violation of or threatened or
actual loss of rights under any licenses to which the Borrower is a
party.
|
|
|
(f)
|
The
Borrower has secured valid written assignments from all consultants and
employees who contributed to the creation or development of Intellectual
Property of the rights to such contributions that the Borrower does not
already own by operation of law.
|
|
|
(g)
|
The
Borrower has taken all necessary and appropriate steps to protect and
preserve the confidentiality of all Intellectual Property not otherwise
protected by patents, patent applications or copyright (“Confidential
Information”). The Borrower has a policy requiring each
of its employees and contractors to execute proprietary information and
confidentiality agreements substantially in the Borrower’s standard forms
and all current and former employees and contractors of the Borrower have
executed such an agreement. All use, disclosure or
appropriation of Confidential Information owned by the Borrower by or to a
third party has been pursuant to the terms of a written agreement between
the Borrower and such third party. All use, disclosure or
appropriation of Confidential Information not owned by the Borrower has
been pursuant to the terms of a written agreement between the Borrower and
the owner of such Confidential Information, or is otherwise
lawful.
|
|
12.14
|
Environmental
Matters.
|
|
|
(a)
|
The
following terms shall be defined as
follows:
|
|
|
(i)
|
“Environmental
and Safety Laws” shall mean any
federal, state or local laws, ordinances, codes, regulations, rules,
policies and orders, as each may be amended from time to time, that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to,
or list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants; which regulate
the manufacture, handling, transport, use, treatment, storage or disposal
of Hazardous Materials (as defined below) or materials containing
Hazardous Materials; or which are intended to assure the protection,
safety and good health of employees, workers or other persons, including
the public.
|
|
|
(ii)
|
“Hazardous
Materials”
shall mean any toxic or hazardous substance, material or waste or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials and
wastes defined in or regulated under any Environmental and Safety Laws;
petroleum or petroleum products including crude oil or any fractions
thereof; natural gas, synthetic gas, or any mixtures thereof; radon;
asbestos; or any other pollutant or
contaminant.
|
|
|
(iii)
|
“Property” shall mean all real
property leased or owned by the Borrower either currently or in the
past.
|
|
|
(iv)
|
“Facilities” shall mean all
buildings and improvements on the Property of the
Borrower.
|
|
|
(b)
|
The
Borrower represents and warrants as follows: (i) no methylene
chloride or asbestos is contained in or has been used at or released from
the Facilities; (ii) all Hazardous Materials and wastes have been
disposed of in accordance with all Environmental and Safety Laws; and
(iii) the Borrower has received no notice (verbal or written) of any
non-compliance of the Facilities or of its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative
actions or suits are pending or threatened relating to Hazardous Materials
or a violation of any Environmental and Safety Laws; (v) the Borrower
is not a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”), or state
analog statute, arising out of events occurring prior to the date hereof;
(vi) there has not been in the past, and there is not now, any
contamination, disposal, spilling, dumping, incineration, discharge,
storage, treatment or handling of Hazardous Materials on, under or
migrating to or from the Facilities or Property (including without
limitation, soils and surface and ground waters); (vii) there have
not been in the past, and are not now, any underground tanks or
underground improvements at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil wells;
(viii) there are no polychlorinated biphenyls (“PCBs”) deposited,
stored, disposed of or located on the Property or Facilities or any
equipment on the Property containing PCBs at levels in excess of 50 parts
per million; (ix) there is no formaldehyde on the Property or in the
Facilities, nor any insulating material containing urea formaldehyde in
the Facilities; (x) the Facilities and the Borrower’s uses and
activities therein have at all times complied with all Environmental and
Safety Laws; (xi) the Borrower has all the permits and licenses
required to be issued and is in full compliance with the terms and
conditions of those permits; and (xii) the Borrower is not liable for
any off-site contamination under any Environmental and Safety
Laws.
|
|
12.15
|
Taxes.
|
|
|
(a)
|
For
purposes of this Section 12.15 and other provisions of this Agreement
relating to Taxes, the following definitions shall
apply:
|
|
|
(i)
|
The
term “Taxes” shall
mean all taxes, however denominated, including any interest, penalties or
other additions to tax that may become payable in respect thereof,
(A) imposed by any federal, territorial, state, local or foreign
government or any agency or political subdivision of any such government,
which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales
and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, withholding taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers’ compensation, and other Tax of any kind
whatsoever, which are required to be paid, withheld or collected, in an
aggregate amount in excess of $10,000, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any
liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another
person.
|
|
|
(ii)
|
The
term “Returns”
shall mean all reports, estimates, declarations of estimated tax,
information statements and returns required to be filed in connection with
any Taxes, including information returns with respect to backup
withholding and other payments to third
parties.
|
|
|
(b)
|
Except
as set forth on Schedule 12.15,
all Returns required to be filed by or on behalf of the Borrower have been
duly filed on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of the Borrower under Section
6655 of the Code or comparable provisions of state, local or foreign law,
have been paid in full on a timely basis, and no other Taxes are payable
by the Borrower with respect to items or periods covered by such Returns
(whether or not shown on or reportable on such Returns). The
Borrower has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and
backup withholding in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of the Borrower
with respect to Taxes, other than liens for Taxes not yet due and payable
or for Taxes that the Borrower is contesting in good faith through
appropriate proceedings. The Borrower has not at any time been a member of
an affiliated group of corporations filing consolidated, combined or
unitary income or franchise tax returns for a period for which the statute
of limitations for any Tax potentially applicable as a result of such
membership has not expired other than an affiliated group the common
parent of which is the Guarantor.
|
|
|
(c)
|
The
amount of the Borrower’s liabilities for unpaid Taxes for all periods
through the date of the Financial Statements does not, in the aggregate,
exceed the amount of the current liability accruals for Taxes reflected on
the Financial Statements, and the Financial Statements properly accrue in
accordance with GAAP all liabilities for Taxes of the Borrower payable
after the date of the Financial Statements attributable to transactions
and events occurring prior to such date. No liability for Taxes
of the Borrower has been incurred or material amount of taxable income has
been realized (or prior to and including the date hereof will be incurred
or realized) since such date other than in the ordinary course of
business.
|
|
|
(d)
|
Lender
has been furnished by the Borrower with true and complete copies of
(i) all relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of the
Borrower relating to Taxes, and (ii) all federal, state and foreign
income or franchise tax returns and state sales and use tax Returns for or
including the Borrower for all periods since six (6) full years
preceding the date of this
Agreement.
|
|
|
(e)
|
No
audit of the Returns of or including the Borrower by a government or
taxing authority is in process, threatened or, to the Borrower’s
knowledge, pending (either in writing or orally, formally or
informally). No deficiencies exist or have been asserted
(either in writing or orally, formally or informally) or are expected to
be asserted with respect to Taxes of the Borrower, and the Borrower has
not received notice (either in writing or orally, formally or informally)
nor does it expect to receive notice that it has not filed a Return or
paid Taxes required to be filed or paid. The Borrower is not a
party to any action or proceeding for assessment or collection of Taxes,
nor to the Borrower’s knowledge, has such event been asserted or
threatened (either in writing or orally, formally or informally) against
the Borrower, or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns
of the Borrower. The Borrower has disclosed on its federal and
state income and franchise tax returns all positions taken therein that
could give rise to a substantial understatement penalty within the meaning
of Code Section 6662 or comparable provisions of applicable state tax
laws.
|
|
|
(f)
|
The
Borrower is not (nor has it ever been) a party to any tax sharing
agreement. Since April 16, 1997, the Borrower has not been a
distributing corporation or a controlled corporation in a transaction
described in Section 355(a) of the
Code.
|
|
|
(g)
|
The
Borrower is not, nor has it been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. The Borrower is not a “consenting corporation” under
Section 341(f) of the Code. The Borrower has not entered into
any compensatory agreements with respect to the performance of services
which payment thereunder would result in a non-deductible expense to the
Borrower pursuant to Section 280G or 162(m) of the Code or an excise tax
to the recipient of such payment pursuant to Section 4999 of the
Code. The Borrower has not agreed to, nor is it required to
make, any adjustment under Code Section 481(a) by reason of, a change in
accounting method, and the Borrower will not otherwise have any income
reportable for a period ending after the date hereof attributable to a
transaction or other event (e.g., an installment sale) occurring prior to
the date hereof with respect to which the Borrower received the prior
economic benefit. The Borrower is not, nor has it been, a
“reporting corporation” subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations
thereunder.
|
|
|
(h)
|
The
Borrower Disclosure Schedule contains accurate and complete information
regarding the Borrower’s net operating losses for federal and each state
tax purposes. The Borrower has no net operating losses or
credit carryovers or other tax attributes currently subject to limitation
under Sections 382, 383, or 384 of the
Code.
|
|
|
(i)
|
The
Borrower shall not have any liability for Taxes of any person other than
the Borrower under (a) Treas. Reg. Section 1502-6 (or any similar
provision of state, local, or foreign law), (b) as a transferee or
successor, (c) by contract, or (d)
otherwise.
|
|
|
(j)
|
With
respect to each option and share of restricted stock, the Borrower and the
Stockholders warrant and represent that each such option has been granted
with an exercise price no lower than “fair market value” (determined in
accordance with Treas. Reg. Section 1.409A-1(b)(vi)) as of the grant date
and that each such grant does not provide for a deferral of compensation
under Code section 409A. Each Borrower Employee Plan (as defined in
Section 12.16 hereof) that is a “nonqualified deferred compensation plan”
(as defined in Code Section 409A(d)(1)) has been operated since January 1,
2005, in good faith compliance with Code Section 409A and the rules and
regulations issued thereunder. No Borrower Employee Plan that
is a “nonqualified deferred compensation plan” has been materially
modified (as determined under Treas. Reg. Section 1.409A-6) after October
3, 2004. The Borrower is not a party to, and is not otherwise
obligated under, any contract, plan or arrangement that provides for the
gross-up of the Tax imposed by Section 409A(a)(1)(B) of the
Code.
|
|
12.16
|
Employee
Benefit Plans.
|
|
|
(a)
|
Section
12.16(a) of the Borrower Disclosure Schedule lists, with respect to the
Borrower and any trade or business (whether or not incorporated) which is
treated as a single employer with the Borrower (an “ERISA Affiliate”) within
the meaning of Section 414(b), (c), (m) or (o) of the Code,
(i) all employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), (ii) each
loan to a non-officer employee in excess of $10,000, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria
benefit (Code Section 125) or dependent care (Code Section 129),
life insurance or accident insurance plans, programs or arrangements,
(iii) all contracts and agreements relating to employment that
provide for annual compensation in excess of $100,000 and all severance
agreements, with any of the directors, officers or employees of the
Borrower (other than, in each case, any such contract or agreement that is
terminable by the Borrower at will or without penalty or other adverse
consequence), (iv) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements,
(v) other fringe or employee benefit plans, programs or arrangements
that apply to senior management of the Borrower and that do not generally
apply to all employees, and (vi) any current or former employment or
executive compensation or severance agreements, written or otherwise, as
to which unsatisfied obligations of the Borrower of greater than $50,000
remain for the benefit of, or relating to, any present or former employee,
consultant or director of the Borrower (together, the “Borrower Employee
Plans”).
|
|
|
(b)
|
The
Borrower has furnished to Lender a copy of each of the Borrower Employee
Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and
other authorizing documents, and, to the extent still in its possession,
any material employee communications relating thereto) and has, with
respect to each Borrower Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the
last three plan years. Any Borrower Employee Plan intended to
be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service an opinion letter or favorable
determination letter as to its initial qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation; may rely on an opinion letter issued to a
prototype plan sponsor with respect to a standardized plan adopted by the
Borrower in accordance with the requirements for such reliance; or has
applied to the Internal Revenue Service for such a determination letter
(or has time remaining to apply for such a determination letter) prior to
the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply
for such determination letter and to make any amendments necessary to
obtain a favorable determination with respect to all periods since the
date of adoption of such Borrower Employee Plan. The Borrower
has also furnished Lender with the most recent Internal Revenue Service
determination letter issued with respect to each such the Borrower
Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the
tax-qualified status of any the Borrower Employee Plan subject to Code
Section 401(a).
|
|
|
(c)
|
Except
as set forth in Section 12.16 of the Borrower Disclosure Schedule,
(i) none of Borrower Employee Plans promises or provides retiree
medical or other retiree welfare or life insurance benefits to any person;
(ii) there has been no “prohibited transaction,”
as such term is defined in Section 406 of ERISA and Section 4975 of the
Code, and not exempt under Section 408 of ERISA or Section 4975 of the
Code, with respect to any Borrower Employee Plan, which could reasonably
be expected to have, in the aggregate, a Material Adverse Effect;
(iii) each Borrower Employee Plan has been administered in accordance
with its terms and in compliance with the requirements prescribed by any
and all statutes, rules and regulations (including ERISA and the Code),
except as would not have, in the aggregate, a Material Adverse Effect, and
the Borrower or ERISA Affiliate have performed all obligations required to
be performed by them under, are not in any material respect in default,
under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Borrower Employee Plans;
(iv) neither the Borrower nor any ERISA Affiliate is subject to any
liability or penalty under Sections 4976 through 4980D of the Code or
Title I of ERISA with respect to any of the Borrower Employee Plans;
(v) all material contributions required to be made by the Borrower or
any ERISA Affiliate to any Borrower Employee Plan have been made on or
before their due dates and a reasonable amount has been accrued for
contributions to each Borrower Employee Plan for the current plan years;
(vi) with respect to each Borrower Employee Plan, no “reportable event” within
the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no
Borrower Employee Plan is covered by, and neither the Borrower nor any
ERISA Affiliate has incurred or expects to incur any direct or indirect
liability under, arising out of or by operation of Title IV of ERISA
in connection with the termination of, or an employee’s withdrawal from,
any Borrower Employee Plan or other retirement plan or arrangement, and no
fact or event exists that could give rise to any such liability, or under
Section 412 of the Code; and (viii) no compensation paid or
payable to any employee of the Borrower has been, or will be,
non-deductible by reason of application of Section 162(m) or 280G of the
Code. With respect to each Borrower Employee Plan subject to
ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, the Borrower has prepared in good
faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such the Borrower
Employee Plan. No suit, administrative proceeding, action or
other litigation has been brought, or to the best knowledge of the
Borrower is threatened, against or with respect to any such the Borrower
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither the Borrower nor any ERISA
Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any “multiemployer plan” as
defined in Section 3(37) of
ERISA.
|
|
|
(d)
|
With
respect to each Borrower Employee Plan, the Borrower has complied with
(i) the applicable health care continuation and notice provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the
regulations thereunder or any similar applicable state law, (ii) the
applicable requirements of the Health Insurance Portability Amendments Act
(“HIPAA”) and the
regulations thereunder and (iii) the applicable requirements of the
Family Medical Leave Act of 1993 and the regulations thereunder or any
similar applicable state law, except to the extent that failure to comply
would not, in the aggregate, have a Material Adverse
Effect.
|
|
|
(e)
|
Except
as set forth on Schedule 12.16(e), the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or
former employee or other service provider of the Borrower or any ERISA
Affiliate to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute or bonus), except
as expressly provided in this Agreement, or (ii) accelerate the time
of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service
provider.
|
|
|
(f)
|
There
has been no amendment to, written interpretation or announcement (whether
or not written) by the Borrower or any ERISA Affiliate relating to, or
change in participation or coverage under, any the Borrower Employee Plan
which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most
recent fiscal year included in the Borrower’s financial
statements.
|
|
12.17
|
Effect
on Other Certain Agreements . Except as set forth on
Schedule
12.17, neither the execution and delivery of this Agreement or the
Transaction Agreements nor the consummation of the transactions
contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or
employee of the Borrower, (ii) materially increase any benefits
otherwise payable by the Borrower or (iii) result in the acceleration
of the time of payment or vesting of any such
benefits.
|
|
12.18
|
Employee
Matters.
|
|
|
(a)
|
Except
as set forth in Schedule 12.18,
the Borrower is in compliance in all material respects with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and
occupational safety and health and employment practices, and is not
engaged in any unfair labor practice. There are no pending
claims against the Borrower under any workers compensation plan or policy
or for long term disability. The Borrower does not have any
material obligations under COBRA or any similar state law with respect to
any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or, to the
Borrower’s knowledge, threatened, between the Borrower and any of its
employees or former employees, which controversies have or could
reasonably be expected to have a Material Adverse Effect on the
Borrower. The Borrower is not a party to any collective
bargaining agreement or other labor unions contract nor does the Borrower
know of any activities or proceedings of any labor union or organize any
such employees. The Borrower has not incurred any liability
under, and has complied in all respects with, the Worker Adjustment
Retraining Notification Act (the “WARN Act”), and no fact
or event exists that could give rise to liability under the WARN
Act. Section 12.18 of the Borrower Disclosure Schedule contains
a list of all employees who are currently on a leave of absence (whether
paid or unpaid), the reasons therefor, the expected return date, and
whether reemployment of such employee is guaranteed by contract or
statute, and a list of all employees who have requested a leave of absence
to commence at any time after the date of this Agreement, the reason
therefor, the expected length of such leave, and whether reemployment of
such employee is guaranteed by contract or
statute.
|
|
|
(b)
|
The
Company is in compliance with all federal, state and local laws governing
the employment and sponsorship of foreign nationals employed by the
Company and is not required to make any filing with or give any notice to,
or to obtain any consent from, any governmental body in connection with
employment by the Company of any employee who is a foreign national. There
is no pending legal proceeding, and no governmental agency has threatened
to commence any legal proceeding, against the Company or that challenges,
or that may have the effect of preventing, delaying, making illegal or
otherwise interfering with the employment by the Company of any employee
who is a foreign national. There is no order, writ, injunction
or decree which has been entered against the Company preventing or
delaying the employment by the Company of any employee who is a foreign
national.
|
|
12.19
|
Material
Contracts.
|
|
|
(a)
|
Section
12.19(a) of the Borrower Disclosure Schedule contains a list of all
contracts and agreements to which the Borrower is a party and that are
material to the business, results of operations, or condition (financial
or otherwise), of the Borrower (such contracts, agreements and
arrangements as are required to be set forth in Section 12.19(a) of the
Borrower Disclosure Schedule being referred to herein collectively as the
“Material
Contracts”). Material Contracts shall include, without
limitation, the following and shall be categorized in the Borrower
Disclosure Schedule as follows:
|
|
|
(i)
|
each
contract and agreement (other than routine purchase orders and pricing
quotes in the ordinary course of business covering a period of less than
one year) for the purchase of inventory, spare parts, other materials or
personal property with any supplier or for the furnishing of services to
the Borrower under the terms of which the
Borrower: (A) paid or otherwise gave consideration of more
than $5,000.00 in the aggregate during the calendar year ended
December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $5,000.00 in the aggregate over the remaining
term of such contract or (C) cannot be canceled by the Borrower
without penalty or further payment of less than
$5,000.00;
|
|
|
(ii)
|
each
customer contract and agreement (other than routine purchase orders,
pricing quotes with open acceptance and other tender bids, in each case,
entered into in the ordinary course of business and covering a period of
less than one year) to which the Borrower is a party which
(A) involved consideration of more than $5,000.00 in the aggregate
during the calendar year ended December 31, 2008, (B) is likely
to pay or otherwise give consideration of more than $5,000.00 in the
aggregate over the remaining term of such contract or (C) cannot be
canceled by the Borrower without penalty or further payment of less than
$5,000.00;
|
|
|
(iii)
|
(A)
all distributor, manufacturer’s representative, broker, franchise, agency
and dealer contracts and agreements to which the Borrower is a party
(specifying on a matrix, in the case of distributor agreements, the name
of the distributor, product, territory, termination date and exclusivity
provisions) and (B) all sales promotion, market research, marketing
and advertising contracts and agreements to which the Borrower is a party
which: (1) involved consideration of more than $5,000.00
in the aggregate during the calendar year ended December 31, 2008 or
(2) are likely to involve consideration of more than $5,000.00 in the
aggregate over the remaining term of the
contract;
|
|
|
(iv)
|
all
management contracts with independent contractors or consultants (or
similar arrangements) to which the Borrower is a party and which
(A) involved consideration or more than $5,000.00 in the aggregate
during the calendar year ended December 31, 2008, (B) is likely
to pay or otherwise give consideration of more than $5,000.00 in the
aggregate over the remaining term of such contract, or (C) cannot be
canceled by the Borrower without penalty or further payment of less than
$5,000.00;
|
|
|
(v)
|
all
contracts and agreements (excluding routine checking account overdraft
agreements involving petty cash amounts) under which the Borrower has
created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness or under which the Borrower has imposed (or may
impose) a security interest or lien on any of their respective assets,
whether tangible or intangible, to secure
indebtedness;
|
|
|
(vi)
|
all
contracts and agreements that limit the ability of the
Borrower to compete in any line of business or with any person
or in any geographic area or during any period of time, or to solicit any
customer or client;
|
|
|
(vii)
|
all
contracts and agreements between or among the Borrower, on the one hand,
and any affiliate of the Borrower, on the other
hand;
|
|
|
(viii)
|
all
contracts and agreements to which the Borrower is a party under which it
has agreed to supply products to a customer at specified prices, whether
directly or through a specific distributor, manufacturer’s representative
or dealer; and
|
|
|
(ix)
|
all
other contracts or agreements (A) which are material to the Borrower
or the conduct of their respective businesses or (B) the absence of
which would have a Material Adverse Effect on the Borrower or
(C) which are believed by the Borrower to be of unique value even
though not material to the business of the
Borrower.
|
|
|
(b)
|
Except
as would not, individually or in the aggregate, have a Material Adverse
Effect on the Borrower, each Borrower license and each Material Contract,
is a legal, valid and binding agreement, and none of the Borrower licenses
or Material Contracts is in default by its terms or has been canceled by
the other party; the Borrower is not in receipt of any claim of default
under any such agreement; and the Borrower does not anticipate any
termination of or change to, or receipt of a proposal with respect to, any
such agreement as a result of the transactions contemplated by this
Agreement. The Borrower has furnished Lender with true and
complete copies of all such agreements together with all amendments,
waivers or other changes thereto.
|
|
12.20
|
Interested
Party Transactions. Except as set forth in Schedule 12.20,
the Borrower is not directly or indirectly indebted to any director,
officer, employee or agent of the Borrower (each of the foregoing, an
“Interested
Party”) (except for amounts due as normal salaries and bonuses and
in reimbursement of ordinary expenses), nor is the Borrower directly or
indirectly indebted to any members of the immediate families of any
Interested Party, and no such Interested Parties or members of their
immediate families are directly or indirectly indebted to the Borrower.
No
Interested Parties have any direct or indirect ownership or financial
interest in any firm or corporation with which the Borrower is affiliated
or with which the Borrower has a business relationship, or any firm or
corporation which competes with the Borrower except that Interested
Parties and members of their families may own stock in (but not exceeding
two percent (2%) of the outstanding capital stock of) any publicly traded
companies that may compete with the Borrower. No Interested
Party or any members of their immediate families are, directly or
indirectly, interested in any material contract with the
Borrower. The Borrower is not a guarantor or indemnitor of any
indebtedness of any other person, firm or
corporation.
|
|
12.21
|
Insurance. The
Borrower has policies of insurance and bonds of the type and in the
amounts customarily carried by persons conducting businesses or owning
assets similar to those of the Borrower. There is no material
claim pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies
or bonds. All premiums due and payable under all such policies
and bonds have been paid and the Borrower is otherwise in compliance with
the terms of such policies and bonds. The Borrower has no
knowledge of any threatened termination of, or material premium increase
with respect to, any of such
policies.
|
|
12.22
|
Compliance
With Laws. The Borrower has complied with, is not in
violation of, and has not received any notices of violation with respect
to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of
its business, except for such violations or failures to comply as could
not reasonably be expected to have a Material Adverse Effect on the
Borrower.
|
|
12.23
|
Minute
Books. The minute books of the Borrower made available
to Lender contain a complete summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation
of the Borrower through the date of this Agreement, and reflect all
transactions referred to in such minutes accurately in all material
respects.
|
|
12.24
|
Complete
Copies of Materials. The Borrower has delivered or made
available true and complete copies of each document which has been
requested by Lender or its counsel in connection with their legal and
accounting review of the Borrower.
|
|
12.25
|
Brokers’
and Finders’ Fees. The Borrower has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or
finders’ fees or agents’ commissions or investment bankers’ fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
|
|
12.26
|
Board
and Stockholder Approval. The Board of Directors of the
Borrower has unanimously approved this Agreement and the Transaction
Agreements and the transactions contemplated hereunder and
thereunder. Guarantor has obtained Proxies from the Majority
Stockholders.
|
|
12.27
|
Inventory. The
inventories shown on the Financial Statements or thereafter acquired by
the Borrower consist of items of a quantity and quality usable or salable
in the ordinary course of business. Since January 31, 2009, the Borrower
has continued to replenish inventories in a normal and customary manner
consistent with past practice. The Borrower has not received
written or oral notice that it will experience in the foreseeable future
any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw
materials, supplies or component products required for the manufacture,
assembly or production of its products. The values at which
inventories are carried reflect the inventory valuation policy of the
Borrower, which is consistent with its past practice and in accordance
with GAAP applied on a consistent basis. Due provision has been
made on the books of the Borrower in the ordinary course of business
consistent with past practices to provide for all slow-moving, obsolete,
or unusable inventories at their estimated useful scrap values and such
inventory reserves are adequate to provide for such slow-moving, obsolete
or unusable inventory and inventory
shrinkage.
|
|
12.28
|
Accounts
Receivable.
|
|
|
(a)
|
The
Borrower has made available to Lender a list of all accounts receivable of
the Borrower reflected on the Financial Statements (“Accounts Receivable”)
along with a range of days elapsed since
invoice.
|
|
|
(b)
|
All
Accounts Receivable of the Borrower arose in the ordinary course of
business and are carried at values determined in accordance with GAAP
consistently applied. No person has any lien on any of such
Accounts Receivable and no request or agreement for deduction or discount
has been made with respect to any of such Accounts
Receivable.
|
|
|
(c)
|
All
of the inventories of the Borrower reflected in the Financial Statements
and the Borrower’s books and records on the date hereof were purchased,
acquired or produced in the ordinary and regular course of business and in
a manner consistent with the Borrower’s regular inventory practices and
are set forth on the Borrower’s books and records in accordance with the
practices and principles of the Borrower consistent with the method of
treating said items in prior periods. None of the inventory of
the Borrower reflected on the Financial Statements or on the Borrower’s
books and records as of the date hereof (in either case net of the reserve
therefor) is obsolete, defective or in excess of the needs of the business
of the Borrower reasonably anticipated for the normal operation of the
business consistent with past practice and outstanding customer
contracts. The presentation of inventory on the Financial
Statements conforms to GAAP and such inventory is stated at the lower of
cost or net realizable value.
|
|
12.29
|
Customers
and Suppliers. As of the date hereof, no customer which
individually accounted for more than ten percent (10%) of the Borrower’s
gross revenues during the twelve (12) month period preceding the date
hereof, and no supplier of the Borrower, has canceled or otherwise
terminated, or made any written threat to the Borrower to cancel or
otherwise terminate its relationship with the Borrower, or has at any time
on or after December 31, 2008 decreased materially its services or
supplies to the Borrower in the case of any such supplier, or its usage of
the services or products of the Borrower in the case of such customer, and
to the Borrower’s knowledge, no such supplier or customer intends to
cancel or otherwise terminate its relationship with the Borrower or to
decrease materially its services or supplies to the Borrower or its usage
of the services or products of the Borrower, as the case may
be. From and after the date hereof, no customer which
individually accounted for more than ten percent (10%) of the Borrower’s
gross revenues during the twelve (12) month period preceding the date
hereof, has canceled or otherwise terminated, or made any written threat
to the Borrower to cancel or otherwise terminate, for any reason,
including without limitation the consummation of the transactions by this
Agreement, its relationship with the Borrower, and to the Borrower’s
knowledge, no such customer intends to cancel or otherwise terminate its
relationship with the Borrower or to decrease materially its usage of the
services or products of the Borrower. The Borrower has not
knowingly breached, so as to provide a benefit to the Borrower that was
not intended by the parties, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of the
Borrower.
|
|
12.30
|
Third
Party Consents. The Borrower has obtained all consents
or approvals needed from any third party in order to effect this Agreement
or any of the transactions contemplated
hereby.
|
|
12.31
|
No
Commitments Regarding Future Products. The
Borrower has made no sales to customers that are contingent upon providing
future enhancements of existing products, to add features not presently
available on existing products or to otherwise enhance the performance of
its existing products (other than beta or similar arrangements pursuant to
which the Borrower’s customers from time to time test or evaluate
products). The products the Borrower has delivered to customers
substantially comply with published specifications for such products and
the Borrower has not received material complaints from customers about its
products that remain unresolved. Section 12.31 of the Borrower
Disclosure Schedule accurately sets forth a complete list of products in
development (exclusive of mere enhancements to and additional features for
existing products).
|
|
12.32
|
Representations
Complete. None of the representations or warranties made
by the Borrower in this Agreement or in any attachment hereto, including
the Borrower Disclosure Schedule, or certificate furnished by the Borrower
pursuant to this Agreement, when all such documents are read together in
their entirety, contains any untrue statement of a material fact, or omits
to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which
they were made, not misleading.
|
|
12.33
|
Each
of the representations and warranties set out in this Section 12 are made
by the Borrower to the Lender on (i) the date of this Agreement, (ii) the
date of each Drawdown Notice and (iii) each Drawdown
Date.
|
|
13.
|
REPRESENTATIONS
AND WARRANTIES OF THE GUARANTOR
|
|
|
13.1
|
Organization,
Good Standing and Qualification. The
Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now conducted
and as proposed to be conducted.
|
|
|
13.2
|
Authorization. All
corporate action on the part of the Guarantor, its officers, directors and
stockholders necessary for the authorization, execution and delivery of
the Transaction Agreements and the performance of all obligations of the
Guarantor hereunder and thereunder has been taken or will be taken prior
to the date hereof. The Transaction Agreements, when executed
and delivered by the Guarantor, shall constitute valid and legally binding
obligations of the Guarantor, enforceable against the Guarantor in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other
laws of general application affecting enforcement of creditors’ rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable
remedies.
|
|
14.
|
REPRESENTATIONS
AND WARRANTIES OF THE LENDER
|
|
|
14.1
|
Organization,
Good Standing and Qualification. The Lender
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted and as
proposed to be conducted.
|
|
|
14.2
|
Authorization. All
corporate action on the part of the Lender, its officers, directors and
stockholders necessary for the authorization, execution and delivery of
the Transaction Agreements and the performance of all obligations of the
Lender hereunder and thereunder has been taken or will be taken prior to
the date hereof. The Transaction Agreements, when executed and
delivered by the Lender, shall constitute valid and legally binding
obligations of the Lender, enforceable against the Lender in accordance
with their terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors’ rights generally,
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable
remedies.
|
|
15.
|
CONDITIONS
OF THE LENDER’S OBLIGATIONS
HEREUNDER
|
The
obligations of the Lender to the Borrower under this agreement this Agreement
are subject to the fulfillment of each of the following conditions, unless
otherwise waived:
|
|
15.1
|
Execution
and Delivery of Transaction Agreements. The Borrower
and/or the Guarantor (if applicable) shall have executed and delivered the
Transaction Agreements to the
Lender.
|
|
|
15.2
|
Representations
and Warranties. The
representations and warranties of the Borrower contained in
Section 12 and the representations of the Guarantor contained in
Section 13 shall be true on and as of (i) the Effective Date, (ii) the
date specified in any Drawdown Notice, and (iii) the Drawdown
Date.
|
|
|
15.3
|
Qualifications. All
authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be obtained and effective as of (i) the
Effective Date, (ii) the date specified in any Drawdown Notice, and (iii)
the Drawdown Date.
|
|
16.
|
CONDITIONS
OF BORROWERS OBLIGATIONS HEREUNDER
|
The
obligations of the Borrower to the Lender under this agreement this Agreement
are subject to the fulfillment of each of the following conditions, unless
otherwise waived:
|
|
16.1
|
Representations
and Warranties. The
representations and warranties of the Borrower contained in
Section 14 shall be true on and as of the Effective
Date.
|
|
|
16.2
|
Qualifications. All
authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be obtained and effective as of the
Effective Date.
|
|
|
16.3
|
Delivery
of Form W-8 BEN or Form W-9. The Lender shall have
completed and delivered to the Borrower a validly executed IRS Form W-8
BEN or IRS Form W-9, as applicable.
|
|
17.
|
NOTICES
|
Any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or forty-eight (48) hours
after being deposited in the U.S. mail as certified or registered mail with
postage prepaid, if such notice is addressed to the party to be notified at such
party’s address or facsimile number as set forth below or as
subsequently modified by written notice.
|
18.
|
COUNTERPARTS
|
This
Agreement may be executed in counterpart by the Parties on separate counterparts
each of which when executed and delivered shall constitute an original both such
counterparts together constituting but one and the same
instrument.
|
19.
|
CAPTIONS
|
The
captions to the Sections in this Agreement are inserted for convenience of
reference only and shall not be considered a part of or affect the construction
or interpretation of this Agreement.
|
20.
|
ASSIGNMENT
|
The
Borrower shall not be entitled to assign its rights or transfer its obligations
hereunder.
|
21.
|
AMENDMENT
AND WAIVER
|
Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Parties, or in the case of a waiver, by the Party against whom the waiver is
to be effective. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
|
22.
|
GOVERNING
LAW
|
This
Agreement and all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
in accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of law.
|
23.
|
SEVERABILITY
|
Wherever
possible, each provision of this Agreement a shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
|
24.
|
ENTIRE
AGREEMENT
|
This
Agreement and the Loan Notes constitute the complete agreement between the
Parties with respect to the subject matter thereof and may not be modified,
altered or amended except as set forth in Section 21.
[SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their respective officers hereunto duly authorized as of the
date first above written.
|
UCA
Services, Inc., d/b/a NetFabric Technologies, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
299
Cherry Hill Road
|
|
|
Parsippany, NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
GUARANTOR:
|
|
|
NetFabric
Holdings, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
299
Cherry Hill Road
|
|
|
Parsippany, NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
LENDER:
|
|
|
Fortify
Infrastructure Services, Inc.
|
|
|
By:
|
/s/
|
| Rajkumar Velagapudi, President | |
|
Address:
2340
Walsh Avenue,
|
|
|
Suite A
|
|
|
Santa Clara, CA 95051
|
|
|
Facsimile
Number: 408-416-3237
|
|
SIGNATURE
PAGE TO CREDIT AGREEMENT
EXHIBIT
1
Drawdown
Notice
|
To:
|
Fortify Infrastructure
Services, Inc. (the
“Lender”)
|
|
Copy:
|
NetFabric Holdings, Inc. (the
“Guarantor”)
|
|
From:
|
UCA Services, Inc. (the
“Borrower”)
|
|
Date:
|
[ ]
|
This
notice is being delivered pursuant to Section 1.3 of the Credit Agreement dated
February __, 2009 between the Lender, the Borrower and Guarantor (the
“Credit
Agreement”).
Terms not
defined herein shall have the same meaning as set out in the Credit
Agreement.
The
Borrower hereby gives the Lender notice that, pursuant to the Credit Agreement
and upon the terms and subject to the conditions contained therein, the Borrower
desires to draw down the following amount:
|
(a)
|
Drawdown
Amount:
|
[$ ]
|
|
(b)
|
Drawdown
Date:
|
[ ]
|
The
undersigned hereby certifies to the Lender that the representations and
warranties made by the Borrower to the Lender in Section 13 of the Credit
Agreement are true, complete and accurate in all respects as of the date hereof
and shall be true, complete and accurate in all respects as of the Drawdown
Date.
The
Borrower has caused this Drawdown Notice to be executed and delivered by an
officer duly authorized as of the date first above written.
|
UCA
Services, Inc.
|
|
|
By
|
|
|
Name:
Fahad Syed
|
|
|
Title:
CEO
|
|
EXHIBIT
2
[FORM OF
PROMISSORY NOTE]
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
SECURED PROMISSORY
NOTE
|
$[,000,000.00]
|
March
__, 2009
|
Parsippany,
NJ
This note
is entered into pursuant to that certain credit agreement dated March __, 2009
(the “Note”),
by and among, NetFabric Technologies, Inc., d/b/a UCA Services, Inc., a New
Jersey corporation (the “Company”), NetFabric
Holdings, Inc., a Delaware corporation (the “Guarantor”) and
Fortify Infrastructure Services, Inc., a Delaware corporation (the “Holder”) (the “Credit
Agreement.”) For value received, the Company promises to pay
to Holder, the principal sum of [ ]Dollars
[($,000,000.00)]. Interest shall accrue from the date of this Note on
the unpaid principal amount at a rate equal to eight percent (8%) per annum,
compounded annually. This Note is subject to
the following terms and conditions.
1. Maturity. This Note will
automatically mature and be due and payable on the third (3rd)
anniversary of the Effective Date (as defined in the Credit Agreement) (the
“Maturity
Date”). Interest shall accrue on this Note but shall not be due and
payable until the Maturity Date. Notwithstanding the foregoing, the entire
unpaid principal sum of this Note, together with accrued and unpaid interest
thereon, shall become immediately due and payable upon the insolvency of the
Company, the commission of any act of bankruptcy by the Company, the execution
by the Company of a general assignment for the benefit of creditors, the filing
by or against the Company of a petition in bankruptcy or any petition for relief
under the federal bankruptcy act or the continuation of such petition without
dismissal for a period of ninety (90) days or more, or the appointment of a
receiver or trustee to take possession of the property or assets of the
Company.
2. Payment.
(a) All
payments shall be made in lawful money of the United States of America at such
place as the Holder hereof may from time to time designate in writing to the
Company. Payment shall be credited first to the accrued interest then
due and payable and the remainder applied to principal.
(b) The
Company may not prepay this Note.
3. Transfer;
Successors and Assigns. The terms and
conditions of this Note shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Notwithstanding the
foregoing, neither party may assign, pledge, or otherwise transfer this Note
without the prior written consent of the other party, except for transfers to
affiliates. Subject to the preceding sentence, this Note may be
transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Company. Thereupon, a new note
for the same principal amount and interest will be issued to, and registered in
the name of, the transferee. Interest and principal are payable only
to the registered holder of this Note.
4. Governing
Law. This Note and all
acts and transactions pursuant hereto and the rights and obligations of the
parties hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of law.
5. Notices. Any notice
required or permitted by this Note shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by a
nationally-recognized delivery service (such as Federal Express or UPS), or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed to the party to be notified at
such party’s address as set forth below or as subsequently modified by written
notice.
6. Amendments
and Waivers. Any term of this
Note may be amended only with the written consent of the Company and the
Holder. Any
amendment or waiver effected in accordance with this Section 6 shall be
binding upon the Company, the Holder and each transferee of the
Note.
7. Officers
and Directors Not Liable. In no event shall
any officer or director of the Company be liable for any amounts due or payable
pursuant to this Note.
8. Security
Interest and Guarantee. This Note is
secured by (i) all of the assets of the
Company and Guarantor in accordance with a separate security agreement (the
“Security
Agreement”) of even date herewith between the Company and the Holder, and
(ii) all of equity securities of the Company currently owned or hereafter
acquired by the Guarantor in accordance with the provisions of a stock pledge
agreement (the “Pledge
Agreement”) of even date herewith. In case of an Event of
Default (as defined in the Security Agreement and the Pledge Agreement), the
Holder shall have the rights set forth in the Security Agreement and the Pledge
Agreement, respectively.
9. Action to
Collect on Note. If action is
instituted to collect on this Note, the Company promises to pay all costs and
expenses, including reasonable attorney’s fees, incurred in connection with such
action.
10. Credit
Agreement. This Note shall
incorporate all of the terms and conditions contained the Credit
Agreement.
|
COMPANY:
|
|
|
UCA
Services, Inc., d/b/a NetFabric Technologies, Inc.
|
|
|
By:
|
|
|
Fahad
Syed, CEO
|
|
|
Address: 299
Cherry Hill Road
|
|
|
Parsippany, NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
GUARANTOR:
|
|
|
NetFabric
Holdings, Inc.
|
|
|
By:
|
|
|
Fahad
Syed, CEO
|
|
|
Address: 299
Cherry Hill Road
|
|
|
Parsippany, NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
AGREED
TO AND ACCEPTED:
Fortify
Infrastructure Services, Inc.
|
By:
|
Name:
Rajkumar Velagapudi, President and CEO
|
Address:
|
2340
Walsh Avenue, Suite A
|
|
Santa
Clara, CA 95051
|
Facsimile
Number: 408-416-3237
SECURITY
AGREEMENT
This
Security Agreement (the “Agreement”) is made
as of March 12, 2009 by and among NetFabric Holdings, Inc., a Delaware
corporation (“NetFabric”) and
NetFabric Technologies, Inc. d/b/a UCA Services, Inc., a New Jersey corporation
and a wholly-owned subsidiary of NetFabric (“UCA”), in favor of
Fortify Infrastructure Services, Inc., a Delaware corporation (the “Secured
Party”). NetFabric and UCA are sometimes referred to herein as
“Debtor” and
collectively as “Debtors.”
RECITALS
Secured
Party has (i) purchased from UCA a Secured Promissory Note of even date herewith
(the “Note”)
pursuant to which the Debtor is borrowing $5,000,000.00 from Secured Party in
accordance with the terms and conditions set forth in the Note and the
Convertible Note Purchase Agreement of even date herewith (the “Note Purchase
Agreement”), and (ii) agreed to extend a credit facility to UCA in an
amount not to exceed $1,000,000.00 from which UCA may draw down for working
capital purposes pursuant to the terms and conditions set forth in the Credit
Agreement of even date herewith (the “Credit
Agreement”). NetFabric has guaranteed the obligations of UCA
under each of the Note, the Note Purchase Agreement and the Credit Agreement on
the terms set forth therein and herein and as set forth in that certain Stock
Pledge Agreement of even date herewith (the “Pledge
Agreement”).
In
addition to the foregoing, NetFabric and the Secured Party have entered into an
Option Agreement of even date herewith (the “Option Agreement”)
pursuant to which NetFabric has granted to Secured Party the option to purchase
all of the equity securities of UCA currently owned or hereafter acquired by
NetFabric on the terms and conditions set forth therein. The Note,
the Note Purchase Agreement, the Credit Agreement, the Pledge Agreement, the
Option Agreement and this Agreement are referred to herein as the “Transaction
Agreements.”
The
parties intend that UCA’s obligations to repay the Note and the amounts drawn
under the Credit Agreement, as well as UCA’s representation, warranties and
obligations under the Transaction Agreements, be secured by all of the assets of the
UCA. The parties further agree that Netfabic’s obligations under the
Transaction Agreements, as well as NetFabric’s guarantee of UCA’s obligations
thereunder, be secured by all of the assets of NetFabric. For the
avoidance of doubt, each of NetFabric and UCA shall be jointly and severally
liable of their respective obligations under this Agreement and the Transaction
Agreements.
AGREEMENT
In
consideration of the loan to UCA by Secured Party pursuant to the Note and the
Credit Agreement and for other good and valuable consideration, each Debtor
hereby agrees with the Secured Party as follows:
1. Grant of
Security Interest. To secure each
Debtor’s full and timely performance of all of obligations and liabilities to
the Secured Party pursuant to the Transaction Agreements (including, without
limitation, each Debtor’s obligation to timely pay the principal amount of, and
interest on, the Note and amounts drawn pursuant to the Credit Agreement) (the
“Obligations”),
each Debtor hereby grant to the Secured Party a continuing security interest
(the “Security
Interest”) in and to all of the property described on Exhibit A (in the
case of UCA) and Exhibit B (in the
case of NetFabric) to this Agreement (the “Collateral”). The
Security Interest shall be a first and prior interest in all of the
Collateral.
2. Covenants. Each Debtor
covenants and agrees with the Secured Party that, from and after the date of
this Agreement until the Obligations are paid or satisfied in full:
(a) Other
Liens. Except for the
Security Interest, such Debtor is the owner of the Collateral and will be the
owner of the Collateral hereafter acquired free from any adverse lien, security
interest or encumbrance, and such Debtor will defend the Collateral against the
claims and demands of all persons at any time claiming the same or any interest
therein. No financing statements covering any Collateral or any
proceeds thereof are on file in any public office.
(b) Further
Documentation.
(i) At any time and from
time to time, upon the written request of the Secured Party, and at the sole
expense of the Debtors, such Debtor will promptly and duly execute and deliver
such further instruments and documents and take such further action as the
Secured Party may reasonably request for the purpose of obtaining or preserving
the full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, filing any financing or continuation statements
under the Uniform Commercial Code in effect in any jurisdiction with respect to
the liens created hereby. Each Debtor also hereby authorizes the
Secured Party to file any such financing or continuation statement without the
signature of such Debtor to the extent permitted by applicable law. A
reproduction of this Agreement shall be sufficient as a financing statement (or
as an exhibit to a financing statement on form UCC-1) for filing in any
jurisdiction.
(ii) If any Collateral is at
any time in the possession or control of any warehouseman, bailee or such other
agents or processors, then each Debtor shall notify the Secured Party thereof
and, upon request by the Secured Party, shall obtain a bailee letter
acknowledged by the bailee that notifies such person of the Secured Party’s
Security Interest in and to such Collateral and instructs such person to hold
all such Collateral for the Secured Party’s account subject to the Secured
Party’s instructions, unless the Secured Party agrees in writing to waive such
bailee letter requirement. If at any time any Collateral is located
in any operating facility of the Debtors that is leased by such Debtor, then
such Debtor shall notify the Secured Party thereof and, upon request by the
Secured Party, shall obtain written landlord lien waivers or subordinations, in
form and substance reasonably satisfactory to the Secured Party, that waive or
subordinate all present and future liens which the owner or lessor of such
premises may be entitled to assert against the Collateral.
(iii) From time to time,
each Debtor shall, upon the Secured Party’s request, execute and deliver
confirmatory written instruments pledging the Collateral to the Secured Party,
but such Debtor’s failure to do so shall not affect or limit any Security
Interest or any other rights of the Secured Party in and to the Collateral with
respect to such Debtor. So long as there are amounts owing in respect
of the Note and the Credit Agreement and until all Obligations have been
satisfied in full, the Secured Party’s Security Interest in and to the
Collateral shall continue in full force and effect in and to all
Collateral.
(c) Indemnification. Each Debtor
agrees to defend, indemnify and hold harmless the Secured Party against any and
all liabilities, costs and expenses (including, without limitation, legal fees
and expenses): (i) with respect to, or resulting from, any delay in paying,
any and all excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral, (ii) with respect to, or
resulting from, any delay in complying with any law, rule, regulation or order
of any governmental authority applicable to any of the Collateral or
(iii) in connection with any of the transactions contemplated by this
Agreement.
(d) Maintenance
of Records. Each Debtor will
keep and maintain at its own expense complete and satisfactory records of the
Collateral.
(e) Inspection
Rights. The Secured Party
shall have full access during normal business hours, and upon reasonable prior
written notice, to all the books, correspondence and other records of each
Debtor relating to the Collateral. The Secured Party or its
representatives may examine such records and make photocopies or otherwise take
extracts from such records. Each Debtor agrees to render to the
Secured Party, at such Debtor’s expense, such clerical and other assistance as
may be reasonably requested with regard to the exercise of its rights pursuant
to this paragraph.
(f) Compliance
with Laws, etc. Each Debtor will comply in all material
respects with all laws, rules, regulations and orders of any governmental
authority applicable to any part of the Collateral or to the operation of the
Debtor’s business; provided, however, that such
Debtor may contest any such law, rule, regulation or order in any reasonable
manner which does not adversely affect the Secured Party’s rights or the
priority of its liens on the Collateral.
(g) Payment
of Obligations. Each Debtor will
pay promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or with respect to any its income or profits derived
from the Collateral, as well as all claims of any kind (including, without
limitation, claims for labor, materials and supplies) against or with respect to
the Collateral, except that no such charge need be paid if (i) the validity
of such charge is being contested in good faith by appropriate proceedings,
(ii) such proceedings do not involve any danger of the sale, forfeiture or
loss of any of the Collateral or any interest in the Collateral and
(iii) such charge is adequately reserved against on such Debtor’s books in
accordance with generally accepted accounting principles.
(h) Limitation
on Liens on Collateral. Each Debtor will
not create, incur or permit to exist, will defend the Collateral against, and
will take such other action as is necessary to remove, any lien or claim on or
to the Collateral, other than the Security Interest, and will defend the right,
title and interest of the Secured Party in and to any of the Collateral against
the claims and demands of all other persons.
(i) Limitations
on Dispositions of Collateral. Each Debtor will
not sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so.
(j)
Further
Identification of Collateral. Each Debtor will
furnish to the Secured Party from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Secured Party may reasonably request in writing, all
in reasonable detail and in form and substance reasonably acceptable to the
Secured Party, including, without limitation, copies of any reports,
certificates, appraisals or other documents prepared for, or on behalf of, any
lender to such Debtor, and with the delivery of each of the foregoing, a
certificate of such Debtor executed by an officer thereof certifying as to the
accuracy and completeness of the foregoing. If any such records or
reports regarding the Collateral are prepared by an accounting firm, each Debtor
hereby authorizes such service to deliver such records, reports, and related
documents to the Secured Party in accordance with the foregoing
provisions.
3. Secured
Party’s Appointment as Attorney-in-Fact.
(a) Powers. For purposes of
this Agreement, an “Event of Default”
shall have occurred if/upon:
(i) UCA
(or NetFabric) shall fail to pay as and when due any principal or interest under
the Note or the Credit Agreement.
(ii) UCA
or NetFabric shall breach or default in connection with any of the
representations, warranties, covenants or obligations contained the Transaction
Agreements.
(iii) UCA
or NetFabric makes an assignment for the benefit of creditors generally, offers
a composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or
conducted.
(iv) The
commencement of any action for the dissolution or liquidation of either UCA or
NetFabric, or the commencement of any case or proceeding for reorganization or
liquidation of the Company’s debts under Title 11 of the United States Code as
now or hereafter in effect, or any successor statute, or any other state or
federal law, now or hereafter enacted for the relief of debtors, whether
instituted by or against either Debtor; provided, however, that the
each Debtor shall have sixty (60) days to obtain the dismissal or discharge of
any involuntary proceeding filed against it.
(v)
The appointment of a receiver, liquidator, custodian, trustee
or similar official or fiduciary for the Debtors or for a material portion of
any property of the Debtors.
(vi) The
loss, theft, damage, destruction or write-down of any material portion of the
Collateral
(b) Powers. Each Debtor
hereby appoints the Secured Party and any officer or agent of the Secured Party,
with full power of substitution, as its attorney-in-fact with full irrevocable
power and authority in the place of such Debtor and in the name of such Debtor
or its own name, from time to time in the Secured Party’s discretion so long as
an Event of Default has occurred and is continuing, for the purpose of carrying
out the terms of this Agreement, to take any appropriate action and to execute
any instrument which may be necessary or desirable to accomplish the purposes of
this Agreement. Without limiting the foregoing, so long as an Event
of Default has occurred and is continuing, the Secured Party shall have the
right, without notice to, or the consent of, each Debtor, to do any of the
following on such Debtor’s behalf:
(i)
to pay or discharge any taxes or liens levied or placed on or threatened against
the Collateral;
(ii)
to direct any party liable for any payment under any of the Collateral to make
payment of any and all amounts due or to become due thereunder directly to the
Secured Party or as the Secured Party directs;
(iii) to
ask for or demand, collect, and receive payment of and receipt for, any payments
due or to become due at any time in respect of or arising out of any
Collateral;
(iv) to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to enforce any right in respect of any
Collateral;
(v) to
defend any suit, action or proceeding brought against such Debtor with respect
to any Collateral;
(vi)
to settle, compromise or adjust any suit, action or proceeding described in
subsection (v) above and to give such discharges or releases in connection
therewith as the Secured Party may deem appropriate;
(vii)
to assign any patent right included in the Collateral of each Debtor (along with
the goodwill of the business to which any such patent right pertains),
throughout the world for such term or terms, on such conditions, and in such
manner, as the Secured Party shall in its sole discretion determine;
and
(viii)
generally, to sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral and to take, at the Secured Party’s
option and the Debtors’ expense, any actions which the Secured Party deems
necessary to protect, preserve or realize upon the Collateral and the Secured
Party’s liens on the Collateral and to carry out the intent of this Agreement,
in each case to the same extent as if the Secured Party were the absolute owner
of the Collateral for all purposes.
Each
Debtor hereby ratifies whatever actions the Secured Party shall lawfully do or
cause to be done in accordance with this Section 3. This power of
attorney shall be a power coupled with an interest and shall be
irrevocable.
(c) No Duty
on Secured Party’s Part. The powers
conferred on the Secured Party by this Section 3 are solely to protect the
Secured Party’s interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither the Secured Party nor any of its officers,
directors, employees or agents shall, in the absence of willful misconduct or
gross negligence, be responsible to either Debtor for any act or failure to act
pursuant to this Section 3.
4. Performance
by Secured Party of Debtors’ Obligations. If either Debtor
fails to perform or comply with any of its agreements or covenants contained in
this Agreement and the Secured Party performs or complies, or otherwise causes
performance or compliance, with such agreement or covenant in accordance with
the terms of this Agreement, then the reasonable expenses of the Secured Party
incurred in connection with such performance or compliance shall be payable by
the Debtors to the Secured Party on demand and shall constitute Obligations
secured by this Agreement.
5. Remedies.
(a) In
addition to all other rights and remedies granted to it under this Agreement and
the Transaction Agreements and under any other instrument or agreement securing,
evidencing or relating to any of the Obligations, if any Event of Default shall
have occurred and be continuing, the Secured Party may exercise all rights and
remedies of a secured party under the New Jersey Uniform Commercial Code (the
“UCC”). Upon
the occurrence of an Event of Default, the Secured Party shall have the right
upon a public sale or sales of the Collateral, and, to the extent permitted by
law, upon any such private sale or sales of the Collateral, to purchase for the
benefit of the Secured Party, the whole or any part of said Collateral so sold,
free of any right or equity of redemption, which equity of redemption each
Debtor hereby releases. In addition, the Secured Party shall have the
right upon any such public sale or sales and, to the extent permitted by law,
upon any such private sale or sales, to bid for all or any part of the
Collateral, free of any right or equity of redemption, which equity of each
Debtor hereby releases, and the amount of any such bid need not be paid by the
Secured Party but shall be credited against the Obligations. Such
sales may be adjourned and continued from time to time with or without
notice. The Secured Party shall have the right to conduct such sales
on each Debtor’s premises or elsewhere and shall have the right to use such
Debtor’s premises without charge for such time or times as the Secured Party
deems necessary or advisable.
(b) Each
Debtor further agrees that upon the occurrence and during the continuation of an
Event of Default, at the Secured Party’s request, it will assemble the
Collateral and make it available to the Secured Party at places which the
Secured Party shall select, whether at such Debtor’s premises or elsewhere for
sale, lease, or other disposition. Until the Secured Party is able to
effect such a sale, lease, or other disposition of Collateral, the Secured Party
shall have the right to hold or use Collateral, or any part thereof, to the
extent that they deem appropriate for the purpose of preserving Collateral or
its value or for any other purpose deemed appropriate by the Secured
Party. The Secured Party shall have no obligation to any Debtor to
maintain or preserve the rights of such Debtor as against third parties with
respect to Collateral while Collateral is in the possession of the Secured
Party. The Secured Party may, if it so elects, seek the appointment
of a receiver or keeper to take possession of Collateral and to enforce any of
the Secured Party’s remedies (for the benefit of the Secured Party), with
respect to such appointment without prior notice or hearing as to such
appointment. The Secured Party shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale to the
Obligations as provided in the Transaction Agreements, and only after so paying
over such net proceeds, and after the payment by the Secured Party of any other
amount required by any provision of law, need the Secured Party account for the
surplus, if any, to the Debtors. To the maximum extent permitted by
applicable law, each Debtor waives all claims, damages, and demands against the
Secured Party arising out of the repossession, retention or sale of the
Collateral except such as arise solely out of the gross negligence or willful
misconduct of the Secured Party as finally determined by a court of competent
jurisdiction. Each Debtor agrees that five (5) days prior written
notice by Secured Party of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters. Each Debtor shall remain jointly and severally liable for
any deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations, including any attorneys’ fees or other
expenses incurred by the Secured Party to collect such deficiency.
(c) Except
as otherwise specifically provided herein, each Debtor hereby waives
presentment, demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Agreement or any
Collateral.
6. Limitation
on Duties Regarding Preservation of Collateral. The Secured
Party’s sole duty with respect to the custody, safekeeping and preservation of
the Collateral shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. Neither the Secured
Party nor any of its directors, officers, employees or agents shall be liable
for failure to demand, collect or realize upon all or any part of the Collateral
or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Collateral upon the request of any Debtor or
otherwise.
7. Powers
Coupled with an Interest. All
authorizations and agencies contained in this Agreement with respect to the
Collateral are irrevocable and coupled with an interest.
8. No
Waiver; Cumulative Remedies. The Secured Party
shall not by any act (except by a written instrument pursuant to
Section 9(a) hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any default
under the Transaction Agreements or in any breach of any of the terms and
conditions of this Agreement. No failure to exercise, nor any delay
in exercising, on the part of the Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Secured Party of any right or remedy under
this Agreement on any one occasion shall not be construed as a bar to any right
or remedy which the Secured Party would otherwise have on any subsequent
occasion. The rights and remedies provided in this Agreement are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
9. Miscellaneous.
(a) Amendments
and Waivers. Any term of this
Agreement may be amended with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected
in accordance with this Section 9(a) shall be binding upon the parties and
their respective successors and assigns.
(b) Transfer;
Successors and Assigns. The terms and conditions
of this Agreement shall be binding upon each Debtor and its successors and
assigns and inure to the benefit of the Secured Party and its successors and
assigns. Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
(c) Governing
Law. This Agreement
and all acts and transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of
conflicts of law.
(d) Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
(e) Titles
and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
(f) Notices. Any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by courier, overnight
delivery service or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party’s address
or facsimile number as set forth below or as
subsequently modified by written notice.
(g) Severability. If one or more
provisions of this Agreement are held to be unenforceable under applicable law,
the parties agree to renegotiate such provision in good faith, in order to
maintain the economic position enjoyed by each party as close as possible to
that under the provision rendered unenforceable. In the event that
the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement
shall be enforceable in accordance with its terms.
(h) Entire
Agreement. This Agreement,
and the documents referred to herein constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof, and any and all other
written or oral agreements existing between the parties hereto concerning such
subject matter are expressly canceled.
[SIGNATURE PAGE FOLLOWS]
The
Debtor and Secured Party have caused this Agreement to be duly executed and
delivered as of the date first above written.
|
DEBTOR:
|
|
|
UCA
Services, Inc., d/b/a NetFabric Technologies, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed,
CEO
|
|
|
Address:
|
299
Cherry Hill Road
|
|
Parsippany,
NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
DEBTOR:
|
|
|
NetFabric
Holdings, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
|
299
Cherry Hill Road
|
|
Parsippany,
NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
SECURED
PARTY:
|
|
|
Fortify
Infrastructure Services, Inc.
|
|
|
By:
|
/s/
|
|
Name:
Rajkumar
Velagapudi
|
|
|
Address:
|
2340
Walsh Avenue, Suite A
|
|
Santa
Clara, CA 95051
|
|
|
Facsimile
Number: 408-416-3237
|
|
SIGNATURE
PAGE TO SECURITY AGREEMENT
EXHIBIT
A
COLLATERAL OF UCA SERVICES,
INC.
The
Collateral shall consist of all assets of Debtor, including without limitation
all right, title and interest of Debtor in and to the following:
(a) All
personal property, goods and equipment now owned or hereafter acquired,
including without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All
inventory, now owned or hereafter acquired, including without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is temporarily
out of Debtor’s custody or possession or in transit and including any returns
upon any accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing and any documents of title
representing any of the above, and Debtor’s books relating to any of the
foregoing;
(c) All
contract rights and general intangibles now owned or hereafter acquired,
including, without limitation, easements, rights-of-way, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, causes of action, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, design
rights, income tax refunds, payments of insurance and rights to payment of any
kind;
(d) All
now existing and hereafter arising accounts, contract rights, royalties, license
rights and all other forms of obligations owing to Debtor arising out of the
sale or lease of goods, the licensing of technology or the rendering of services
by Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor and Debtor’s Books relating to any of the
foregoing;
(e) All
documents, cash, deposit accounts, securities, letters of credit, certificates
of deposit, instruments and chattel paper now owned or hereafter acquired and
Debtor’s books relating to the foregoing;
(f) All
copyrights, copyright applications, copyright registrations and like protections
in each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; all trade secret rights, including
all rights to unpatented inventions, know-how, operating manuals, license rights
and agreements and confidential information, now owned or hereafter acquired;
all mask work or similar rights available for the protection of semiconductor
devices, now owned or hereafter acquired; all claims for damages by way of any
past, present and future infringement of any of the foregoing;
(g) All
real property, leases of real property, easements, right-of-way, fiber conduit,
man holes and hand holes, and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located; and
(i) Any
and all claims, rights and interests in any of the above and all substitutions
for, additions and accessions to and proceeds thereof.
EXHIBIT
A
COLLATERAL OF NETFABRIC
HOLDINGS, INC.
The
Collateral shall consist of all assets of Debtor, including without limitation
all right, title and interest of Debtor in and to the following:
(a) All
personal property, goods and equipment now owned or hereafter acquired,
including without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All
inventory, now owned or hereafter acquired, including without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is temporarily
out of Debtor’s custody or possession or in transit and including any returns
upon any accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing and any documents of title
representing any of the above, and Debtor’s books relating to any of the
foregoing;
(c) All
contract rights and general intangibles now owned or hereafter acquired,
including, without limitation, easements, rights-of-way, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, causes of action, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, design
rights, income tax refunds, payments of insurance and rights to payment of any
kind;
(d) All
now existing and hereafter arising accounts, contract rights, royalties, license
rights and all other forms of obligations owing to Debtor arising out of the
sale or lease of goods, the licensing of technology or the rendering of services
by Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor and Debtor’s Books relating to any of the
foregoing;
(e) All
documents, cash, deposit accounts, securities, letters of credit, certificates
of deposit, instruments and chattel paper now owned or hereafter acquired and
Debtor’s books relating to the foregoing;
(f) All
copyrights, copyright applications, copyright registrations and like protections
in each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; all trade secret rights, including
all rights to unpatented inventions, know-how, operating manuals, license rights
and agreements and confidential information, now owned or hereafter acquired;
all mask work or similar rights available for the protection of semiconductor
devices, now owned or hereafter acquired; all claims for damages by way of any
past, present and future infringement of any of the foregoing;
(g) All
real property, leases of real property, easements, right-of-way, fiber conduit,
man holes and hand holes, and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located; and
(i) Any
and all claims, rights and interests in any of the above and all substitutions
for, additions and accessions to and proceeds thereof.
STOCK PLEDGE
AGREEMENT
This
Stock Pledge Agreement (this “Agreement”), dated as
of March 12, 2009, by and between Fortify Infrastructure Services, Inc., a
Delaware corporation, Ltd. (the “Secured Party”), and
NetFabric Holdings, Inc., a Delaware corporation (the “Company” or the
“Pledgor”).
BACKGROUND
Secured
Party has (i) purchased a Secured Promissory Note of even date herewith (the
“Note”) from
NetFabric Technologies, Inc. d/b/a UCA Services, Inc., a New Jersey corporation
and a wholly-owned subsidiary of Pledgor (“UCA”) pursuant to
which UCA is borrowing $5,000,000.00 from Secured Party in accordance with the
terms and conditions set forth in the Note and the Convertible Note Purchase
Agreement of even date herewith (the “Note Purchase
Agreement”), and (ii) agreed to extend a credit facility to UCA in an
amount not to exceed $1,000,000.00 from which UCA may draw upon for working
capital purposes pursuant to the terms and conditions set forth in the Credit
Agreement of even date herewith (the “Credit
Agreement”). In addition to Pledgor’s obligation under this
Agreement, Pledgor has guaranteed the obligations of UCA under each of the Note,
the Note Purchase Agreement and the Credit Agreement (collectively, the “Guarantees”) on the
terms set forth therein and herein and as set forth in that certain Security
Agreement of even date herewith (the “Security
Agreement”).
In
connection with the Note, the Note Purchase Agreement and the Credit Agreement,
Pledgor and the Secured Party have entered into an Option Agreement of even date
herewith (the “Option
Agreement”) pursuant to which Pledgor has granted to Secured Party the
option to purchase all of the equity securities of UCA currently owned or
hereafter acquired by Pledgor on the terms and conditions set forth
therein. The Note, the Note Purchase Agreement, the Credit Agreement,
the Security Agreement, the Option Agreement and this Agreement are referred to
herein as the “Transaction
Agreements.”
The
parties intend that Pledgor’s obligations under the Transaction Agreements,
including Pledgor’s guarantee of UCA’s obligations thereunder, be secured by a
pledge of all of the equity securities of UCA currently owned or hereafter
acquired by Pledgor on the terms and conditions set forth herein.
NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereto agree as follows:
1. Pledge and Grant of Security
Interest. To secure the full and timely performance of all of
obligations and liabilities to the Secured Party pursuant to the Transaction
Agreements (including, without limitation, UCA’s obligation to timely pay the
principal amount of, and interest on, the Note and amounts drawn pursuant to the
Credit Agreement) (the “Obligations”) the
Pledgor hereby pledges, assigns, hypothecates, transfers and grants a security
interest to Secured Party in all of the following (the “Collateral”):
(a) the
shares of stock set forth on Schedule A annexed
hereto and expressly made a part hereof (together with any additional shares of
stock or other equity interests acquired by the Pledgor, the “Pledged Stock”), the
certificates representing the Pledged Stock and all dividends, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Stock;
(b) all
additional shares of stock of UCA from time to time acquired by any Pledgor in
any manner, including, without limitation, stock dividends or a distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all
options and rights, whether as an addition to, in substitution of or in exchange
for any shares of any Pledged Stock and all dividends, cash, instruments and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all such options and
rights.
2. Delivery of
Collateral. All certificates representing or evidencing the
Pledged Stock shall be delivered to and held by or on behalf of Secured Party
together with an Assignment Separate from Certificate in the form attached to
this Agreement as Schedule B executed
by Pledgor. Pledgor hereby authorizes UCA upon demand by the Secured
Party to deliver any certificates, instruments or other distributions issued in
connection with the Collateral directly to the Secured Party, in each case to be
held by the Secured Party, subject to the terms hereof. Upon the
occurrence and during the continuance of an Event of Default (as defined below),
the Secured Party shall have the right, during such time in its discretion and
without notice to the Pledgor, to transfer to or to register in the name of the
Secured Party or any of its nominees any or all of the Pledged
Stock. In addition, the Secured Party shall have the right at such
time to exchange certificates or instruments representing or evidencing Pledged
Stock for certificates or instruments of smaller or larger
denominations.
3. Representations and
Warranties of Pledgor. Pledgor represents and warrants to the
Secured Party (which representations and warranties shall be deemed to continue
to be made until all of the Obligations have been satisfied in full)
that:
(a) the
execution, delivery and performance by Pledgor of this Agreement and the pledge
of the Collateral hereunder do not and will not result in any violation of any
agreement, indenture, instrument, license, judgment, decree, order, law,
statute, ordinance or other governmental rule or regulation applicable to
Pledgor;
(b) this
Agreement constitutes the legal, valid, and binding obligation of Pledgor
enforceable against Pledgor in accordance with its terms;
(c) all
Pledged Stock owned by Pledgor is set forth on Schedule A hereto and
Pledgor is the direct and beneficial owner of each share of the Pledged
Stock;
(d) all
of the shares of the Pledged Stock have been duly authorized, validly issued and
are fully paid and nonassessable;
(e) no
consent or approval of any person, corporation, governmental body, regulatory
authority or other entity, is or will be necessary for (i) the execution,
delivery and performance of this Agreement, (ii) the exercise by the Secured
Party of any rights with respect to the Collateral or (iii) the pledge and
assignment of, and the grant of a security interest in, the Collateral
hereunder;
(f)
there are no pending or, to the best of Pledgor’s knowledge,
threatened actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely affect the
Collateral;
(g) Pledgor
has the requisite power and authority to enter into this Agreement and to pledge
and assign the Collateral to the Secured Party in accordance with the terms of
this Agreement;
(h) Pledgor
owns each item of the Collateral and, except for the pledge and security
interest granted to Secured Party hereunder, the Collateral shall be,
immediately following the closing of the transactions contemplated by the
Transaction Agreements, free and clear of any other security interest, mortgage,
pledge, claim, lien, charge, hypothecation, assignment, offset or encumbrance
whatsoever and are not subject to preemptive rights or rights of first refusal
created by statute, the Certificate of Incorporation or Bylaws of UCA or any
agreement to which UCA is a party or by which it is bound (collectively, “Liens”);
(i)
there are no restrictions on transfer of the Pledged
Stock contained in the Certificate of Incorporation or Bylaws (or equivalent
organizational documents) of UCA or otherwise which have not otherwise been
enforceably and legally waived by the necessary parties;
(j)
none of the Pledged Stock has been issued or
transferred in violation of the securities registration, securities disclosure
or similar laws of any jurisdiction to which such issuance or transfer may be
subject;
(k) the
pledge and assignment of the Collateral and the grant of a security interest
under this Agreement vest in the Secured Party all rights of Pledgor in the
Collateral as contemplated by this Agreement; and
(l)
the Pledged Stock constitutes one hundred percent (100%)
of the issued and outstanding shares of capital stock of UCA. Other
than the transactions contemplated by the Transaction Agreement, there are no
other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities of UCA. All outstanding shares of UCA’s Common Stock were
issued in compliance with all applicable federal and state securities
laws. There are no options, warrants, calls, rights, commitments,
agreements or arrangements of any character to which UCA is a party or by which
UCA is bound relating to the issued or unissued capital stock of UCA or
obligating UCA to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
UCA or obligating UCA to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments
or agreements relating to voting, purchase or sale of UCA’s capital stock (i)
between or among UCA and any of its stockholders and (ii) between or among any
of UCA’s stockholders.
4. Covenants. Pledgor
covenants that, until the Obligations shall be indefeasibly satisfied in
full:
(a) Pledgor
will not sell, assign, transfer, convey, or otherwise dispose of its rights in
or to the Collateral or any interest therein; nor will Pledgor create, incur or
permit to exist any Lien whatsoever with respect to any of the Collateral or the
proceeds thereof other than that created hereby.
(b) Pledgor
will, at its expense, defend Secured Party’s right, title and security interest
in and to the Collateral against the claims of any other party.
(c) Pledgor
shall at any time, and from time to time, upon the written request of Secured
Party, execute and deliver such further documents and do such further acts and
things as Secured Party may reasonably request in order to effectuate the
purposes of this Agreement including, but without limitation, delivering to
Secured Party, upon the occurrence of an Event of Default, irrevocable proxies
in respect of the Collateral in form satisfactory to Secured
Party. Until receipt thereof, upon an Event of Default that has
occurred, this Agreement shall constitute Pledgor’s proxy to Secured Party or
its nominee to vote all shares of Collateral then registered in each Pledgor’s
name.
(d) Pledgor
will not consent to or approve the issuance of (i) any additional shares of any
class of capital stock or other equity interests of UCA; or (ii) any securities
convertible either voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares, unless, in either case, such shares are
pledged as Collateral pursuant to this Agreement.
5. Voting Rights and
Dividends. In addition to the Secured Party’s rights and
remedies set forth in Section 8 hereof, in case an Event of Default shall have
occurred and be continuing, the Secured Party shall (i) be entitled to vote the
Collateral, (ii) be entitled to give consents, waivers and ratifications in
respect of the Collateral (Pledgor hereby irrevocably constituting and
appointing the Secured Party, with full power of substitution, the proxy and
attorney-in-fact of Pledgor for such purposes) and (iii) be entitled to collect
and receive for its own use dividends paid on the Collateral. Pledgor
shall not be permitted to exercise or refrain from exercising any voting rights
or other powers if, in the reasonable judgment of the Secured Party, such action
would have a material adverse effect on the value of the Collateral or any part
thereof; and, provided, further, that each
Pledgor shall give at least five (5) days’ written notice of the manner in which
such Pledgor intends to exercise, or the reasons for refraining from exercising,
any voting rights or other powers other than with respect to any election of
directors and voting with respect to any incidental
matters. Following the occurrence of an Event of Default, all
dividends and all other distributions in respect of any of the Collateral, shall
be delivered to the Secured Party to hold as Collateral and shall, if received
by any Pledgor, be received in trust for the benefit of the Secured Party, be
segregated from the other property or funds of any other Pledgor, and be
forthwith delivered to the Secured Party as Collateral in the same form as so
received (with any necessary endorsement).
6. Event of
Default. An “Event of Default” under this Agreement shall
occur upon the happening of any of the following events:
(a) UCA
or Pledgor shall have failed to pay as and when due any principal or interest
under the Note or the Credit Agreement;
(b) An
“Event of Default” under any Transaction Agreement or any agreement or note
related to any Document shall have occurred and be continuing (including any
breach of any representation or warranty in any Transaction
Agreement);
(c) Any
breach of any representation or warranty of Pledgor or UCA made herein, in any
Transaction Agreement or in any agreement, statement or certificate given in
writing pursuant hereto or thereto or in connection herewith or
therewith;
(d) Any
portion of the Collateral is subjected to a levy of execution, attachment,
distraint or other judicial process or any portion of the Collateral is the
subject of a claim (other than by the Secured Party) of a Lien or other right or
interest in or to the Collateral and such levy or claim shall not be cured,
disputed or stayed within a period of fifteen (15) business days after the
occurrence thereof; or
(e) Pledgor
shall (i) apply for, consent to, or suffer to exist the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or other
fiduciary of itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of creditors, (iii) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter in effect), (iv)
be adjudicated as bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii) take any
action for the purpose of effecting any of the foregoing.
7. Remedies. In
case an Event of Default shall have occurred and is continuing, the Secured
Party may:
(a) Transfer
any or all of the Collateral into its name, or into the name of its nominee or
nominees;
(b) Exercise
all corporate rights with respect to the Collateral including, without
limitation, all rights of conversion, exchange, subscription or any other
rights, privileges or options pertaining to any shares of the Collateral as if
it were the absolute owner thereof, including, but without limitation, the right
to exchange, at its discretion, any or all of the Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment of UCA
thereof, or upon the exercise by UCA of any right, privilege or option
pertaining to any of the Collateral, and, in connection therewith, to deposit
and deliver any and all of the Collateral with any committee, depository,
transfer agent, registrar or other designated agent upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by it; and
(c) Subject
to any requirement of applicable law, sell, assign and deliver the whole or,
from time to time, any part of the Collateral at the time held by the Secured
Party, at any private sale or at public auction, with or without demand,
advertisement or notice of the time or place of sale or adjournment thereof or
otherwise (all of which are hereby waived, except such notice as is required by
applicable law and cannot be waived), for cash or credit or for other property
for immediate or future delivery, and for such price or prices and on such terms
as the Secured Party in its sole discretion may determine, or as may be required
by applicable law.
Pledgor
hereby waives and releases any and all right or equity of redemption, whether
before or after sale hereunder. At any such sale, unless prohibited
by applicable law, the Secured Party may bid for and purchase the whole or any
part of the Collateral so sold free from any such right or equity of
redemption. All moneys received by the Secured Party hereunder,
whether upon sale of the Collateral or any part thereof or otherwise, shall be
held by the Secured Party and applied by it as provided in Section 9
hereof. No failure or delay on the part of the Secured Party in
exercising any rights hereunder shall operate as a waiver of any such rights nor
shall any single or partial exercise of any such rights preclude any other or
future exercise thereof or the exercise of any other rights
hereunder. The Secured Party shall have no duty as to the collection
or protection of the Collateral or any income thereon nor any duty as to
preservation of any rights pertaining thereto, except to apply the funds in
accordance with the requirements of Section 10 hereof. The Secured
Party may exercise its rights with respect to property held hereunder without
resort to other security for or sources of reimbursement for the
Obligations. In addition to the foregoing, Secured Party shall have
all of the rights, remedies and privileges of a secured party under the New
Jersey Uniform Commercial Code (the “UCC”) regardless of the jurisdiction in
which enforcement hereof is sought.
8. Private
Sale. Pledgor recognizes that the Secured Party may be unable
to effect (or to do so only after delay which would adversely affect the value
that might be realized from the Collateral) a public sale of all or part of the
Collateral by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the “Securities Act”), and
may be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor agrees that any such private
sale may be at prices and on terms less favorable to the seller than if sold at
public sales and that such private sales shall be deemed to have been made in a
commercially reasonable manner. Pledgor agrees that the Secured Party
has no obligation to delay sale of any Collateral for the period of time
necessary to permit UCA to register the Collateral for public sale under the
Securities Act.
9. Proceeds of
Sale. The proceeds of any collection, recovery, receipt,
appropriation, realization or sale of the Collateral shall be applied by the
Secured Party as follows:
(a) First,
to the payment of all costs, reasonable expenses and charges of the Secured
Party and to the reimbursement of the Secured Party for the prior payment of
such costs, reasonable expenses and charges incurred in connection with the care
and safekeeping of the Collateral (including, without limitation, the reasonable
expenses of any sale or any other disposition of any of the Collateral),
attorneys’ fees and reasonable expenses, court costs, any other fees or expenses
incurred or expenditures or advances made by Secured Party in the protection,
enforcement or exercise of its rights, powers or remedies
hereunder;
(b) Second,
to the satisfaction of the Obligations, in whole or in part, in such order as
the Secured Party may elect, whether or not such Obligations is then
due;
(c) Third,
to such persons, firms, corporations or other entities as required by applicable
law including; and
(d) Fourth,
to the extent of any surplus to Pledgor or as a court of competent jurisdiction
may direct.
In the event that the proceeds of any
collection, recovery, receipt, appropriation, realization or sale are
insufficient to satisfy the Obligations, Pledgor shall be liable for the
deficiency plus the costs and fees of any attorneys employed by Secured Party to
collect such deficiency.
10. Waiver of
Marshaling. Pledgor hereby waives any right to compel any
marshaling of any of the Collateral.
11. No
Waiver. Any and all of the Secured Party’s rights with respect
to the Liens granted under this Agreement shall continue unimpaired, and Pledgor
shall be and remain obligated in accordance with the terms hereof,
notwithstanding (a) the bankruptcy, insolvency or reorganization of Pledgor, (b)
the release or substitution of any item of the Collateral at any time, or of any
rights or interests therein, or (c) any delay, extension of time, renewal,
compromise or other indulgence granted by the Secured Party in reference to any
of the Obligations. Pledgor hereby waives all notice of any such
delay, extension, release, substitution, renewal, compromise or other
indulgence, and hereby consents to be bound hereby as fully and effectively as
if Pledgor had expressly agreed thereto in advance. No delay or
extension of time by the Secured Party in exercising any power of sale, option
or other right or remedy hereunder, and no failure by the Secured Party to give
notice or make demand, shall constitute a waiver thereof, or limit, impair or
prejudice the Secured Party’s right to take any action against Pledgor or to
exercise any other power of sale, option or any other right or
remedy.
12. Expenses. The
Collateral shall secure, and Pledgor shall pay to Secured Party on demand, from
time to time, all reasonable costs and expenses, (including but not limited to,
reasonable attorneys’ fees and costs, taxes, and all transfer, recording, filing
and other charges) of, or incidental to, the custody, care, transfer,
administration of the Collateral or any other collateral, or in any way relating
to the enforcement, protection or preservation of the rights or remedies of the
Secured Party under this Agreement or with respect to any of the
Obligations.
13. The Secured Party Appointed
Attorney-In-Fact and Performance by the Secured Party. Upon
the occurrence of an Event of Default, Pledgor hereby irrevocably constitutes
and appoints the Secured Party as Pledgor’s true and lawful attorney-in-fact,
with full power of substitution, to execute, acknowledge and deliver any
instruments and to do in Pledgor’s name, place and stead, all such acts, things
and deeds for and on behalf of and in the name of Pledgor, which Pledgor could
or might do or which the Secured Party may deem necessary, desirable or
convenient to accomplish the purposes of this Agreement, including, without
limitation, to execute such instruments of assignment or transfer or orders and
to register, convey or otherwise transfer title to the Collateral into the
Secured Party’s name. Pledgor hereby ratifies and confirms all that
said attorney-in-fact may so do and hereby declares this power of attorney to be
coupled with an interest and irrevocable. If Pledgor fails to perform
any agreement herein contained, the Secured Party may itself perform or cause
performance thereof, and any costs and expenses of the Secured Party incurred in
connection therewith shall be paid by the Pledgor as provided in Section 9
hereof.
14. Recapture. Notwithstanding
anything to the contrary in this Agreement, if the Secured Party receives any
payment or payments on account of the Obligations, which payment or payments or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver, or
any other party under the United States Bankruptcy Code, as amended, or any
other federal or state bankruptcy, reorganization, moratorium or insolvency law
relating to or affecting the enforcement of creditors’ rights generally, common
law or equitable doctrine, then to the extent of any sum not finally retained by
the Secured Party, Pledgor’s obligations to the Secured Party shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Secured Party, which payment
shall be due on demand.
15. Captions. All
captions in this Agreement are included herein for convenience of reference only
and shall not constitute part of this Agreement for any other
purpose.
16. Miscellaneous.
(a) This
Agreement constitutes the entire and final agreement among the parties with
respect to the subject matter hereof and may not be changed, terminated or
otherwise varied except by a writing duly executed by the parties
hereto.
(b) No
waiver of any term or condition of this Agreement, whether by delay, omission or
otherwise, shall be effective unless in writing and signed by the party sought
to be charged, and then such waiver shall be effective only in the specific
instance and for the purpose for which given.
(c) In
the event that any provision of this Agreement or the application thereof to
Pledgor or any circumstance in any jurisdiction governing this Agreement shall,
to any extent, be invalid or unenforceable under any applicable statute,
regulation, or rule of law, such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform to
such statute, regulation or rule of law, and the remainder of this Agreement and
the application of any such invalid or unenforceable provision to parties,
jurisdictions, or circumstances other than to whom or to which it is held
invalid or unenforceable shall not be affected thereby, nor shall same affect
the validity or enforceability of any other provision of this
Agreement.
(d) This
Agreement shall be binding upon Pledgor, and Pledgor’s successors and assigns,
and shall inure to the benefit of the Secured Party and its successors and
assigns.
(e) Any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or forty-eight (48) hours
after being deposited in the U.S. mail as certified or registered mail with
postage prepaid, if such notice is addressed to the party to be notified at such
party’s address or facsimile number as set forth below or as
subsequently modified by written notice.
(f) THIS
AGREEMENT AND THE OTHER DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(g) Any
term of this Agreement may be amended with the written consent of the parties or
their respective successors and assigns. Any amendment or waiver
effected in accordance with this Section 16(g) shall be binding upon the
parties and their respective successors and assigns.
(h) This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original and all of which when taken together shall constitute one and
the same agreement. Any signature delivered by a party by facsimile
transmission shall be deemed an original signature hereto.
[SIGNATURE PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and
year first written above.
|
PLEDGOR:
|
|
|
NetFabric
Holdings, Inc.
|
|
|
By:
|
/s/
|
|
Fahad
Syed, CEO
|
|
|
Address:
|
299
Cherry Hill Road
|
|
Parsippany,
NJ 07054
|
|
|
Facsimile
Number: 973-384-9061
|
|
|
SECURED
PARTY:
|
|
|
Fortify
Infrastructure Services, Inc.
|
|
|
By:
|
/s/
|
|
Name:
Rajkumar Velagapudi
|
|
|
Address:
|
2340
Walsh Avenue, Suite A
|
|
Santa
Clara, CA 95051
|
|
|
Facsimile
Number: 408-416-3237
|
|
SIGNATURE
PAGE TO PLEDGE AGREEMENT
SCHEDULE A to the Stock
Pledge Agreement
Pledged
Stock
|
Pledgor
|
Issuer
|
Class of
Stock
|
Stock
Certificate
Number
|
Par Value
|
Number
of
Shares
|
% of
outstanding
Shares
|
||||||||||
|
NetFabric
Holdings, Inc.
|
UCA
Services, Inc.
|
Common
|
None
|
3,000,000 | 100 | |||||||||||
SCHEDULE A to the Stock
Pledge Agreement
Assignment Separate from
Certificate
ASSIGNMENT SEPARATE FROM
CERTIFICATE
FOR VALUE
RECEIVED and pursuant to that certain Pledge Agreement between the undersigned
(“Pledgor”) and
Fortify Infrastructure Services, Inc. (the “Secured Party”) dated
February __, 2009 (the “Agreement”), Pledgor
hereby sells, assigns and transfers unto the Secured Party
_________________________________ (________) shares of the Common Stock of UCA
Services Inc., d/b/a NetFabric Technologies, Inc. (“UCA”), standing in Pledgor’s
name on the books of UCA and represented by Certificate No. ____, and does
hereby irrevocably constitute and appoint
________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE
AGREEMENT.
Dated:
____________
|
NetFabric
Holdings, Inc.
|
|
|
By:
|
|
|
Name:
Fahad Syed
|
|
|
Title:
CEO
|
|
Instruction: Please
do not fill in any blanks other than the signature line(s). The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
OPTION
AND PURCHASE AGREEMENT
dated as
of
March 12,
2009
by and
among
FORTIFY INFRASTRUCTURE SERVICES,
INC.,
NETFABRIC
TECHNOLOGIES, INC. D/B/A UCA SERVICES, INC.,
and
NETFABRIC
HOLDINGS, INC.
OPTION AND PURCHASE
AGREEMENT
THIS
OPTION AND PURCHASE AGREEMENT (this “Agreement”) is made
and entered into as of the 12th day of
March, 2009 (the “Effective Date”), by
and among Fortify Infrastructure Services, Inc., a Delaware corporation (the
“Purchaser”),
NetFabric Technologies, Inc. d/b/a UCA Services, Inc., a New Jersey corporation
(the “Company”)
and NetFabric Holdings, Inc., a Delaware corporation (the “Seller”). The
Company is a wholly owned subsidiary of the Seller. Purchaser, the
Company and Seller shall each be referred to in this Agreement as a “Party” or
collectively as the “Parties.”
RECITALS
WHEREAS, Purchaser desires to obtain
from Seller an option to purchase all of the outstanding capital stock of the
Company (the “Option”) and Seller
desires to grant to Purchaser an option to purchase all of the outstanding
capital stock of the Company (the “Purchase”) on the
terms and conditions set forth in this Agreement; and
WHEREAS, in connection with the Option,
as of even date herewith (a) Purchaser and the Company desire to enter into a
Convertible Note Purchase Agreement in order for Seller to issue to Purchaser a
Convertible Promissory Note and for Purchaser to provide to Seller a bridge loan
of $5 million to be used (i) in part by the Company to repay all outstanding
principal and accrued interest on existing indebtedness of the Company, (ii) in
part by the Seller to repay certain of its liabilities, (iii) in part
by the Seller and the Company to pay costs related to the transactions
contemplated by this Agreement, and (iv) in part by the Seller and the Company
for purposes of working capital, (b) Purchaser, Seller and the Company desire to
enter into a Credit Agreement in order for Purchaser to provide to the Company a
revolving line of credit of up to $1 million for working capital purposes, (c)
Purchaser, Seller and the Company desire to enter a Security Agreement to secure
the loans advanced as described in the preceding clauses, and (d) Purchaser and
Seller desire to enter into a Stock Pledge Agreement to secure the loans
advanced as described in the preceding clauses, all in accordance with their
terms. This Agreement, the Convertible Note Purchase Agreement, the
Convertible Promissory Note, the Credit Agreement, the Security Agreement and
the Stock Pledge Agreement are referred to herein as the “Transaction
Agreements.”
NOW, THEREFORE, in consideration of the
mutual promises, agreements, warranties and provisions contained in this
Agreement, intending to be legally bound, the parties agree as
follows:
SECTION
1
OPTION
TO PURCHASE STOCK
1. Option to
Purchase Stock. Subject to the terms and conditions of this Agreement,
Seller hereby grants to Purchaser this Option to purchase at the Closing (as
defined below), all of the shares of capital stock of the Company outstanding as
of the Closing (the “Shares”) for the
purchase price payable in accordance with Section 2 below. Purchaser
will, by written notice to Seller, exercise the Option within two (2) business
days after receipt of written notification from Seller certifying the
effectiveness of the Seller’s Definitive Schedule 14C Information Statement
filed with the Securities and Exchange Commission (the “SEC”) (the “Definitive Information
Statement”) in connection with certain actions taken by the written
consent of the holders of a majority of the Seller's outstanding Common Shares
approving the terms of this Agreement and related transactions described in the
Definitive Information Statement, following the satisfaction (or waiver, as the
case may be) of (i) Section 2.4(c)(iii) below; and (ii) the conditions precedent
set forth in Section 7 of this Agreement, which shall take place no later than
three (3) Business Days following the date Purchaser exercises the Option (the
“Closing
Date”). The foregoing notwithstanding, this Option will expire
on the date which is six (6) months from the Effective Date unless extended by
Purchaser in writing (the “Option Expiration
Date”).
SECTION
2
CLOSING
2. Closing.
2.1 Closing
Date. The closing of the Purchase (the “Closing”) shall be
held at the offices of Royse Law Firm, PC, 2600 El Camino Real, Suite 110, Palo
Alto, CA 94306 at 10:00 a.m. California time on the Closing Date.
2.2 Purchase
Price. As full
consideration for the purchase of the Shares upon exercise of the Option,
Purchaser agrees to (i) release Seller from its guarantees and obligations under
the Transaction Agreements, and (ii) pay to Seller as purchase consideration the
sum of (a) $500,000.00 less
the amount of accrued and unpaid interest on the Convertible Promissory
Note as of the Closing Date (if any), which shall be paid on the date which is
365 days following the Closing Date and which shall be evidenced by a unsecured
promissory note (the “Unsecured Note”) in
substantially the form attached hereto as Exhibit A, plus (b) the amounts
specified as payable to Seller (and not allocated to the Bonus Pool) in Section
3.1 below (all such consideration, collectively, the “Purchase Price”). For
the avoidance of doubt, amounts paid under Section 3.1 which are allocated to
the Bonus Pool shall not be considered Purchase Price.
2.3
Actions
at the Effective Date. As of the Effective Date:
(a) Actions
by Seller. Seller will deliver to Purchaser the items set
forth below:
(i) Fahad
Syed will deliver an employment and non-competition agreement substantially in
the form of Exhibit
B-1, executed by him (the “Employment and
Non-Competition Agreement”)
(ii) Schedule
1 attached hereto contains a list of key employees (the “Key Employees”) who
will, within thirty (30) days, (unless extended by Purchaser) deliver a
non-competition agreement substantially in the form of Exhibit B-2, executed
by him or her (the “Non-Competition
Agreement”);
-2-
(iii) Seller
will deliver a certificate pursuant to Section 7.3(c)(ii) executed by its Chief
Executive Officer and Chief Financial Officer confirming (A) Seller’s compliance
with, and performance of, the covenants and obligations to be performed or
complied with by it at or before the Effective Date, and (B) the accuracy of the
Seller’s representations and warranties as of the Effective Date;
(iv) Seller
will deliver a certificate executed by the Secretary of Seller certifying the
items set forth in Section 7(c)(v)(A) and (C) below;
(v) Seller’s
counsel will deliver to Purchaser an opinion in the form set forth on Exhibit C attached
hereto;
(vi) Seller’s
immigration counsel will deliver to Purchaser an opinion in the form set forth
on Exhibit D
attached hereto; and
(v) Seller
shall deliver all documents required of Seller to be delivered as of the
Effective Date pursuant to this Agreement
(b) Actions
by the Company. The Company will deliver to Purchaser the
items set forth below:
(i) a
certificate pursuant to Section 7.3(c)(i) executed by the President and the
Chief Financial Officer of the Company confirming (A) the Company’s compliance
with, and performance of, the covenants and obligations to be performed or
complied with by the Company at or before the Closing; (B) the accuracy of the
Company’s representations and warranties as of the Effective Date;
(ii) a
certificate executed by the Secretary of the Company certifying the items set
forth in Section 7.3(c)(iv) below; and
(iii) The
Company shall deliver all documents required of the Company to be delivered as
of the Effective Date pursuant to this Agreement.
(c) Actions
by the Purchaser. The Company will deliver to Purchaser the
items set forth below:
(i) Purchaser
shall deliver all documents required of Purchaser to be delivered as of the
Effective Date pursuant to this Agreement; and
(ii) Purchaser
shall deliver to Seller a certificate executed by the President and Chief
Executive Officer certifying the items set forth in Sections 7.2(a) and (b)
below.
2.4 Actions
at the Closing. At the Closing, the Company, Seller and
Purchaser shall take such actions and execute and deliver such agreements and
other instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms,
including without limitation the following:
-3-
(a) Actions
by Seller. Seller will deliver to Purchaser the items set
forth below:
(i) Seller
will deliver a certificate or certificates representing all of Seller’s Shares,
together with stock powers duly endorsed in blank for transfer of such Shares to
Purchaser, and Seller shall deliver all other documents required of the Seller
pursuant to this Agreement;
(ii) Seller
shall have transferred and assigned to the Company all assets listed on its
books (including, without limitation, all tangible and intangible assets) which
relate to the Company and shall have provided to Purchaser (i) a schedule of
such intangible assets assigned and transferred and (ii) appropriate
documentation reflecting such assignment.
(iii) Seller
will deliver a certificate pursuant to Section 7.3(c)(ii) executed by its Chief
Executive Officer and Chief Financial Officer confirming (A) Seller’s compliance
with, and performance of, the covenants and obligations to be performed or
complied with by it at or before the Closing, and (B) the accuracy of the
Seller’s representations and warranties as of the Closing Date; and
(iv) Seller
will deliver a certificate executed by the Secretary of Seller certifying the
items set forth in Section 7(c)(v) below;
(v) Seller’s
counsel will deliver to Purchaser an opinion in the form set forth on Exhibit C attached
hereto; and
(vi) Seller’s
immigration counsel will deliver to Purchaser an opinion in the form set forth
on Exhibit D
attached hereto.
(b) Actions
by the Company. The Company will deliver to Purchaser the
items set forth below:
(i) a
certificate pursuant to Section 7.3(c)(i) executed by the President and the
Chief Financial Officer of the Company confirming (A) the Company’s compliance
with, and performance of, the covenants and obligations to be performed or
complied with by the Company at or before the Closing; (B) the accuracy of the
Company’s representations and warranties as of the Closing Date;
(ii) a
certificate executed by the Chief Financial Officer of the Company certifying
the items set forth in Section 7.3(c)(iii) below;
(iii) a
certificate executed by the Secretary of the Company certifying the items set
forth in Section 7.3(c)(iv) below; and
-4-
(iv) the
Company shall have transferred and assigned to the Seller all of the Company’s
right, interest and title to any ownership interest in any securities or assets
of any kind with respect to any subsidiary of the Company and Seller shall have
agreed to assume any and all obligations and/or liabilities related thereto; the
Company shall have provided to Purchaser appropriate documentation reflecting
such assignment;
(v) Schedule
1B contains a complete list of billable and non-billable employees (the “Schedule 1B Employees”). At or
prior to closing the non-billable Schedule 1B Employees, will deliver a
non-competition agreement substantially in the form of Exhibit B-2, executed
by him or her (the “Non-Competition
Agreement”); provided, however that those non-billable Schedule 1B
Employees who have a valid existing non-competition and non-disclosure agreement
in place with the Company shall not be required to execute the Non-Competition
Agreement.
(c) Actions
by Purchaser.
(i) Purchaser
shall deliver all documents required of Purchaser pursuant to this
Agreement;
(ii) Purchaser
shall deliver to Seller a certificate executed by the President and Chief
Executive Officer certifying the items set forth in Sections 7.2(a) and (b)
below; and
(iii) Purchaser
and Seller shall execute documents, satisfactory to Seller, evidencing the
release of any and all obligations of the Seller under the Security
Agreement.
2.5 Purchase
of Common Stock. The Shares to be purchased by Purchaser at
the Closing shall consist solely of the Company’s Common Stock, and at such time
there shall be no other outstanding securities of or rights to purchase or
otherwise acquire securities of the Company. Accordingly, prior to
the Closing, each outstanding share of the Company Preferred Stock, if any,
shall have been converted into the Common Stock of the Company and all options
or rights to purchase or acquire shares of the Company’s capital stock, if any,
shall have been exercised or terminated.
2.6 Tax
Elections. At Purchaser’s exclusive option, Purchaser and
Seller agree that they shall cooperate in making a joint Section 338(h)(10)
election under the Internal Revenue Code of 1986, as amended (the “Code”) (and any
comparable state income tax laws), to treat the Purchase of the Shares pursuant
to this Agreement as a purchase of assets rather than of stock for federal and
state income tax purposes, as more particularly described in Section 11
below. Seller agrees to make such elections on its own federal and
state income tax returns, and to prepare and file with the Internal Revenue
Service all such filings and forms as may be necessary in order to effect such
Section 338(h)(10) election (and any comparable state election).
-5-
SECTION
3
EARN-OUT
PAYMENTS
3. Earn-Out
Payments. Additional payments are, or may be, payable to
Seller and Employees based on the Company’s operating performance pursuant to
the Incentive Plan as set forth in Section 3.2 below.
3.1 Earn-Out
Payments. Cash payments of up to $2,500,000.00 in the
aggregate (“Earn-Out
Payments”) shall be payable to Seller and Employees if the Company
achieves the financial thresholds specified below for the 12-month period
beginning April 1, 2009 and ending March 31, 2010 (“Year 1”) and the
subsequent 12-month period beginning April 1, 2010 and ending March 31, 2011
(“Year
2”). As used in this Section 3.1, “Revenues” shall mean
the Company’s revenues from customers as determined in accordance with generally
accepted accounting principles less returns, discounts and allowances, including
without limitation allowances for any uncollectible amounts; and “EBITDA” shall mean
the Company’s earnings before interest, depreciation and taxes. For avoidance of
doubt, all earn-out payments made to Seller pursuant to this Section 3.1 shall
be credited against the Purchase Price set forth in Section 2.2.
(a) Year 1
Earn-Out Payment. The maximum Earn-Out Payment that may be
earned for Year 1 is $1,250,000.00 (the “Maximum Threshold”),
which shall be allocated (a) $250,000.00 to Seller, and (b) $1,000,000.00 to the
Bonus Pool (up to $500,000 of which shall be payable to Fahad Syed). No Earn-Out
Payments for Year 1 will be payable unless the Company achieves both of the following
“Year 1 Minimum
Thresholds”: (a) Revenues equal to at least $14.4 million (the
“Revenue Minimum
Threshold”) and (b) EBITDA of at least $1 million (the “EBITDA Minimum
Threshold”). “Year 1 Maximum
Thresholds” are as follows: (a) Revenues equal to at least $18
million (the “Revenue
Maximum Threshold”, and (b) EBITDA of at least $1.3 million (“EBITDA Maximum
Threshold”).
If the
Company meets both of the Year 1
Maximum Thresholds, Purchaser shall pay the amounts set forth below within three
and one-half (3½) months following the end of Year 1:
|
Year 1 Revenues
|
Year 1 EBITDA
|
|||||||||
|
Maximum
Earn-out Payment to Seller
|
$ | 125,000 |
Maximum
Earn-out Payment to Seller
|
$ | 125,000 | |||||
|
Maximum
Earn-out to Bonus Pool
|
$ | 500,000 |
Maximum
Earn-out to Bonus Pool
|
$ | 500,000 | |||||
|
Maximum
Revenue Threshold
Triggering Payment
|
$ | 18,000,000 |
Maximum
EBITDA Threshold Triggering Payment
|
$ | 1,300,000 | |||||
-6-
If the
Company achieves both of the Year 1
Minimum Thresholds but does not achieve either or both of the Year 1 Maximum
Thresholds, then the Year 1 Earn-Out Payment shall be reduced according to the
following schedule:
|
Year 1 Revenues
|
Year 1 EBITDA
|
||||||||||||||||||||||||||
|
Percentage
Of Maximum
Threshold |
Percentage
of Earn- Out Payment |
Amount
Payable to Seller |
Amount
Payable to Bonus Pool |
Percentage
Of Maximum
Threshold |
Percentage
of Earn-Out Payment |
Amount
Payable to Seller |
Amount
Payable to
Bonus Pool
|
||||||||||||||||||||
|
79%
|
0.00 | % | $ | 0 | $ | 0 | 79% | 0.00 | % | $ | 0 | $ | 0 | ||||||||||||||
|
80%
to 89%
|
70.00 | % | $ | 87,500 | $ | 350,000 |
80%
to 89%
|
70.00 | % | $ | 87,500 | $ | 350,000 | ||||||||||||||
|
90%
to 99%
|
85.00 | % | $ | 106,250 | $ | 425,000 |
90%
to 99%
|
85.00 | % | $ | 106,250 | $ | 425,000 | ||||||||||||||
|
100%
or more
|
100.00 | % | $ | 125,000 | $ | 500,000 |
100%
or more
|
100.00 | % | $ | 125,000 | $ | 500,000 | ||||||||||||||
For the
avoidance of doubt, if the Company achieves the Revenue Threshold at one level
and the EBITDA Threshold at a different level, the Year 1 Earn-Out Payment will
be the sum of the amounts payable based on the two different thresholds
achieved. For example, if Revenues for Year 1 exceed $18 million but
the Company’s EBITDA for Year 1 is only $1.04 million (or 80%), then the Year 1
Earn-Out Payment will be equal $1,062,500 (or the sum of $625,000 based on
achievement of the Revenue Threshold and $437,500 based on achievement of the
EBITDA Threshold).
(b) Year 2
Earn-Out Payment. The maximum Earn-Out Payment that may be
earned for Year 2 is $1,250,000.00, which shall be allocated (a) $250,000.00 to
Seller, and (b) 1,000,000.00 to the Bonus Pool (up to $500,000 of which shall be
payable to Fahad Syed). No Earn-Out Payments for Year 2 will be payable unless
the Company achieves both of the Revenue
Minimum Threshold and the EBITDA Minimum Threshold (“Year 2 Minimum
Thresholds”). “Year 2 Maximum
Thresholds” are as follows: (a) Revenues equal to at least $18
million (the “Year 2
Revenue Maximum Threshold,” and (b) EBITDA of at least $1.5 million
(“Year 2 EBITDA
Maximum Threshold”).
If the
Company meets both of the Year 2
Maximum Thresholds, Purchaser shall pay the amounts set forth below within three
and one-half (3½) months following the end of Year 2:
|
Year 2 Revenues
|
Year 2 EBITDA
|
||||||||
|
Maximum Earn-out
Payment to Seller
|
$ | 125,000 |
Maximum
Earn-out Payment to Seller
|
$ | 125,000 | ||||
|
Maximum
Earn-out to Bonus Pool
|
$ | 500,000 |
Maximum
Earn-out to Bonus Pool
|
$ | 500,000 | ||||
|
Maximum
Revenue Threshold
Triggering Payment
|
$ | 18,000,000 |
Maximum
EBITDA Threshold Triggering Payment
|
$ | 1,500,000 | ||||
-7-
If the
Company achieves both of the Year 2
Minimum Thresholds but does not achieve either or both of the Year 2 Maximum
Thresholds, then the Year 2 Earn-Out Payment shall be reduced according to the
following schedule:
|
Year 2 Revenues
|
Year 2 EBITDA
|
|||||||||||||||||||||||||||
|
Percentage
Of Maximum
Threshold |
Percentage
of Earn- Out Payment |
Amount
Payable to Seller |
Amount
Payable to Bonus Pool |
Percentage
Of Maximum
Threshold |
Percentage
of Earn-Out Payment |
Amount
Payable to Seller |
Amount
Payable to
Bonus Pool
|
|||||||||||||||||||||
|
79%
|
0.00 | % | $ | 0 | $ | 0 | 79 | % | 0.00 | % | $ | 0 | $ | 0 | ||||||||||||||
|
80%
to 89%
|
70.00 | % | $ | 87,500 | $ | 350,000 |
80%
to 89%
|
70.00 | % | $ | 87,500 | $ | 350,000 | |||||||||||||||
|
90%
to 99%
|
85.00 | % | $ | 106,250 | $ | 425,000 |
90%
to 99%
|
85.00 | % | $ | 106,250 | $ | 425,000 | |||||||||||||||
|
100%
or more
|
100.00 | % | $ | 125,000 | $ | 500,000 |
100%
or more
|
100.00 | % | $ | 125,000 | $ | 500,000 | |||||||||||||||
For the
avoidance of doubt, if the Company achieves the Revenue Threshold at one level
and the EBITDA Threshold at a different level, the Year 2 Earn-Out Payment will
be the sum of the amounts payable based on the two different thresholds
achieved. For example, if Revenues for Year 2 exceed $18 million but
the Company’s EBITDA for Year 2 is only $1.35 million (or 90%), then the Year 2
Earn-Out Payment will be equal $1,156,250 (or the sum of $625,000 based on
achievement of the Revenue Threshold and $531,250 based on achievement of the
EBITDA Threshold).
(c) Payment
of Earn-Out Amounts. Provided the Company has furnished
satisfactory proof to Purchaser of its achievement of the Revenue Thresholds and
EBIDTA Thresholds for Year 1 and Year 2, respectively, Purchaser shall make the
applicable Year 1 Earn-Out Payment within three and one-half (3½) months after
the end of Year 1, and the applicable Year 2 Earn-Out Payment within three and
one-half (3½) months after the end of Year 2. The Earn-Out Payments
allocable to the Bonus Pool shall be made to the Employees pursuant to the
Incentive Plan as set forth in Section 3.2 below.
(d) Audit
Right of Purchaser. Purchaser shall have the right to request
an audit by an independent third party with respect to the Company’s achievement
of the Revenue Threshold and EBITDA Threshold for Year 1 and/or Year 2 by
delivering written notice of such audit election to the Company’s Chief
Financial Officer anytime within a ninety (90) day period following the end of
Year 1 or Year 2. The Company agrees that it shall direct its
employees to cooperate with the auditors and make available such financial
information as shall be reasonably requested by the auditors. If such audit
reveals the Company failed to achieve either the reported Revenue Threshold or
EBITDA Threshold for the audited year and, therefore, Purchaser made an Earn-Out
Payment that was greater than it should have been, Seller agrees that it will
return any such over-payment to Purchaser within five (5) days of its receipt of
the results of the audit and Seller further agrees to pay the reasonable costs
incurred by Purchaser to conduct such audit. If the audit reveals the
Company achieved a higher Revenue Threshold or EBITDA Threshold for the audited
year than was reported and, therefore, Purchaser made an Earn-Out Payment that
was less than it should have been, Purchaser agrees that it will make an
additional Earn-Out Payment to Seller and/or the Bonus Pool based on results of
the audit within ten (10) days of its receipt of the results of the audit and
Purchaser shall bear the costs of the audit.
-8-
3.2 Incentive
Plan. Purchaser agrees that the Company will adopt an
incentive compensation plan (the “Incentive Plan”) in
the form attached hereto as Exhibit E, pursuant
to which the Employees of the Company will be eligible to receive the Bonus Pool
and other performance based compensation as detailed therein. All
payments made to employees from the Bonus Pool will be subject to the terms and
conditions of the Incentive Plan. Allocations of amounts from the Incentive Plan
shall be subject to Purchaser’s prior written consent and payment of such
amounts to Employees shall be subject to withholding by the Company for all
applicable federal and state payroll taxes due thereon.
SECTION
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
In this
Agreement, any reference to any event, change, condition or effect being “material” with
respect to any entity or group of entities means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of such entity or group of
entities. In this Agreement, any reference to a “Material Adverse
Effect” with respect to any entity or group of entities means any event,
change or effect that, when taken individually or together with all other
adverse changes and effects, is or is reasonably likely to be materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
business, operations, results of or prospects of such entity and its
subsidiaries, taken as a whole, or to prevent or materially delay consummation
of the transactions contemplated under this Agreement or otherwise to prevent
such entity and its subsidiaries from performing their obligations under this
Agreement.
In this
Agreement, any reference to “knowledge” means an
individual will be deemed to have knowledge of a particular fact or other matter
if: (i) that individual is actually aware of that fact or matter; or (ii) a
prudent individual could be expected to discover or otherwise become aware of
that fact or matter in the course of conducting a reasonable comprehensive
investigation regarding the accuracy of any representation or warranty contained
in this Agreement. A party (that is not an individual) will be deemed
to have knowledge of a particular fact or other matter if any individual who is
serving as a director, officer, executive or manager, partner, executor or
trustee of that party (or in any similar capacity) has, or at any time had,
knowledge of that fact or other matter (as set forth in (i) and (ii) of this
definition), and any such individual (and any individual party to this
Agreement) will be deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of the representations and warranties made
herein by that party or individual.
A Company
Disclosure Schedule, attached as Schedule 2 (the
“Company Disclosure
Schedule”), shall be delivered to Purchaser on the Effective Date of this
Agreement and in connection with the Closing. Except as set forth on
the Company Disclosure Schedule delivered to Purchaser as of the Effective Date
and as of the Closing Date, respectively, each of the Company and Seller
represents and warrants to Purchaser as of the Effective Date and as of the
Closing Date, as applicable, as follows:
-9-
4.1 Organization,
Standing and Power; Subsidiaries. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey. The Company has the requisite corporate power
and authority and all necessary government approvals to own, lease and operate
its properties and to carry on its business as now being conducted and as
proposed to be conducted, except where the failure to have such power, authority
and governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company is duly qualified
or licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. Except as set forth in Section 4.1 of
the Company Disclosure Schedule, the Company has no subsidiaries. Other than the
transactions contemplated by the Transaction Agreements, there are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock of the Company, or otherwise
obligating the Company to issue, transfer, sell, purchase, redeem or otherwise
acquire any such securities. Except as set forth in Section 4.1 of
the Company Disclosure Schedule, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity.
4.2 Authorization. All corporate
action on the part of the Company, its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement and
the performance of all obligations of the Company hereunder have been taken or
will be taken prior to the Closing. This Agreement, when executed and
delivered by the Company shall constitute valid and legally binding obligations
of the Company, enforceable against the Company in accordance with their terms
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors’ rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
4.3 Certificate of
Incorporation and Bylaws. The Company has delivered a true and
correct copy of its Certificate of Incorporation and Bylaws or other charter
documents, each as amended to date, to Purchaser. The Company is not
in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents.
-10-
4.4 Capital
Structure. The authorized capital stock of the Company
consists of 5,000,000 shares of Common Stock, of which there are issued and
outstanding as of the close of business on the date hereof, 3,000,000 shares of
Common Stock. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities of the Company. All outstanding
shares of the Company’s capital stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Certificate of Incorporation or Bylaws of the Company or any agreement to
which the Company is a party or by which it is bound. All outstanding
shares of the Company’s Common Stock were issued in compliance with all
applicable federal and state securities laws. As of the close of
business on the Effective Date, the Company has not reserved, issued or granted
any shares of Common Stock for issuance to employees and consultants pursuant to
a Company Stock Plan (the “Plan”). Except
(i) for the rights created pursuant to this Agreement, (ii) for the
Company’s right to repurchase any unvested shares under the Plan and (iii) as
set forth in this Section 4.4, there are no options, warrants, calls, rights,
commitments, agreements or arrangements of any character to which the Company is
a party or by which the Company is bound relating to the issued or unissued
capital stock of the Company or obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of the Company or obligating the Company
to grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement. There are no contracts, commitments or agreements relating
to voting, purchase or sale of the Company’s capital stock (i) between or among
the Company and any of its stockholders and (ii) between or among any of the
Company’s stockholders. True and complete copies of all agreements
and instruments relating to or issued under the Plan have been made available to
Purchaser and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form made available to
Purchaser.
4.5 No
Conflicts; Required Filings and Consents.
(a) Neither
the execution and delivery of this Agreement by the Company nor the consummation
of the transactions contemplated hereby will conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the
Certificate of Incorporation or Bylaws of the Company or any of its
subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets.
(b) No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”)
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws; and
(ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company and would not prevent, or materially alter or delay any of
the transactions contemplated by this Agreement.
-11-
4.6 Financial
Statements.
(a) As
of the Effective Date, Section 4.6 of the Company Disclosure Schedule includes a
true, correct and complete copy of the Company’s audited financial statements
for the fiscal year ended December 31, 2006, a draft copy of the Company’s
audited financial statements for the fiscal year ended December 31, 2007, a
draft of its unaudited financial statements (balance sheet, statement of
operations and statement of cash flows) on a consolidated basis as of September
30, 2008, and a draft of the Company’s unaudited financial statements (balance
sheet, statement of operations and statement of cash flows) as of December 31,
2008 (collectively, the “Financial
Statements”). Additionally, as of the Closing Date, the Financial
Statements set forth on Section 4.6 shall include a true, correct and complete
copy of the Company’s audited financial statements for the fiscal year ended
December 31, 2008 and unaudited financial statements (balance sheet, statement
of operations and statement of cash flows) on a consolidated basis as at, and
for the three-month period ended March 31, 2009 (the “1Q 2009 Unaudited Financial
Statements”). The Financial Statements have been prepared in accordance
with generally accepted accounting principles (“GAAP”) (except that
the unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each
other. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit
adjustments. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP. The 1Q 2009 Unaudited Financial Statements, shall reflect a zero balance
in the intercompany accounts payable and accounts receivable between the Company
and Seller, and such zero balance in the intercompany accounts payable and
accounts receivable will, and does, remain as of the Closing Date.
(b) The
Company and Seller hereby represent and warrant to Purchaser that as of the
Effective Date, the intercompany accounts payable and accounts receivable
between the Company and Seller shall have a zero balance (other than those
balances which relate exclusively the amounts utilized by Seller pursuant to the
Note that will be adjusted on the Closing Date.)
4.7 Absence
of Undisclosed Liabilities. Except as set forth in Schedule 4.7, the
Company has no material obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet for the period ended December 31,
2008 (the “Company
Balance Sheet”), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Company Balance Sheet under
GAAP, (iii) those incurred in the ordinary course of business since the
Company Balance Sheet Date and consistent with past practice, and
(iv) those incurred for professional services in connection with the
execution of this Agreement.
4.8 Absence
of Certain Changes. Except as set forth in Section 4.8 of the
Company Disclosure Schedule, since December 31, 2008 (the “Company Balance Sheet
Date”) there has not been, occurred or arisen any:
-12-
(a) transaction
by the Company, other than transactions in connection with elimination of
intercompany accounts, except in the ordinary course of business as conducted on
that date and consistent with past practice;
(b) amendments
or changes to the Certificate of Incorporation or Bylaws of the Company other
than as contemplated by this Agreement;
(c) capital
expenditure or commitment by the Company in any individual amount exceeding
$10,000.00 or in the aggregate, exceeding $50,000.00;
(d) destruction
of, damage to, or loss of any assets (including, without limitation, intangible
assets), business or customer of the Company (whether or not covered by
insurance) which would constitute a Material Adverse Effect;
(e) labor
trouble or claim of wrongful discharge or other unlawful labor practice or
action;
(f) change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates, any change in policies in making or reversing
accruals) by the Company;
(g) revaluation
by the Company of any of its assets;
(h) declaration,
setting aside, or payment of a dividend or other distribution in respect to the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of any of its capital stock, except repurchases
of the Company Common Stock from terminated Company employees or consultants at
the original per share purchase price of such shares;
(i) increase
in the salary or other compensation payable or to become payable by the Company
to any officers, directors, employees or consultants of the Company, except in
the ordinary course of business consistent with past practice, or the
declaration, payment, or commitment or obligation of any kind for the payment by
the Company of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement, or other than as set
forth in Section 4.16 below, the establishment of any bonus, insurance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation, the granting of stock options, stock appreciation rights,
performance awards), stock purchase or other employee benefit plan;
(j) sale,
lease, license or other disposition of any of the assets or properties of the
Company, except in the ordinary course of business and not in excess of
$10,000.00, in the aggregate;
(k) termination
or material amendment of any material contract, agreement or license (including
any distribution agreement) to which the Company is a party or by which it is
bound;
-13-
(l) loan
by the Company to any person or entity, or guaranty by the Company of any loan,
except for (i) travel or similar advances made to employees in connection
with their employment duties in the ordinary course of business, consistent with
past practice and (ii) trade payables not in excess of $50,000.00 in the
aggregate and in the ordinary course of business, consistent with past
practice;
(m) waiver
or release of any right or claim of the Company, except for intercompany
balances and doubtful allowances, including any write-off or other compromise of
any account receivable of the Company, in excess of $50,000.00 in the
aggregate;
(n) commencement
or notice or threat of commencement of any lawsuit or proceeding against or, to
the Company’s or the Company’s officers’ or directors’ knowledge, investigation
of the Company or its affairs;
(o) to
the Company’s knowledge, notice of any claim of ownership by a third party of
the Company’s Intellectual Property (as defined in Section 4.13 below) or, to
the Company’s knowledge, of infringement by the Company of any third party’s
Intellectual Property rights;
(p) issuance
or sale by the Company of any of its shares of capital stock, or securities
exchangeable, convertible or exercisable therefor, or of any other of its
securities, other than as contemplated by the Transaction
Agreements;
(q) material
changes in pricing or royalties set or charged by the Company to its customers
or licensees or in pricing or royalties set or charged by persons who have
licensed Intellectual Property to the Company;
(r) to
the Company’s knowledge, any event or condition of any character that has or
could reasonably be expected to have a Material Adverse Effect on the Company;
or
(s) agreement
by the Company, or any of its officers or employees on its behalf to do any of
the things described in the preceding clauses (a) through (r) (other than
negotiations with Purchaser and its representatives regarding the transactions
contemplated by this Agreement).
4.9 Litigation. Except
as set forth on Schedule 4.9, there is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the Company’s knowledge, threatened
against the Company or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the
Company. There is no judgment, decree or order against the Company
or, to the Company’s knowledge, any of its directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on the Company. All
litigation to which the Company is a party (or, to the knowledge of the Company,
threatened to become a party) is disclosed in the Company Disclosure
Schedule.
-14-
4.10 Restrictions
on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of the Company, any acquisition of
property by the Company or the overall conduct of business by the Company as
currently conducted or as proposed to be conducted by the
Company. The Company has not entered into any agreement under which
it is restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
4.11 Permits;
Company Products; Regulation.
(a) The
Company is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders necessary for the Company to own, lease and operate its properties or to
carry on its business as it is now being conducted (the “Company
Authorizations”) and no suspension or cancellation of any Company
Authorization is pending or, to the Company’s knowledge, threatened, except
where the failure to have, or the suspension or cancellation of, any Company
Authorization would not have a Material Adverse Effect on the
Company. The Company is not in conflict with, or in default or
violation of, (i) any laws applicable to the Company or by which any
property or asset of the Company is bound or affected, (ii) any Company
Authorization or (iii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company or any property or asset
of the Company is bound or affected, except for any such conflict, default or
violation that would not, individually or in the aggregate have a Material
Adverse Effect on the Company.
(b) Except
as would not have a Material Adverse Effect on the Company, since January 31,
2009, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured,
marketed or distributed at any time by the Company or by any agent on behalf of
the Company (the “Products”) is
defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the knowledge of the Company, the
Company has complied in all material respects with the laws, regulations,
policies, procedures and specifications with respect to the design, manufacture,
labeling, testing and inspection of the Products. Except as
disclosed in Section 4.11 of the Company Disclosure Schedule, since January 31,
2009, there have been no recalls, field notifications or seizures ordered or, to
the Company’s knowledge, threatened by any such governmental or regulatory body
with respect to any of the Products.
(c) The
Company has obtained, in all countries where either the Company or any agent of
the Company is marketing or has marketed the Company’s Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies in such countries regulating the safety,
effectiveness and market clearance of the Products currently or previously
marketed by the Company or its agents in such countries, except for any such
failures as would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The Company has identified and made available
for examination by Purchaser all information relating to regulation of its
Products, including licenses, registrations, approvals, permits, device listing,
inspections, the Company’s recalls and product actions, audits and the Company’s
ongoing field tests. The Company has
identified in writing to Purchaser all international locations where regulatory
information and documents are kept.
-15-
4.12 Title to
Property.
(a) The
Company has good and marketable title to all of its properties, interests in
properties and assets, real and personal, reflected in the Company Balance Sheet
or acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company Balance
Sheet Date in the ordinary course of business), all as set forth on the schedule
of assets listed in Section 4.12 of the Company Disclosure Schedule, or with
respect to leased properties and assets, valid leasehold interests in, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and payable,
(ii) such imperfections of title, liens and easements as do not and will
not materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties and (iii) liens securing debt which is reflected
on the Company Balance Sheet. The plants, property and equipment of
the Company that are used in the operations of its business are in good
operating condition and repair. All properties used in the operations
of the Company are reflected in the Company Balance Sheet to the extent GAAP
requires the same to be reflected. Section 4.12 of the Company
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by the Company, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and other fees
payable under such lease. Such leases are in good standing, are valid
and effective in accordance with their respective terms, and there is not under
any such leases any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(b) Section
4.12 of the Company Disclosure Schedule also sets forth a true, correct and
complete list of all equipment (the “Equipment”) owned or
leased by the Company, and such Equipment is, taken as a whole,
(i) adequate for the conduct of the Company’s business, consistent with its
past practice and (ii) in good operating condition (except for ordinary
wear and tear).
4.13 Intellectual
Property.
(a) The
Company owns, or is licensed or otherwise possesses legally enforceable rights
to use all patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, service marks, copyrights, and any applications for any of
the foregoing, net lists, schematics, industrial models, inventions, technology,
know-how, trade secrets, inventory, ideas, algorithms, processes, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material (“Intellectual
Property”) that are used or proposed to be used in the business of the
Company as currently conducted or as proposed to be conducted by the Company,
except to the extent that the failure to have such rights has not had and could
not reasonably be expected to have a Material Adverse Effect on the
Company.
-16-
(b) Section
4.13 of the Company Disclosure Schedule lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and mask work rights,
included in the Intellectual Property, including the jurisdictions in which each
such Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements to which the Company is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is authorized to use any
third party patents, trademarks or copyrights, including software (“Third Party Intellectual
Property Rights”) which are incorporated in, are, or form a part of any
products of the Company that are, individually or in the aggregate, material to
the business of the Company. The Company is not in violation of any
license, sublicense or agreement described in Section 4.13 of the Company
Disclosure Schedule. The execution and delivery of this Agreement by
the Company and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Section 4.13 of the Company
Disclosure Schedule, the Company is the sole and exclusive owner or licensee of,
with all right, title and interest in and to (free and clear of any liens), the
Intellectual Property, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which Intellectual Property is being
used.
(c) To
the Company’s knowledge, there is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of the
Company, any trade secret material to the Company or any Intellectual Property
right of any third party to the extent licensed by or through the Company, by
any third party, including any employee or former employee of the
Company. The Company has not entered into any agreement to indemnify
any other person against any charge of infringement of any Intellectual
Property, other than indemnification provisions contained in purchase orders
arising in the ordinary course of business.
(d) The
Company is not or will not be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Intellectual
Property or Third Party Intellectual Property Rights, the breach of which would
have a Material Adverse Effect on the Company.
-17-
(e) To
the Company’s knowledge, all patents, registered trademarks, service marks and
copyrights held by the Company are valid and existing and there is no assertion
or claim (or basis therefor) challenging the validity of any Intellectual
Property of the Company. The Company has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party. Neither the conduct of the
business of the Company as currently conducted or contemplated nor the
manufacture, sale, licensing or use of any of the products of the Company as now
manufactured, sold or licensed or used, nor the use in any way of the
Intellectual Property in the manufacture, use, sale or licensing by the Company
of any products currently proposed, infringes on or will infringe or conflict
with, in any way, any license, trademark, trademark right, trade name, trade
name right, patent, patent right, industrial model, invention, service mark or
copyright of any third party that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the
Company. All registered trademarks, service marks and copyrights held
by the Company are valid and subsisting. To the Company’s knowledge,
no third party is challenging the ownership by the Company, or validity or
effectiveness of, any of the Intellectual Property. The Company has
not brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party. There is no pending, or to the best of the Company’s
knowledge, threatened interference, re-examinations, oppositions or nullities
involving any patents, patent rights or applications therefor of the Company,
except such as may have been commenced by the Company. There is no
breach or violation of or threatened or actual loss of rights under any licenses
to which the Company is a party.
(f) The
Company has secured valid written assignments from all consultants and employees
who contributed to the creation or development of Intellectual Property of the
rights to such contributions that the Company does not already own by operation
of law.
(g) The
Company has taken all necessary and appropriate steps to protect and preserve
the confidentiality of all Intellectual Property not otherwise protected by
patents, patent applications or copyright (“Confidential
Information”). The Company has a policy requiring each of its
employees and contractors to execute proprietary information and confidentiality
agreements substantially in the Company’s standard forms and all current and
former employees and contractors of the Company have executed such an
agreement. All use, disclosure or appropriation of Confidential
Information owned by the Company by or to a third party has been pursuant to the
terms of a written agreement between the Company and such third
party. All use, disclosure or appropriation of Confidential
Information not owned by the Company has been pursuant to the terms of a written
agreement between the Company and the owner of such Confidential Information, or
is otherwise lawful.
4.14
Environmental
Matters.
(a) The
following terms shall be defined as follows:
(i) “Environmental
and Safety Laws”
shall mean any federal, state or local laws, ordinances, codes, regulations,
rules, policies and orders, as each may be amended from time to time, that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants; which regulate the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Materials (as defined below) or materials containing Hazardous
Materials; or which are intended to assure the protection, safety and good
health of employees, workers or other persons, including the
public.
-18-
(ii) “Hazardous
Materials” shall
mean any toxic or hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws; petroleum or petroleum
products including crude oil or any fractions thereof; natural gas, synthetic
gas, or any mixtures thereof; radon; asbestos; or any other pollutant or
contaminant
(iii) “Property” shall mean all real property
leased or owned by the Company either currently or in the past.
(iv) “Facilities” shall mean all buildings and
improvements on the Property of the Company.
(b) The
Company represents and warrants as follows: (i) no methylene
chloride or asbestos is contained in or has been used at or released from the
Facilities; (ii) all Hazardous Materials and wastes have been disposed of
in accordance with all Environmental and Safety Laws; and (iii) the Company
has received no notice (verbal or written) of any noncompliance of the
Facilities or of its past or present operations with Environmental and Safety
Laws; (iv) no notices, administrative actions or suits are pending or
threatened relating to Hazardous Materials or a violation of any Environmental
and Safety Laws; (v) the Company is not a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”), or state
analog statute, arising out of events occurring prior to the Closing;
(vi) there has not been in the past, and there is not now, any
contamination, disposal, spilling, dumping, incineration, discharge, storage,
treatment or handling of Hazardous Materials on, under or migrating to or from
the Facilities or Property (including without limitation, soils and surface and
ground waters); (vii) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells; (viii) there are no polychlorinated biphenyls (“PCBs”) deposited,
stored, disposed of or located on the Property or Facilities or any equipment on
the Property containing PCBs at levels in excess of 50 parts per million;
(ix) there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities; (x) the
Facilities and the Company’s uses and activities therein have at all times
complied with all Environmental and Safety Laws; (xi) the Company has all
the permits and licenses required to be issued and is in full compliance with
the terms and conditions of those permits; and (xii) the Company is not
liable for any off-site contamination under any Environmental and Safety
Laws.
4.15 Taxes.
(a) For
purposes of this Section 4.15 and other provisions of this Agreement relating to
Taxes, the following definitions shall apply:
-19-
(i) The
term “Taxes” shall mean all taxes, however denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
(A) imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including but not limited to, federal, state and foreign income taxes),
payroll and employee withholding taxes, unemployment insurance contributions,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, withholding taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers’ compensation, and other Tax of any
kind whatsoever, which are required to be paid, withheld or collected, in an
aggregate amount in excess of $10,000, (B) any liability for the payment of
amounts referred to in (A) as a result of being a member of any affiliated,
consolidated, combined or unitary group, or (C) any liability for amounts
referred to in (A) or (B) as a result of any obligations to indemnify another
person.
(ii) The
term “Returns”
shall mean all reports, estimates, declarations of estimated tax, information
statements and returns required to be filed in connection with any Taxes,
including information returns with respect to backup withholding and other
payments to third parties.
(b) Except
as set forth on Schedule 4.15, all Returns required to be filed by or on behalf
of the Company have been duly filed on a timely basis and such Returns are true,
complete and correct. All Taxes shown to be payable on such Returns
or on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of the Company under Section 6655 of
the Code or comparable provisions of state, local or foreign law, have been paid
in full on a timely basis, and no other Taxes are payable by the Company with
respect to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns). The Company has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of the Company with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that the Company is contesting in good faith through appropriate
proceedings. Except as set forth on Schedule 4.15, the Company has no
subsidiaries and has not at any time been a member of an affiliated group of
corporations filing consolidated, combined or unitary income or franchise tax
returns for a period for which the statute of limitations for any Tax
potentially applicable as a result of such membership has not
expired.
(c) The
amount of the Company’s liabilities for unpaid Taxes for all periods through the
date of the Financial Statements does not, in the aggregate, exceed the amount
of the current liability accruals for Taxes reflected on the Financial
Statements, and the Financial Statements properly accrue in accordance with GAAP
all liabilities for Taxes of the Company payable after the date of the Financial
Statements attributable to transactions and events occurring prior to such
date. No liability for Taxes of the Company has been incurred or
material amount of taxable income has been realized (or prior to and including
the Closing will be incurred or realized) since such date other than in the
ordinary course of business.
-20-
(d) Purchaser
has been furnished by the Company with true and complete copies of (i) all
relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company relating to
Taxes, and (ii) all federal, state and foreign income or franchise tax
returns and state sales and use tax Returns for or including the Company for all
periods since six
(6) full years preceding the date of this Agreement.
(e) No
audit of the Returns of or including the Company by a government or taxing
authority is in process, threatened or, to the Company’s knowledge, pending
(either in writing or orally, formally or informally). No
deficiencies exist or have been asserted (either in writing or orally, formally
or informally) or are expected to be asserted with respect to Taxes of the
Company, and the Company has not received notice (either in writing or orally,
formally or informally) nor does it expect to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid. The
Company is not a party to any action or proceeding for assessment or collection
of Taxes, nor, to the Company’s knowledge, has such event been asserted or
threatened (either in writing or orally, formally or informally) against the
Company, or any of its assets. No waiver or extension of any statute
of limitations is in effect with respect to Taxes or Returns of the
Company. The Company has disclosed on its federal and state income
and franchise tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Code Section 6662 or
comparable provisions of applicable state tax laws.
(f) The
Company is not (nor has it ever been) a party to any tax sharing
agreement. Since April 16, 1997, the Company has not been a
distributing corporation or a controlled corporation in a transaction described
in Section 355(a) of the Code.
(g) The
Company is not, nor has it been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. The Company is not a “consenting corporation” under Section
341(f) of the Code. The Company has not entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a nondeductible expense to the Company pursuant to Section 280G
or 162(m) of the Code or an excise tax to the recipient of such payment pursuant
to Section 4999 of the Code. The Company has not agreed to, nor is it
required to make, any adjustment under Code Section 481(a) by reason of, a
change in accounting method, and the Company will not otherwise have any income
reportable for a period ending after the Closing attributable to a transaction
or other event (e.g., an installment sale) occurring prior to the Closing with
respect to which the Company received the economic benefit prior to the
Closing. The Company is not, nor has it been, a “reporting
corporation” subject to the information reporting and record maintenance
requirements of Section 6038A and the regulations thereunder.
(h) The
Company Disclosure Schedule contains accurate and complete information regarding
the Company’s net operating losses for federal and each state tax
purposes. The Company has no net operating losses or credit
carryovers or other tax attributes currently subject to limitation under
Sections 382, 383, or 384 of the Code.
-21-
(i)
The Company shall not have any liability for Taxes of any person other than the
Company under (a) Treas. Reg. Section 1502-6 (or any similar provision of state,
local, or foreign law), (b) as a transferee or successor, (c) by contract, or
(d) otherwise.
(j) With
respect to each option and share of restricted stock, the Company and the
Stockholders warrant and represent that each such option has been granted with
an exercise price no lower than “fair market value” (determined in accordance
with Treas. Reg. Section 1.409A-1(b)(vi)) as of the grant date and that each
such grant does not provide for a deferral of compensation under Code section
409A. Each Company Employee Plan (as defined in Section 8(p) hereof) that
is a “nonqualified deferred compensation plan” (as defined in Code Section
409A(d)(1)) has been operated since January 1, 2005, in good faith compliance
with Code Section 409A and the rules and regulations issued
thereunder. No Company Employee Plan that is a “nonqualified deferred
compensation plan” has been materially modified (as determined under Treas. Reg.
Section 1.409A-6) after October 3, 2004. The Company is not a party
to, and is not otherwise obligated under, any Contract, plan or arrangement that
provides for the gross-up of the Tax imposed by Section 409A(a)(1)(B) of the
Code.
4.16 Employee
Benefit Plans.
(a) Schedule
4.16 lists, with respect to the Company and any trade or business (whether or
not incorporated) which is treated as a single employer with the Company (an
“ERISA
Affiliate”) within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (i) all employee benefit plans (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)),
(ii) each loan to a non-officer employee in excess of $10,000, loans to
officers and directors and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria benefit
(Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
contracts and agreements relating to employment that provide for annual
compensation in excess of $100,000 and all severance agreements, with any of the
directors, officers or employees of the Company (other than, in each case, any
such contract or agreement that is terminable by the Company at will or without
penalty or other adverse consequence), (iv) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of the Company and that do not
generally apply to all employees, and (vi) any current or former employment
or executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of the Company of greater than $50,000 remain for
the benefit of, or relating to, any present or former employee, consultant or
director of the Company (together, the “Company Employee
Plans”).
-22-
(b) The
Company has furnished to Purchaser a copy of each of the Company Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and, to the extent still in its possession, any material employee
communications relating thereto) and has, with respect to each Company Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any
Company Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service an opinion letter or
favorable determination letter as to its initial qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation; may rely on an opinion letter issued to a
prototype plan sponsor with respect to a standardized plan adopted by the
Company in accordance with the requirements for such reliance; or has applied to
the Internal Revenue Service for such a determination letter (or has time
remaining to apply for such a determination letter) prior to the expiration of
the requisite period under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination with respect
to all periods since the date of adoption of such Company Employee
Plan. The Company has also furnished Purchaser with the most recent
Internal Revenue Service determination letter issued with respect to each such
the Company Employee Plan, and nothing has occurred since the issuance of each
such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any the Company Employee Plan subject to Code Section
401(a).
(c) Except
as set forth in Section 4.16 of the Company Disclosure Schedule, (i) none
of Company Employee Plans promises or provides retiree medical or other retiree
welfare or life insurance benefits to any person; (ii) there has been no
“prohibited
transaction,” as such term is defined in Section 406 of ERISA and Section
4975 of the Code, and not exempt under Section 408 of ERISA or Section 4975 of
the Code, with respect to any Company Employee Plan, which could reasonably be
expected to have, in the aggregate, a Material Adverse Effect; (iii) each
Company Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect, and the Company or ERISA Affiliate have
performed all obligations required to be performed by them under, are not in any
material respect in default, under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Company Employee
Plans; (iv) neither the Company nor any ERISA Affiliate is subject to any
liability or penalty under Sections 4976 through 4980D of the Code or
Title I of ERISA with respect to any of the Company Employee Plans;
(v) all material contributions required to be made by the Company or any
ERISA Affiliate to any Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Company Employee Plan for the current plan years; (vi) with respect to each
Company Employee Plan, no “reportable event”
within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company
Employee Plan is covered by, and neither the Company nor any ERISA Affiliate has
incurred or expects to incur any direct or indirect liability under, arising out
of or by operation of Title IV of ERISA in connection with the termination
of, or an employee’s withdrawal from, any Company Employee Plan or other
retirement plan or arrangement, and no fact or event exists that could give rise
to any such liability, or under Section 412 of the Code; and (viii) no
compensation paid or payable to any employee of the Company has been, or will
be, non-deductible by reason of application of Section 162(m) or 280G of the
Code. With respect to each Company Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA
or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, the Company has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
the Company Employee Plan. No suit, administrative proceeding, action
or other litigation has been brought, or to the best knowledge of the Company is
threatened, against or with respect to any such the Company Employee Plan,
including any audit or inquiry by the IRS or United States Department of
Labor. Neither the Company nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
“multiemployer
plan” as defined in Section 3(37) of ERISA.
-23-
(d) With
respect to each Company Employee Plan, the Company has complied with
(i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the
regulations thereunder or any similar applicable state law, (ii) the applicable
requirements of the Health Insurance Portability Amendments Act (“HIPAA”) and
the regulations thereunder and (iii) the applicable requirements of the
Family Medical Leave Act of 1993 and the regulations thereunder or any similar
applicable state law, except to the extent that failure to comply would not, in
the aggregate, have a Material Adverse Effect.
(e) Except
as set forth on Schedule 4.16(e), the
consummation of the transactions contemplated by this Agreement will not
(i) entitle any current or former employee or other service provider of the
Company or any ERISA Affiliate to severance benefits or any other payment
(including, without limitation, unemployment compensation, golden parachute or
bonus), except as expressly provided in this Agreement, or (ii) accelerate
the time of payment or vesting of any such benefits, or increase the amount of
compensation due any such employee or service provider.
(f) There
has been no amendment to, written interpretation or announcement (whether or not
written) by the Company or any ERISA Affiliate relating to, or change in
participation or coverage under, any the Company Employee Plan which would
materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan for the most recent fiscal year
included in the Company’s financial statements.
4.17 Effect on
Other Certain Agreements. Except as set forth on Schedule 4.17,
neither the execution and delivery of this Agreement or the Transaction
Agreements nor the consummation of the transactions contemplated hereby or
thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of the Company, (ii) materially
increase any benefits otherwise payable by the Company or (iii) result in
the acceleration of the time of payment or vesting of any such
benefits.
-24-
4.18 Employee
Matters.
(a) Except
as set forth on Schedule 4.18, the
Company is in compliance in all material respects with all currently applicable
laws and regulations respecting employment, discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices, and is not engaged in any unfair labor
practice. There are no pending claims against the Company under any
workers compensation plan or policy or for long term disability. The
Company does not have any material obligations under COBRA or any similar state
law with respect to any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or, to the Company’s
knowledge, threatened, between the Company and any of its employees or former
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect on the Company. The Company is not a party to
any collective bargaining agreement or other labor unions contract nor does the
Company know of any activities or proceedings of any labor union or organize any
such employees. The Company has not incurred any liability under, and
has complied in all respects with, the Worker Adjustment Retraining Notification
Act (the “WARN
Act”), and no fact or event exists that could give rise to liability
under the WARN Act. Section 4.18 of the Company Disclosure Schedule
contains a list of all employees who are currently on a leave of absence
(whether paid or unpaid), the reasons therefor, the expected return date, and
whether reemployment of such employee is guaranteed by contract or statute, and
a list of all employees who have requested a leave of absence to commence at any
time after the date of this Agreement, the reason therefor, the expected length
of such leave, and whether reemployment of such employee is guaranteed by
contract or statute.
(b) The
Company is in compliance with all federal, state and local laws governing the
employment and sponsorship of foreign nationals employed by the Company and is
not required to make any filing with or give any notice to, or to obtain any
consent from, any governmental body in connection with employment by the Company
of any employee who is a foreign national. There is no pending legal proceeding,
and no governmental agency has threatened to commence any legal proceeding,
against the Company or that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with the
employment by the Company of any employee who is a foreign
national. There is no order, writ, injunction or decree which has
been entered against the Company preventing or delaying the employment by the
Company of any employee who is a foreign national.
4.19 Material
Contracts.
(a) Section
4.19 of the Company Disclosure Schedule contains a list of all contracts and
agreements to which the Company is a party and that are material to the
business, results of operations, or condition (financial or otherwise), of the
Company (such contracts, agreements and arrangements as are required to be set
forth in Section 4.19 of the Company Disclosure Schedule being referred to
herein collectively as the “Material
Contracts”). “Material Contracts”
shall include, without limitation, the following and shall be categorized in the
Company Disclosure Schedule as follows:
-25-
(i) each
contract and agreement (other than routine purchase orders and pricing quotes in
the ordinary course of business covering a period of less than one year) for the
purchase of inventory, spare parts, other materials or personal property with
any supplier or for the furnishing of services to the Company under the terms of
which the Company: (A) paid or otherwise gave consideration of
more than $5,000.00 in the aggregate during the calendar year ended
December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $5,000.00 in the aggregate over the remaining term of
such contract or (C) cannot be canceled by the Company without penalty or
further payment of less than $5,000.00;
(ii) each
customer contract and agreement (other than routine purchase orders, pricing
quotes with open acceptance and other tender bids, in each case, entered into in
the ordinary course of business and covering a period of less than one year) to
which the Company is a party which (A) involved consideration of more than
$5,000.00 in the aggregate during the calendar year ended December 31,
2008, ((B) is likely to pay or otherwise give consideration of more than
$5,000.00 in the aggregate over the remaining term of such contract or
(C) cannot be canceled by the Company without penalty or further payment of
less than $5,000.00;
(iii) (A) all
distributor, manufacturer’s representative, broker, franchise, agency and dealer
contracts and agreements to which the Company is a party (specifying on a
matrix, in the case of distributor agreements, the name of the distributor,
product, territory, termination date and exclusivity provisions) and
(B) all sales promotion, market research, marketing and advertising
contracts and agreements to which the Company is a party
which: (1) involved consideration of more than $5,000.00 in the
aggregate during the calendar year ended December 31, 2008 or (2) are
likely to involve consideration of more than $5,000.00 in the aggregate over the
remaining term of the contract;
(iv) all
management contracts with independent contractors or consultants (or similar
arrangements) to which the Company is a party and which (A) involved
consideration or more than $5,000.00 in the aggregate during the calendar year
ended December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $5,000.00 in the aggregate over the remaining term of
such contract or (C) cannot be canceled by the Company without penalty or
further payment of less than $5,000.00;
(v) all
contracts and agreements (excluding routine checking account overdraft
agreements involving petty cash amounts) under which the Company has created,
incurred, assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness or under which the Company has imposed (or may impose) a security
interest or lien on any of their respective assets, whether tangible or
intangible, to secure indebtedness;
(vi) all
contracts and agreements that limit the ability of the Company to
compete in any line of business or with any person or in any geographic area or
during any period of time, or to solicit any customer or client;
(vii) all
contracts and agreements between or among the Company, on the one hand, and any
affiliate of the Company, on the other hand:
(viii) all
contracts and agreements to which the Company is a party under which it has
agreed to supply products to a customer at specified prices, whether directly or
through a specific distributor, manufacturer’s representative or dealer;
and
-26-
(ix) all
other contracts or agreements (A) which are material to the Company or the
conduct of their respective businesses or (B) the absence of which would
have a Material Adverse Effect on the Company or (C) which are believed by
the Company to be of unique value even though not material to the business of
the Company.
(b) Except
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, each Company license and each Material Contract, is a legal,
valid and binding agreement, and none of the Company licenses or Material
Contracts is in default by its terms or has been canceled by the other party;
the Company is not in receipt of any claim of default under any such agreement;
and the Company does not anticipate any termination of or change to, or receipt
of a proposal with respect to, any such agreement as a result of the
transactions contemplated by this Agreement. The Company has
furnished Purchaser with true and complete copies of all such agreements
together with all amendments, waivers or other changes thereto.
4.20 Interested
Party Transactions. Except as set forth on Schedule 4.20, the
Company is not directly or indirectly indebted to any director, officer,
employee or agent of the Company (each of the foregoing, an “Interested Party”)
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), nor is the Company directly or indirectly indebted to any
members of the immediate families of any Interested Party, and no such
Interested Parties or members of their immediate families are directly or
indirectly indebted to the Company. No Interested Parties
have any direct or indirect ownership or financial interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that Interested Parties and members of their families may own
stock in (but not exceeding two percent (2%) of the outstanding capital stock
of) any publicly traded companies that may compete with the
Company. No Interested Party or any members of their immediate
families are, directly or indirectly, interested in any material contract with
the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.21 Insurance. The
Company has policies of insurance and bonds of the type and in the amounts
customarily carried by persons conducting businesses or owning assets similar to
those of the Company. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in compliance with the terms of such policies and
bonds. The Company has no knowledge of any threatened termination of,
or material premium increase with respect to, any of such policies.
4.22 Compliance
With Laws. The Company has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not reasonably be expected to have a
Material Adverse Effect on the Company.
-27-
4.23 Minute
Books. The minute books of the Company made available to
Purchaser contain a complete summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects. The
minute books shall remain available for Purchaser from the period beginning on
the effective date through the earlier to occur of (i) the Closing or (ii) the
Option Termination Date.
4.24 Complete
Copies of Materials. The Company has delivered or made
available true and complete copies of each document which has been requested by
Purchaser or its counsel in connection with their legal and accounting review of
the Company.
4.25 Brokers’
and Finders’ Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.
4.26 Board
Approval. The Board of Directors of the Company has
unanimously approved this Agreement and the Transaction Agreements and the
transactions contemplated hereunder and thereunder.
4.27 Inventory. The
inventories shown on the Financial Statements or thereafter acquired by the
Company consist of items of a quantity and quality usable or salable in the
ordinary course of business. Since January 31, 2009, the Company has
continued to replenish inventories in a normal and customary manner consistent
with past practice. The Company has not received written or oral
notice that it will experience in the foreseeable future any difficulty in
obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its
products. The values at which inventories are carried reflect the
inventory valuation policy of the Company, which is consistent with its past
practice and in accordance with GAAP applied on a consistent
basis. Due provision has been made on the books of the Company in the
ordinary course of business consistent with past practice to provide for all
slow-moving, obsolete, or unusable inventories at their estimated useful scrap
values and such inventory reserves are adequate to provide for such slow-moving,
obsolete or unusable inventory and inventory shrinkage.
4.28 Accounts
Receivable.
(a) The Company
has made available to Purchaser a list of all accounts receivable of the Company
reflected on the Financial Statements (“Accounts Receivable”)
along with a range of days elapsed since invoice.
(b) All
Accounts Receivable of the Company arose in the ordinary course of business and
are carried at values determined in accordance with GAAP consistently applied.
No person has any lien on any of such Accounts Receivable and no request or
agreement for deduction or discount has been made with respect to any of such
Accounts Receivable.
-28-
(c) All of the
inventories of the Company reflected in the Financial Statements and the
Company’s books and records on the date hereof were purchased, acquired or
produced in the ordinary and regular course of business and in a manner
consistent with the Company’s regular inventory practices and are set forth on
the Company’s books and records in accordance with the practices and principles
of the Company consistent with the method of treating said items in prior
periods. None of the inventory of the Company reflected on the
Financial Statements or on the Company’s books and records as of the date hereof
(in either case net of the reserve therefor) is obsolete, defective or in excess
of the needs of the business of the Company reasonably anticipated for the
normal operation of the business consistent with past practice and outstanding
customer contracts. The presentation of inventory on the Financial
Statements conforms to GAAP and such inventory is stated at the lower of cost or
net realizable value.
4.29 Customers
and Suppliers. As of the date hereof, no customer which
individually accounted for more than ten percent (10%) of the Company’s gross
revenues during the twelve (12) month period preceding the date hereof, and no
supplier of the Company, has canceled or otherwise terminated, or made any
written threat to the Company to cancel or otherwise terminate its relationship
with the Company, or has at any time on or after December 31, 2008 decreased
materially its services or supplies to the Company in the case of any such
supplier, or its usage of the services or products of the Company in the case of
such customer, and to the Company’s knowledge, no such supplier or customer
intends to cancel or otherwise terminate its relationship with the Company or to
decrease materially its services or supplies to the Company or its usage of the
services or products of the Company, as the case may be. From and
after the date hereof, no customer which individually accounted for more than
ten percent (10%) of the Company’s gross revenues during the twelve (12) month
period preceding the Closing, has canceled or otherwise terminated, or made any
written threat to the Company to cancel or otherwise terminate, for any reason,
including without limitation the consummation of the transactions by this
Agreement, its relationship with the Company, and to the Company’s knowledge, no
such customer intends to cancel or otherwise terminate its relationship with the
Company or to decrease materially its usage of the services or products of the
Company. The Company has not knowingly breached, so as to provide a
benefit to the Company that was not intended by the parties, any agreement with,
or engaged in any fraudulent conduct with respect to, any customer or supplier
of the Company.
4.30 Third
Party Consents. Except as set forth on Schedule 4.30, no
consent or approval is needed from any third party in order to effect this
Agreement or any of the transactions contemplated hereby.
4.31 No
Commitments Regarding Future Products. The Company has
made no sales to customers that are contingent upon providing future
enhancements of existing products, to add features not presently available on
existing products or to otherwise enhance the performance of its existing
products (other than beta or similar arrangements pursuant to which the
Company’s customers from time to time test or evaluate products). The
products the Company has delivered to customers substantially comply with
published specifications for such products and the Company has not received
material complaints from customers about its products that remain
unresolved. Section 4.31 of the Company Disclosure Schedule
accurately sets forth a complete list of products in development (exclusive of
mere enhancements to and additional features for existing
products).
-29-
4.32 Representations
Complete. None of the representations or warranties made by
the Company in this Agreement or in any attachment hereto, including the Company
Disclosure Schedule, or certificate furnished by the Company pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Closing any untrue statement of a material fact, or omits
or will omit at the Closing to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
SECTION
5
REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller
hereby represents and warrants to Purchaser as of the Effective Date and as of
the Closing Date, as applicable, as follows:
5.1 Power,
Authorization and Validity. Seller has all requisite legal
and, to the extent applicable, corporate power, and authority to enter into and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly approved and authorized by all necessary action, including, if
applicable, corporate action, by Seller. This Agreement has been duly
executed and delivered by Seller and constitutes a valid and binding obligation
of the Seller, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief and equitable remedies. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Seller
in connection with the execution and delivery of this Agreement by Seller or the
consummation by Seller of the transactions contemplated hereby.
5.2 Title to
Shares. Seller is the sole owner of the Shares and has, and
will have, as of the Closing, good, valid and marketable title to such Shares
free and clear of all restrictions, claims, liens, charges, encumbrances and
equities whatsoever. Seller represents that it has or will have, as
of the Closing, full right, power and authority to sell, transfer and deliver
such Shares to Purchaser, and, upon delivery of the certificate or certificates
therefor duly endorsed for transfer to Purchaser and Purchaser’s payment for and
acceptance thereof, will transfer to Purchaser good, valid and marketable title
thereto free and clear of any restriction, claim, lien, charge, encumbrance or
equity whatsoever. Seller is not party to any voting trust, agreement
or arrangement affecting the exercise of the voting rights of the
Shares. There is no action, proceeding, claim or, to the Seller’s
knowledge, investigation against Seller or Seller’s assets,
properties or, as applicable, any of the Seller’s respective officers or
directors, pending or, to the Seller’s knowledge, threatened, at law or in
equity, or before any court, arbitrator or other tribunal, or before any
administrative law judge, hearing officer or administrative agency relating to
or in any other manner impacting upon the Shares held by Seller.
-30-
5.3 No
Violation. The execution, delivery and performance of this
Agreement and the consummation of transactions contemplated hereby do not and
will not (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or constitute a default or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the Shares under, (a) any instrument, indenture, lease, mortgage or
other agreement or contract to which Seller is a party or to which Seller or any
of Seller’s assets or properties may be subject or (b) any federal, state,
local or foreign judgment, writ, decree, order, ordinance, statute, rule or
regulation applicable to the Seller or Seller’s assets or
properties. The consummation of the Purchase and the other
transactions contemplated by this Agreement will not require the consent of any
third person with respect to the rights, licenses, franchises, leases or
agreements of the Seller.
5.4 Acknowledgment. Seller
hereby acknowledges that it and its legal counsel have read this Agreement and
the other documents to be delivered in connection with the consummation of the
transactions contemplated hereby and has made an independent examination of the
transactions contemplated hereby (including the tax consequences
thereof). Seller acknowledges that it has had an opportunity to
consult with and has relied solely upon the advice, if any, of Seller’s legal
counsel, financial advisors, or accountants with respect to the transactions
contemplated hereby to the extent Seller has deemed necessary, and has not been
advised or directed by Purchaser or their respective legal counsel or other
advisors in respect of any such matters and has not relied on any such parties
in connection with this Agreement and the transactions contemplated
hereby.
5.5 Board and
Stockholder Approval. The Board of Directors of Seller has
unanimously (i) approved this Agreement and the transactions contemplated
hereunder, and (ii) determined that the purchase of the Shares by Purchaser
is in the best interests of the stockholders of Seller. As of the
Effective Date, Seller has obtained a stockholder agreement and irrevocable
proxy (the “Proxy”), in form and
substance acceptable to Purchaser, from Seller’s stockholders holding at least
51% of the outstanding stock (the “Majority
Stockholders”) of the Seller, evidencing the consent by the Majority
Stockholders to the Purchase and related transactions as described in the
Definitive Information Statement. As of the Closing Date, (i) the
Definitive Information Statement has been reviewed by the Securities and
Exchange Commission, (ii) has become effective under the applicable provisions
of the Securities Exchange Act of 1934, as amended, (iii) has been delivered to
the stockholders of Seller, and (iv) Seller has obtained the requisite consents
of its stockholders required by all applicable federal and state laws approving
the terms of this Agreement and related transactions described in the Definitive
Information Statement.
SECTION
6
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
hereby represents and warrants to Seller and the Company as of the Effective
Date and as of the Closing Date as follows:
-31-
6.1 Organization,
Standing and Power. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Purchaser has the corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Purchaser.
6.2 Authority. Purchaser
has all requisite corporate power and authority to enter into 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 authorized by all necessary corporate action on the part
of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and constitutes the valid and binding obligation of Purchaser
enforceable against the Purchaser in accordance with its terms.
6.3 No
Conflict; Required Filings and Consents.
(a) The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the
Certificate of Incorporation or Bylaws of Purchaser, as amended, or
(ii) any material mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Purchaser or its
properties or assets.
(b) No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to
Purchaser in connection with the execution and delivery of this Agreement by
Purchaser or the consummation by Purchaser of the transactions contemplated
hereby, except for consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Purchaser and would not prevent, materially alter or delay any the
transactions contemplated by this Agreement.
6.4 Governmental
Authorization. Purchaser has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity that is required for the operation of
Purchaser’s business (“Purchaser
Authorizations”), and all of such Purchaser Authorizations are in full
force and effect, except where the failure to obtain or have any of such
Purchaser Authorizations could not reasonably be expected to have a Material
Adverse Effect on Purchaser.
6.5 Broker’s
and Finders’ Fees. Purchaser has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.
-32-
SECTION
7
CONDITIONS
TO CLOSING
7.1 Conditions
to Obligations of Each Party. The respective obligations under
this Agreement of each party hereto shall be subject to the satisfaction on or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, by agreement of all the parties:
(a) Conditions
to Obligations of Each Party. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated hereby, which makes the
consummation of such transactions illegal.
(b) Governmental
Approval. Purchaser, Seller and the Company shall have timely
obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for consummation of or in connection with the transactions
contemplated hereby.
7.2 Additional
Conditions to Obligations of Seller and the Company. The
obligations of Seller and the Company under this Agreement shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, by Seller and the Company:
(a) Representations,
Warranties and Covenants (i) Each of the representations
and warranties of Purchaser in this Agreement that is expressly qualified by a
reference to materiality shall be true in all respects as so qualified, and each
of the representations and warranties of Purchaser in this Agreement that is not
so qualified shall be true and correct in all material respects, on and as of
the Closing as though such representation or warranty had been made on and as of
the Closing (except that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date), and (ii) Purchaser shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by Purchaser as of the
Closing.
(b) No
Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Purchaser and its subsidiaries, taken as a
whole.
(c) Compliance
Certificate of Purchaser. The Company shall
have been provided with a certificate executed on behalf of Purchaser by its
President and its Chief Financial Officer to the effect that, as of the Closing,
each of the conditions set forth in Section 7.2(a) and (b) above has been
satisfied with respect to Purchaser.
-33-
7.3 Additional
Conditions to the Obligations of Purchaser. The obligations of
Purchaser under this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, by Purchaser:
(a) Representations,
Warranties and Covenants. (i) Each of the representations
and warranties of the Company and Seller in this Agreement that is expressly
qualified by a reference to materiality shall be true in all respects as so
qualified, and each of the representations and warranties of the Company and
Seller in this Agreement that is not so qualified shall be true and correct in
all material respects, on and as of the Closing as though such representation or
warranty had been made on and as of the Closing (except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date), and (ii) the Company
and Seller shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by them as of the Closing.
(b) No
Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of the Company.
(c) Certificates
of the Company and Seller.
(i) Compliance
Certificate of the Company. Purchaser shall have been provided
with a certificate executed on behalf of the Company by its Chief Executive
Officer and its Chief Financial Officer to the effect that, as of the Closing,
each of the conditions set forth in Section 7.3(a) and (b) above has been
satisfied.
(ii) Compliance
Certificate of Seller. Purchaser shall have been provided with
a certificate executed on behalf of the Seller by its Chief Executive Officer
and its Chief Financial Officer to the effect that, as of the Closing, each of
the conditions set forth in Section 7.3(a) and (b) above has been
satisfied.
(iii) Certificate
of Chief Financial Officer. Purchaser shall have been provided
with a certificate executed on behalf of by the Company by its Chief Financial
Officer certifying that, as of the Closing:
(A) as
per the Company’s audited financial statements for the fiscal year ended
December 31, 2008 (I) the Company’s Gross Revenues for the fiscal year ended
December 31, 2008 equaled or exceeded $20 million, and (II) the Company’s EBITDA
for the fiscal year ended December 31, 2008 equaled or exceeded $1.5 million;
and
(B) the
Company has employed or retained a minimum of 175 employees or consultants
working on a full-time basis in support of the operations of the
Company.
-34-
(iv) Certificate
of Secretary of the Company. Purchaser shall have been provided with a
certificate executed by the Secretary of the Company certifying that, as of the
Effective Date and the Closing Date:
(A) resolutions
duly adopted by the Board of Directors of the Company authorizing the execution
of this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) the
Certificate of Incorporation and Bylaws of the Company, as in effect immediately
prior to the Closing, including all amendments thereto; and
(C) the
incumbency of the officers of the Company executing this Agreement and all
agreements and documents contemplated hereby.
(D) resolutions
duly adopted by the Board of Directors of the Company providing for (i) the
amendment of the Company’s Bylaws (if required) to increase the number of
authorized directors to five (5), and (ii) the appointment of two (2) new
directors who shall be designated by Purchaser. One of Purchaser’s
designees shall be Rajkumar Velagapudi (who shall be appointed or elected to
serve as chairman of the Board of Directors upon his appointment to Board of
Directors) and the other of whom shall be Sudhakar Konbisetty.
(v) Certificate
of Secretary of Seller. Purchaser shall have been provided with a
certificate executed by the Secretary of the Seller certifying that, as of the
Closing:
(A) resolutions
duly adopted by the Board of Directors of the Seller authorizing the execution
of this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) that
the Seller has obtained the requisite consent of its stockholders required under
applicable federal and state law to the consummation of the transactions
contemplated by this Agreement as described in the Definitive Information
Statement; and
(C) the
incumbency of the officers of the Seller executing this Agreement and all
agreements and documents contemplated hereby.
(d) Third
Party Consents. Purchaser shall have been furnished with
evidence satisfactory to it that Seller and the Company have obtained those
consents, waivers, approvals or authorizations of those Governmental Entities
and third parties whose consent or approval are required in connection with this
Agreement.
(e) Injunctions
or Restraints; Conduct of Business. No proceeding brought by
any administrative agency or commission of other governmental authority or
instrumentality, domestic or foreign, seeking to prevent the consummation of the
transactions contemplated by this Agreement shall be pending. In
addition, no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint provision limiting or restricting Purchaser’s conduct or
operation of the business of the Company, following the Closing shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
-35-
(f) Resignation
of Directors. Purchaser shall have received letters of
resignation from Joseph Perno and Charlotte Denenberg resigning as directors of
the Company which resignations in each case shall be effective as of the
Closing.
(g) Employment
and Non-Competition
Agreements. All
of the non-billable Schedule 1B Employees set forth on Schedule 1 shall have
executed a Non-Competition Agreement substantially in the form attached hereto
as Exhibit B-2 to
the extent required by Section 2.4(b)(iv).
(h) Assignments. The
assignments contemplated in Section 2.3(a)(iv) shall have been completed and
Seller shall have delivered to Purchaser (i) a schedule of assets transferred by
such assignments and (ii) satisfactory evidence of such
assignments.
SECTION
8
INDEMNIFICATION;
REMEDIES
8.1 Survival
of Covenants, Representations and Warranties. Subject to the
third sentence of this Section 8.1, all covenants to be performed entirely prior
to the Closing Date (“Pre-Closing Covenants”) and all representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the consummation of the Purchase and continue until
twelve (12) months after consummation of the Purchase; provided that
representations, warranties and covenants relating to Taxes (Sections 4.15 and
11) and Employee Benefit Plans (in Section 4.16) shall survive until 30 days
after expiration of all applicable statutes of limitations relating to such
matters (each of the foregoing dates, the applicable “Indemnity Termination
Date”). All covenants set forth herein to be performed
partially or entirely after the Closing Date (“Post-Closing
Covenants”) and their corresponding Indemnity Termination Dates shall
survive the Closing and continue until specifically limited by the terms of such
Post-Closing Covenants. Notwithstanding the foregoing, if any claims
for indemnification have been asserted with respect to any covenants or
representations and warranties prior to the applicable Indemnity Termination
Date, the covenants or representations and warranties on which any such claims
are based shall continue in effect until final resolution of such
claims. The right to indemnification, reimbursement or other remedy
based upon such representations, warranties, covenants and obligations shall not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with any such representation,
warranty, covenant or obligation. The waiver of any condition based upon the
assumed accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, reimbursement or other remedy based upon such representations,
warranties, covenants and obligations.
-36-
8.2 Indemnification. Subject
to the limitations set forth in Section 8.3 below, from and after the
Closing Date, the Seller and the Company (each an “Indemnifying Person”
and collectively the “Indemnifying
Persons”) shall, jointly and severally, protect, defend, indemnify and
hold harmless Purchaser and its affiliates, officers, directors, employees,
representatives and agents (each an “Indemnified Person,”
and collectively the “Indemnified Persons”)
from and against any and all losses, costs, damages, liabilities, fees
(including without limitation attorneys’ fees) and expenses (collectively, the
“Damages”),
that any of the Indemnified Persons incurs or reasonably anticipates incurring
by reason of or in connection with any claim, demand, action or cause of
action: (i) alleging misrepresentation, breach of, or default in
connection with, any of the representations, warranties, covenants or agreements
of the Company or Seller contained in this Agreement or the Transaction
Agreements, including any exhibits or schedules attached hereto, which becomes
known to Purchaser prior to the applicable Indemnity Termination Date; (ii)
based on the failure of the Company or the Seller to perform any of their
respective obligations under this Agreement or the Transaction Agreements, which
failure becomes known to Purchaser prior to the applicable Indemnity Termination
Date; (iii) brought by any employees or consultants of the Company within twelve
(12) months following the Closing Date who were terminated prior to the Closing
Date; or (iv) stemming from an “Event of Default” as
defined in (a) the Convertible Promissory Note, (b) the Convertible Promissory
Note Purchase Agreement, (c) the Credit Agreement, (d) the Stock Pledge
Agreement, (e) the Security Agreement, or (f) the Guarantee
Agreement. Damages in each case shall be net of the amount of any
insurance proceeds and indemnity and contribution actually recovered by
Purchaser.
8.3 Limitations
on Indemnity. Subject to Section 8.7 below, the Indemnifying
Persons shall not be liable to the Indemnified Persons under this Section 8 for
any Damages until the amount otherwise due exceeds Fifty Thousand Dollars
($50,000), in which case the Indemnifying Persons shall be liable to the
Indemnified Persons for all amounts due including the first Fifty Thousand
Dollars ($50,000), provided however, that the Indemnifying Persons’ collective
maximum liability to the Indemnified Persons under this Section 8 for all
Damages shall be capped at $4,000,000.00 plus the amounts paid to Seller
pursuant to Section 3.1 hereof (amounts paid under the Bonus Pool under Section
3.1 shall not be considered for the purposes of this Section
8.3). The foregoing notwithstanding, and regardless of any
disclosures made on the Company Disclosure Schedule, any Damages related to the
Company’s ownership of any subsidiary (beginning with the first dollar of such
Damages) shall be born one hundred percent (100%) by Seller. Any amounts that
are to be paid to Indemnified Persons hereunder may be withheld by Purchaser
from payments due Seller under Section 2.2 and any earn-out payments that would
otherwise be payable pursuant to Section 3, provided however, that Seller shall
be responsible to pay any amounts owed to any Indemnified Persons in excess of
such amounts that may be withheld by Purchaser, subject to the limitations on
total liability specified above. The limitations set forth in this
Section 8.3 shall not apply to any liability for breaches of the representations
and warranties set forth in Section 4.1 (Organization, Standing and Power;
Subsidiaries), Section 4.2 (Articles of Incorporation and Bylaws), Section 4.3
(Capital Structure), Section 4.4 (Authority), Section 4.15 (Taxes), Section 4.22
(Compliance With Laws), and Section 11 (Tax Matters) if no appropriate
disclosure was made with respect thereto in the corresponding disclosure
schedules.
-37-
|
|
8.4
|
Third-Party
Claims.
|
(a) Promptly
after receipt by an Indemnified Person of notice of the assertion of a claim by
a third party (a “Third-Party Claim”)
against it, such Indemnified Person shall give notice to the Indemnifying
Persons of the assertion of such Third-Party Claim, provided that the failure to
notify the Indemnifying Persons will not relieve the Indemnifying Persons of any
liability that they may have to any Indemnified Person, except to the extent
that the Indemnifying Persons demonstrate that the defense of such Third-Party
Claim is prejudiced by the Indemnified Person’s failure to give such
notice. In any such event the Indemnified Person shall reasonably
cooperate with the Indemnifying Persons in providing access to information
within the control of the Indemnified Person that may be relevant to the Third
Party Claim.
(b) If
an Indemnified Person gives notice to the Indemnifying Persons pursuant to
Section 8.4(a) of the assertion of a Third-Party Claim, the Indemnifying Persons
shall be entitled to participate in the defense of such Third-Party Claim and,
to the extent that the Indemnifying Persons wish (unless (i) any Indemnifying
Person is also a party against whom the Third-Party Claim is made and the
Indemnified Person determines in good faith that joint representation would be
inappropriate or (ii) the Indemnifying Persons fail to provide reasonable
assurance to the Indemnified Person of their financial capacity to defend such
Third-Party Claim and provide indemnification with respect to such Third-Party
Claim), to assume the defense of such Third-Party Claim with counsel reasonably
satisfactory to the Indemnified Person. After notice from the
Indemnifying Persons to the Indemnified Person of their election to assume the
defense of such Third-Party Claim, the Indemnifying Persons shall not, so long
as they diligently conduct such defense, be liable to the Indemnified Person
under this Section 8 for any fees of other counsel or any other expenses with
respect to the defense of such Third-Party Claim, in each case subsequently
incurred by the Indemnified Person in connection with the defense of such
Third-Party Claim, other than reasonable costs of investigation. If the
Indemnifying Persons assume the defense of a Third-Party Claim, (i) such
assumption will conclusively establish for purposes of this Agreement that the
claims made in that Third-Party Claim are within the scope of and subject to
indemnification, and (ii) no compromise or settlement of such Third-Party Claim
may be effected by the Indemnifying Person without the Indemnified Person’s
consent unless (A) there is no finding or admission of any violation of a legal
requirement or any violation of the rights of any Indemnified Person; (B) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Persons; and (C) the Indemnified Person shall have no liability
with respect to any compromise or settlement of such Third-Party Claims effected
without its consent. If notice is given to the Indemnifying Persons
of the assertion of any Third-Party Claim and the Indemnifying Persons do not,
within ten (10) days after the Indemnified Person’s notice is given, give notice
to the Indemnified Person of their election to assume the defense of such
Third-Party Claim, the Indemnifying Persons will be bound by any determination
made in such Third-Party Claim or any compromise or settlement effected by the
Indemnified Person.
(c) Notwithstanding
the foregoing, if an Indemnified Person determines in good faith that there is a
reasonable probability that a Third-Party Claim may adversely affect it or its
Affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the Indemnified Person may, by
notice to the Indemnifying Persons, assume the exclusive right to defend,
compromise or settle such Third-Party Claim, but the Indemnifying Persons will
not be bound by any determination of any Third-Party Claim so defended or any
compromise or settlement effected without their Consent (which may not be
unreasonably withheld, delayed or conditioned).
-38-
(d) Each
party hereby consents to the nonexclusive jurisdiction of any court in which a
proceeding in respect of a Third-Party Claim is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such proceeding or the matters alleged therein and
agree that process may be served on the Indemnifying Persons with respect to
such a claim anywhere in the world; provided that, the Indemnifying Persons
shall have the right to assume the defense according to the terms and conditions
of Section 8.4(b) above.
(e) With
respect to any Third-Party Claim subject to indemnification under this Section
8: (i) both the Indemnified Persons and the Indemnifying Person, as the case may
be, shall keep the other persons fully informed of the status of such
Third-Party Claim and any related proceedings at all stages thereof where such
other person(s) are not represented by separate legal counsel, and (ii) the
parties agree (each at its own expense) to render to each other such assistance
as they may reasonably require of each other and to cooperate in good faith with
each other in order to ensure the proper and adequate defense of any Third-Party
Claim.
(f) With
respect to any Third-Party Claim subject to indemnification under this Section
8, the parties agree to cooperate in such a manner as to preserve in full (to
the extent possible) the confidentiality of all confidential information and the
attorney-client and work-product privileges. In connection therewith, each party
agrees that: (i) it will use reasonable efforts, in respect of any Third-Party
Claim in which it has assumed or participated in the defense, to avoid
production of confidential information (consistent with applicable law and rules
of procedure), and (ii) all communications between any party hereto and counsel
responsible for or participating in the defense of any Third-Party Claim shall,
to the extent possible, be made so as to preserve any applicable attorney-client
or work-product privilege.
8.5 Other
Claims. Subject to the other provisions of this Section 8, a
claim for indemnification for any matter not involving a Third-Party Claim may
be asserted by notice to the party from whom indemnification is sought and shall
be paid promptly after such notice.
8.6 Indemnification
in Case of Strict Liability or Indemnitee Negligence. Subject
to Section 8.4,
THE INDEMNIFICATION PROVISIONS IN THIS SECTION 8 SHALL BE ENFORCEABLE REGARDLESS
OF WHETHER THE LIABILITY IS BASED UPON PAST, PRESENT OR FUTURE ACTS, CLAIMS OR
LEGAL REQUIREMENTS (INCLUDING ANY PAST, PRESENT OR FUTURE ENVIRONMENTAL LAW,
FRAUDULENT TRANSFER ACT, OCCUPATIONAL SAFETY AND HEALTH LAW, SECURITIES OR OTHER
LEGAL REQUIREMENT) AND REGARDLESS OF WHETHER THE INDEMNIFYING PERSONS ALLEGE OR
PROVE THE CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED
PERSON OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE INDEMNIFIED
PERSON.
8.7 Fraud. Notwithstanding
anything to the contrary in this Section 8, no limitation or condition of
liability provided in this Section 8 shall apply to the breach of any of the
representations and warranties contained herein if such representation or
warranty was made fraudulently.
-39-
8.8 Claims
for Indemnification by at-Fault Party. If any Indemnified
Person makes a claim for indemnification against the Indemnifying Persons under
this Section 8, and a court of competent jurisdiction determines such claim was
not an indemnifiable claim under this Agreement, the party making such claim
shall be responsible for the attorneys’ fees and costs of the Indemnifying
Persons in defending such claim for indemnification.
8.9 Tax
Matters Claims. Notwithstanding the indemnification terms set
forth in this Section 8, liability and responsibility among the parties for
certain tax matters set forth below in Section 11 shall be governed by the terms
set forth in Section 11.
SECTION
9
TERMINATION;
SURVIVAL AND EFFECT OF TERMINATION
9.1 Termination. Notwithstanding
anything herein to the contrary, this Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing
Date:
(a) By
mutual written consent of Purchaser, Seller and the Company;
(b) By
Purchaser, if any of the conditions set forth in Sections 7.1 and 7.3 shall have
become reasonably incapable of fulfillment, or if the Closing does not occur, on
or before the Option Expiration Date, through no fault of Purchaser, and such
condition(s) and/or Closing Date deadline shall not have been waived in writing
by Purchaser;
(c) By
either Purchaser or Seller if the other (Purchaser on the one hand or Seller
and/or the Company on the other) has breached this Agreement in any material
respect, but only if the failure to consummate such transaction did not result
from the failure by the party(ies) seeking such termination to fulfill any
condition set forth in Section 7 which is a condition precedent to the
obligation of the other under this Agreement to consummate the transactions
contemplated hereby.
9.2. Survival. If
this Agreement is terminated prior to Closing and the transactions contemplated
hereby are not consummated as described above, this Agreement shall become void
and of no further force and effect, except for the provisions of this
Section 9.2 (relating to termination and survival); Section 10.3 (relating
to the obligations of confidentiality); Section 10.4 (relating to
disclosure); and Section 12 (relating to certain miscellaneous
provisions).
-40-
SECTION
10
COVENANTS
OF SELLER AND THE COMPANY
10.1 Conduct
of Business of the Company. During the period from the
Effective Date and continuing until the earlier of the termination of this
Agreement or the Closing Date, Seller agrees to cause the Company and the
Company agrees (except to the extent expressly contemplated by this Agreement or
as consented to in writing by Purchaser) to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and Taxes when due (subject (i) to good faith
disputes over such debts or Taxes and (ii) to Purchaser’s consent to the
filing of material Returns if applicable), to pay or perform other obligations
when due, and to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Closing Date. Seller
and the Company agree to promptly notify Purchaser of any event or occurrence
not in the ordinary course of the Company’s business, and of any event which
could have a Material Adverse Effect. Without limiting the foregoing,
except as expressly contemplated by this Agreement, the Company shall not and
the Seller shall not allow, cause or permit the Company to do any of the
following, without the prior written consent of Purchaser:
(a) Charter
Documents. Amend the Company’s Certificate of Incorporation or
Bylaws;
(b) Issuance
of Securities. Issue, deliver or sell or authorize or propose
the issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of the Company’s capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating the Company to issue any such shares or
other convertible securities;
(c) Dividends;
Changes in Capital Stock. Declare or pay any dividends on or
make any other distributions (whether in cash, stock or property) in respect of
any of the Company’s capital stock, or split, combine or reclassify any of the
Company’s capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company’s capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of the Company’s capital stock;
(d) Stock
Option Plans, Etc. Adopt or approve any equity incentive plan or
accelerate, amend or change the period of exercisability or vesting of options
or other rights that may have been granted under the Company’s existing stock
plans or authorize cash payments in exchange for any options or other rights
granted under any such plans.
(e) Material
Contracts. Enter into any material contract or commitment, or
violate, amend or otherwise modify or waive any of the terms of any material
contract, other than in the ordinary course of business consistent with past
practice;
(f) Intellectual
Property. Transfer to any person or entity any rights to the
Company’s Intellectual Property other than in the ordinary course of business
consistent with past practice;
(g) Exclusive
Rights. Enter into or
amend any agreements pursuant to which any party is granted exclusive marketing
or other exclusive rights of any type or scope with respect to any of the
Company’s products or technology;
-41-
(h) Dispositions. Sell,
lease, license or otherwise dispose of or encumber any of the Company’s
properties or assets which are material, individually or in the aggregate, to
its business, taken as a whole, except in the ordinary course of
business consistent with past practice;
(i) Indebtedness. Incur
any indebtedness, other than indebtedness pursuant to the Credit Agreement, the
Note and the Note Purchase Agreement, for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(j) Leases. Enter into any
operating lease with total commitments in excess of $10,000;
(k) Payment
of Obligations. Pay, discharge or satisfy in an amount in
excess of $10,000 in the aggregate, any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Company
Financial Statements;
(l) Capital
Expenditures. Make any capital expenditures, capital additions
or capital improvements in excess of $10,000;
(m) Insurance. Materially
reduce the amount of any material insurance coverage provided by existing
insurance policies;
(n) Termination
or Waiver. Terminate or waive any right of substantial
value;
(o) Employee
Benefit Plans; New Hires; Pay Increases. Adopt or amend any
employee benefit or stock purchase, option or other equity incentive plan, or
hire any new employees, pay any special bonus or special remuneration to any
employee or director, or increase the salaries or wage rates of its employees,
except in the ordinary course of business consistent with past
practice;
(p) Severance
Arrangement. Grant any severance or termination pay
(i) to any director or officer or (ii) to any other employee, except
payments made pursuant to standard written agreements outstanding on the date
hereof that have been disclosed to and approved by Purchaser, and except for any
severance or termination pay in the ordinary course of business
consistent with past practice;
(q) Lawsuits. Commence
a lawsuit other than (i) for the routine collection of bills, (ii) in
such cases where the Company’s Board of Directors in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of the Company’s business, provided that Seller and the Company consult
with Purchaser prior to the filing of such a suit, or (iii) for a breach of
this Agreement;
-42-
(r) Acquisitions. Acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the Company’s business, taken as a
whole;
(s) Taxes. Other
than in the ordinary course of business or as contemplated by Section 11 below,
make or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Return or any amendment
to a material Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
Taxes;
(t) Notices.
Fail to give any notices or other information required to be given to the
employees of the Company or to any applicable government authority under the
National Labor Relations Act, the Code, the Consolidated Omnibus Budget
Reconciliation Act, and other applicable law in connection with the transactions
provided for in this Agreement;
(u) Revaluation. Revalue
any of the Company’s assets, including without limitation writing down the value
of inventory or writing off notes or accounts receivable other than in the
ordinary course of business; or
(v) Other. Take, or agree in
writing or otherwise to take, any of the actions described in Sections 10.1(a)
through (u) above, or any action which would make any of the representations or
warranties of the Company or Seller contained in this Agreement untrue or
incorrect or prevent any of them from performing or causing any of them not to
perform their respective covenants hereunder.
10.2 No
Solicitation. The Company and the officers, directors,
employees or other agents of the Company will not, directly or indirectly, (i)
take any action to solicit, initiate or encourage any Takeover Proposal (defined
below) or (ii) engage in negotiations with, or disclose any nonpublic
information relating to the Company to or afford access to the properties, books
or records of the Company to, any person that has advised the Company or the
Seller that it may be considering making, or that has made, a Takeover
Proposal. The Company or Seller, as the case may be, will promptly
notify Purchaser after receipt of any Takeover Proposal or any notice that any
person is considering making a Takeover Proposal or any request for nonpublic
information relating to the Company or for access to the properties, books or
records of the Company by any person that has advised the Company that it may be
considering making, or that has made, a Takeover Proposal, and will keep
Purchaser fully informed of the status and details of any such Takeover Proposal
notice or request. For purposes of this Agreement, “Takeover Proposal”
means any offer or proposal for, or any indication of interest in, a Purchase or
other business combination involving the Company or the acquisition of any
significant equity interest in, or a significant portion of the assets of, the
Company, other than the transactions contemplated by this
Agreement.
-43-
10.3 Access;
Confidentiality. Each of the Company and Seller agree to cause
the Company to make available all books, records, facilities, employees,
non-employee agents (such as patent and regulatory counsel) and information
necessary for Purchaser to evaluate the business, operations, properties and
financial condition of the Company. All parties agree to keep
confidential and shall not make use of any information treated by any other
party hereto as confidential (including, without limitation, the existence of
this Agreement), obtained from the such other party concerning the assets,
properties, business or operations of such other party other than disclosing
such information to legal counsel, consultants, financial advisors, and key
employees where such disclosure is related to the performance of obligations
under this Agreement or the consummation of the transactions contemplated under
this Agreement (all of whom shall be similarly bound by the provisions of this
Section 10.3), except as may be required to be disclosed by applicable
law. Notwithstanding the foregoing, the foregoing confidentiality
restrictions shall not apply to any information which (a) becomes generally
available to the public through no fault of the receiving party or its
employees, agents or representatives; (b) is independently developed by the
receiving party without benefit of the above-described information (and such
independent development is substantiated in writing), or was rightfully received
from another source on a non-confidential basis; (c) when such disclosure
is required by a court or governmental authority or is otherwise required by law
to be disclosed or is necessary to establish rights under this Agreement or any
agreement contemplated hereby (and the disclosing party has taken all reasonable
efforts to limit the scope of such disclosure and to protect the confidential
nature of the information disclosed).
10.4 Public
Announcements. All parties hereto agree that Purchaser will be
responsible for any press release or publication with respect to the existence
of this Agreement or the transactions contemplated hereby, and further agree to
cooperate in good faith with respect to any such press release or public
statement, and, except with respect to the Seller’s obligation to file a Form
8-K with the SEC describing the transactions contemplated hereby (a copy of
which shall be provided to Purchase in advance of such filing), or as may
otherwise be required by law, further agree not to issue any such press release
or public statement without the prior written consent of Purchaser (in the case
of a publication proposed by the Company and/or Seller). Purchaser
agrees to provide any such press release or public statement to the Company and
Seller in advance of publication and to provide the Company and Seller a
reasonable opportunity to review and comment on such publication.
10.5 Cooperation. Each
Party hereto will fully cooperate with the other parties, their counsel and
accountants in connection with any steps required to be taken as part of its
obligations under this Agreement. Each party will use reasonable
efforts to cause all conditions to this Agreement to be satisfied as promptly as
possible and to obtain all consents and approvals necessary for the due and
punctual performance of this Agreement and for the satisfaction of the
conditions hereof. No party will undertake any course of action
inconsistent with this Agreement or which would make any representations,
warranties or agreements made by such party in this Agreement untrue or any
conditions precedent to this Agreement unable to be satisfied at or prior to the
Closing.
10.6 Employees
of the Business. Between the date
of this Agreement and the Closing Date, the Company shall allow Purchaser to
have free access to all employees of the Company for discussions regarding the
operations and performance of the Company.
-44-
10.7 Notification
of Claims. From the date of this Agreement to and including
the Closing Date, the Company and/or Sellers shall promptly notify Purchaser in
writing of the commencement or threat of any claims, litigation or proceedings
against or affecting the Company of which the Company and/or Seller has
knowledge.
10.8 Use of
Office Space and Executive Time. The Company and Seller hereby
acknowledge and agree to allow Purchaser reasonable use of the Company’s office
space and access to the Company’s executive officers for purposes related to
this Agreement from the Effective Date through the Closing
Date. After the Closing Date, the Purchaser hereby acknowledges and
agrees to allow Seller the reasonable use of the Company’s office space and
access to the Company’s executive officers for purposes related to the Seller’s
transition following the Closing, not to exceed six (6) months.
10.9 Further
Acts. After the Closing Date, each party hereto, at the
request of and without any further cost or expense to the other parties will
take any further actions necessary or desirable to carry out the purposes of
this Agreement and to vest in Purchaser full title to all properties, assets and
rights of the Company. In addition, without in any way limiting the
generality of the foregoing, the Company and, to the extent required, Seller
hereby agree to take any and all further actions necessary or desirable to carry
out the assignment to Purchaser of all Intellectual Property of the
Company.
SECTION
11
TAX
MATTERS
11.
Tax
Matters. The following provisions shall govern the allocation
of responsibility as between Purchaser and the Seller with respect to certain
tax matters following the Closing Date.
11.1 Cooperation. Purchaser
and Seller agree to furnish or cause to be furnished to one another, upon
request, as promptly as practicable, such information and assistance relating to
the Company as is reasonably necessary for the filing of all Returns of or with
respect to the Company, the making of any election related to Taxes of or with
respect to the Company, the preparation for any audit by any taxing authority,
and the prosecution or defense of any claim, suit or proceeding relating to any
Return of or with respect to the Company. Purchaser and the Seller
shall cooperate with each other in the conduct of any audit or other proceeding
related to Taxes of or with respect to the Company and each shall execute and
deliver such powers of attorney and other documents as are necessary to carry
out the intent of this Section 11.1. In the event the Seller, on
the one hand, or Purchaser or Company, on the other, receives notice of any
proposed audit, claim, assessment or other dispute concerning an amount of Taxes
with respect to which the other party may incur liability hereunder, the party
so informed shall promptly notify the other party of such matter; provided that
failure to promptly notify shall not reduce the other party's indemnity
obligation hereunder except to the extent such party is actually prejudiced
thereby.
-45-
11.2 Section 338
Election.
(a) The
parties shall cooperate in jointly making an election under
Section 338(h)(10) of the Code with respect to the acquisition of the
Shares pursuant to the transactions contemplated by this
Agreement. In no event shall the Seller make or permit to be made any
other election under Section 338 of the Code with respect to the
acquisition of the Shares pursuant to the transactions contemplated by this
Agreement without the written consent of Purchaser, and in no event shall
Purchaser make or permit to be made an election under Section 338(g) with
respect to any deemed purchase of the Shares without the written consent of the
Seller. Purchaser shall prepare and deliver to the Seller the initial
version of the Form 8023 (the "Initial 8023")
relating to such Section 338(h)(10) election, which version the Seller
shall cause to be signed by the appropriate persons and delivered to Purchaser
at the Closing; provided, however, that if within five (5) days of receiving the
Initial 8023 the Seller submits to Purchaser a written objection (the "Objections Notice")
to the allocation to the Company's assets of the consideration paid and deemed
paid for the Shares as reflected in the Initial 8023, the provisions of
subsection (b) below shall apply. If no Objections Notice is
submitted to Purchaser within such five (5) day period, the allocation reflected
in the Initial 8023 shall be binding on the parties, absent such adjustments as
may be based on the final determination of the Company’s current assets at the
time of Closing (the “Closing Current
Assets”), changes in Purchaser’s financial accounting for the
transaction, or an agreement among Purchaser and the Seller.
(b) Following
receipt by Purchaser of any Objections Notice, Purchaser and the Seller shall
negotiate in good faith to resolve the objections set forth
therein. If the parties fail to agree within fifteen (15) days after
the delivery of the Objections Notice, then the disputed items included in the
Objections Notice shall be resolved by a mutually designated accounting firm
(the “Accounting
Referee”), whose determination shall be final and binding on all parties
hereto. The Accounting Referee shall resolve the dispute within
thirty (30) days after the item has been referred to it. Seller shall
bear one-half of any costs incurred in connection with the retention of the
Accounting Referee in accordance with this Section 11.2(b), and Purchaser
shall bear the other half. Purchaser shall not file the Form 8023
until the expiration of the five (5)-day period referred to in subsection (a)
above or, if an Objections Notice has been received within such period, until
the issues in the Objections Notice have been resolved by the parties or by the
Accounting Referee; provided, however, that if for any reason the issues are not
resolved prior to the due date for filing such Form 8023, Purchaser shall be
entitled to file (and the Seller shall cooperate in filing) the Form 8023
based on the Initial 8023 (with such modifications thereto based on the final
determination of Closing Current Assets, changes in Purchaser's financial
accounting for the transaction, any partial determinations by the Accounting
Referee, and any changes to which the parties have agreed), and in the event the
form is filed prior to such resolution the parties shall attempt to amend such
Form 8023 as necessary to reflect such final resolution.
(c) No
party to this Agreement shall be liable to any other party in the event of any
inaccuracy in the allocation to the Company's assets of the consideration paid
and deemed paid for the Shares.
-46-
(d) The
Parties acknowledge that if Purchaser or Seller request that an election be made
under Section 338(h)(10) of the Code, such election shall be made no later than
the 15th day of
the 9th month
of the month beginning after the Effective Date.
11.3 Tax
Return Preparation; Audits.
(a) Seller
shall include the income of the Company (including any deferred items triggered
into income by Treas. Reg. Section 1.1502-13 and any excess loss account taken
into income under Treas. Reg. Section 1.1502-19) on Seller’s consolidated
federal income tax Return for all periods through the end of the Closing Date
and pay any federal income Tax attributable such income. For all
taxable periods ending on or before the Closing Date, the Seller shall cause the
Company to join in Seller’s consolidated federal income tax return and, in any
jurisdiction requiring separate reporting from the Seller, to file separate
company state and local income tax returns. All such Returns shall be
prepared and filed in a manner consistent with prior practice, except as
required by a change in applicable law. Purchaser shall have the
right to review and comment on any such Return prepared by
Seller. Purchaser shall cause the Company to furnish information to
the Seller as reasonably requested to allow Seller to satisfy its obligations
under this Section 11.3(a) in accordance with past practice or
custom. The Company and Purchaser shall consult and cooperate with
the Seller as to any elections to be made on the returns of the Company for
periods ending on or before the Closing Date. The Seller shall be
bound by and shall not take any position inconsistent with the Returns to be
prepared by Seller that Purchaser has reviewed pursuant to this
Section 11.3. No party may amend a Return filed in accordance
with this Agreement by any party with respect to the Company for a taxable
period beginning prior to the Closing Date without the consent of the other
parties, not to be unreasonably withheld.
(b) Seller
shall allow the Company and its counsel to participate in any audit of Sellers
consolidated federal income tax Return to the extent that such returns relate to
the Company. Sellers shall not settle any audit in a manner that
would adversely affect the Company after the Closing Date without the advanced
written consent of Purchaser, which consent shall not be unreasonably
withheld.
11.4 Section 338(h)(10)
Election Allocation.
(a) If
the Section 338(h)(10) election contemplated in Section 11.2 hereof is jointly
made by Purchaser and Seller pursuant to Section 11.2, and in
accordance with Sections 11.1, then within a reasonable period following such
request Purchaser shall prepare and deliver to Seller a statement (an "Allocation
Statement") allocating the consideration paid and deemed paid for the
Shares through the date thereof, as determined by Purchaser consistent with
applicable tax reporting principles, among the assets of the Company, in such
amounts reasonably determined by Purchaser to be consistent with
Section 338 of the Code and the regulations (including, to the extent
applicable, proposed regulations) thereunder. The Allocation
Statement shall be amended by Purchaser from time to time as necessary to
reflect adjustments to the consideration paid or deemed paid for the
Shares.
(b) The
Seller shall have a period of twenty (20) business days after the delivery of
the Allocation Statement (including any amended Allocation Statement) to present
in writing to Purchaser notice of any objections Seller may have to the
allocations set forth therein (a "Seller Objections Notice").
Unless the Seller timely objects, such Allocation Statement shall be binding on
all parties hereto without further adjustment, absent manifest
error.
-47-
(c) If
the Seller shall raise any objections within the 20-business day period,
Purchaser and the Seller shall negotiate in good faith and use their best
efforts to resolve such dispute. If the parties fail to agree within
fifteen (15) days after the delivery of the Seller Objections Notice, then the
disputed items shall be resolved by the Accounting Referee, whose determination
shall be final and binding on all parties hereto. The Accounting
Referee shall resolve the dispute within thirty (30) days after the item has
been referred to it. Seller shall bear one-half of any costs incurred
in connection with the need to retain the services of an Accounting Referee in
accordance with this Section 11.2(b) and Purchaser shall bear the other
one-half.
11.5 Seller’s
Responsibility for Certain Taxes.
(a) Except
to the extent of any and all Taxes accrued on the Financial Statements, the
Seller shall jointly and severally indemnify, defend and hold harmless Purchaser
(and, after the Closing, Company) from and against (i) all Taxes of the
Company, and all Taxes with respect to which the Company is or could be liable,
that are due with respect to periods ending on or prior to the Closing Date,
(ii) all such Taxes that are due with respect to periods ("Straddle Periods")
that include but do not end on the Closing Date to the extent
attributable to the portion of the Straddle Period (the "Pre-Closing Straddle
Period") ending at the close of business on the Closing Date (determined
as provided below), and all Taxes of the Company arising from the transactions
contemplated by this Agreement (including the Section 338(h)(10) election, if
made pursuant to Section 11.2 above), (iii) any failure, prior to Closing,
to comply with applicable laws or agreements (including this Agreement)
pertaining to Taxes, (iv) any breach of a representation in
Section 4.15, (v) any Taxes incurred by Purchaser or its
affiliates as a result of the receipt of indemnification payments under this
Agreement; and (vi) all losses incurred in connection with amounts
described in clauses (i) through (v) of this
sentence. Notwithstanding the foregoing, the Seller shall be entitled
to cause the Company to pay prior to the Closing Date any Tax incurred by the
Company to the extent that such Tax was incurred by the Company in the ordinary
course of its business, and payment of such Tax at such time is consistent with
the historic practice of the Company.
(b) Amounts
payable by the Seller pursuant to Section 11.5(a) shall be paid by the
Seller when due, and in no event later than five (5) days following request
therefor from Purchaser.
(c) Taxes
for any Straddle Period shall be attributable to the Pre-Closing Straddle Period
(and borne by the Seller as provided above) to the extent that such Taxes would
have been incurred during the Straddle Period if the applicable taxable period
ended at the close of business on the Closing Date (except that Taxes imposed on
a basis other than net or gross income, receipts, sales, payroll or the like
shall be prorated on a daily basis).
11.6 Treatment
of Indemnity Payments. It is the intent of the Parties that
amounts paid under Section 8 or this Section 11 shall represent an adjustment to
the Purchase Price and the parties will report such payments consistent with
such intent.
-48-
SECTION
12
MISCELLANEOUS
12.1 Survival
of Warranties. The representations, warranties and agreements
set forth in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Closing and (except to the extent that survival is
necessary to effectuate the intent of such provisions) shall terminate on the
first anniversary of the Closing Date; provided that representations, warranties
and covenants relating to Taxes (Sections 4.15 and 11) and Employee Benefit
Plans (Section 4.16) shall survive until 30 days after expiration of all
applicable statutes of limitations relating to such matters.
12.2 Notices. Any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or forty-eight (48) hours
after being deposited in the regular mail as certified or registered mail
(airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party’s address or facsimile
number as set forth below, or as subsequently modified by written
notice,
(a) if
to Purchaser, to:
Fortify Infrastructure Services,
Inc.
2340A Walsh Avenue
Santa Clara,
CA 95051
Attention: Raj Velagapudi,
CEO and President
Facsimile No.: (408)
416-3237
Telephone No.: (408)
850-3119
with a copy to:
Royse Law Firm, PC
2600 El Camino Real, Suite
110
Palo Alto,
CA 94306
Attention: Laurie A. Allen,
Esq.
Facsimile No.: (650)
813-9777
Telephone No.: (659)
813-9700
-49-
(b) if
to Seller or the Company, to:
NetFabric
Holdings, Inc./Seller
UCA
Services, Inc./Company
299 Cherry Hill Road
Parsippany, NJ 07054
Attention: Fahad Syed,
CEO
Facsimile No.: (973)
384-9061
Telephone No.: (973)
537-0077
with a copy to:
K&L Gates LLP
599
Lexington Avenue
New York,
NY 10022
Attention: Robert S. Matlin,
Esq.
Facsimile No.: (212)
536-4066
Telephone No.: (212)
536-3901
12.3 Interpretation. When
a reference is made in this Agreement to Exhibits, such reference shall be to an
Exhibit to this Agreement unless otherwise indicated. The words
“include,”
“includes” and
“including”
when used herein shall be deemed in each case to be followed by the words “without
limitation.” The phrase “made available” in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available. The phrases “the date of this
Agreement”, “the date hereof,” and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the Effective Date. Headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.4 Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one
instrument.
12.5 Entire
Agreement; Nonassignability; Parties in Interest. This Agreement and the
documents referred to herein are the product of all parties hereto and thereto,
and constitute the entire agreement between such parties pertaining to the
subject matter hereof and thereof, and merge all prior negotiations and drafts
of the parties with regard to the transactions contemplated herein and
therein. Any and all other written or oral agreements existing
between the parties hereto regarding such transactions: (a) are expressly
canceled except for
the provisions of the Confidentiality Agreement, which shall continue
in full force and effect, and shall survive any termination of this Agreement or
the Closing, in accordance with its terms; (b) are not intended to confer
upon any other person any rights or remedies hereunder; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
-50-
12.6 Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, the parties agree to renegotiate such provision in good faith,
in order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable. In the
event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
12.7 Remedies
Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
12.8 Governing
Law. This Agreement and all acts and transactions pursuant hereto and the
rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of law.
12.9 Rules of
Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
12.10 Waiver of
Restrictions. The Company hereby consents to the transfers of
the Shares that are the subject of this Agreement and waives any restrictions on
transfer applicable to such Shares with respect to the transfers contemplated by
this Agreement.
12.11 Amendments
and Waivers. Any term of this
Agreement may be amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected
in accordance with this Section 12.11 shall be binding upon the parties and
their respective successors and assigns.
[Signature
Page Follows]
-51-
The
Parties have duly executed this Agreement as of the Effective Date.
| FORTIFY INFRASTRUCTURE | NETFABRIC HOLDINGS, INC. | |||
| SERVICES, INC. | ||||
|
/s/
|
|
/s/
|
|
|
| Mr. Rajkumar Velagapudi | Mr. Fahad Syed | |||
| President and Chief Executive Officer | Chief Executive Officer | |||
| NETFABRIC TECHNOLOGIES, INC. | ||||
|
|
D/B/A UCA SERVICES, INC.. | |||
|
/s/
|
|
|||
|
|
Mr.
Fahad Syed
|
|||
|
|
Chief
Executive
Officer
|
|||
SIGNATURE
PAGE TO OPTION AND PURCHASE AGREEMENT
SCHEDULE
1
EMPLOYEES
SCHEDULE
1B
EMPLOYEES
SCHEDULE
2
COMPANY
DISCLOSURE SCHEDULE
EXHIBIT
A
FORM OF UNSECURED PROMISSORY
NOTE
EXHIBIT
B-1
FORM
OF EMPLOYMENT AND NONCOMPETITION AGREEMENT
EXHIBIT
B-2
FORM
OF NONCOMPETITION AGREEMENT
EXHIBIT
C
LEGAL
OPINION
EXHIBIT
D
IMMIGRATION
OPINION
EXHIBIT
E
FORM
OF INCENTIVE COMPENSATION PLAN